What Is a Stock Buyback?

Stock repurchase refers to the use of cash by listed companies to buy back from the stock market a certain amount of shares issued by the company. The company may cancel the repurchased shares after the stock repurchase is completed. However, in the vast majority of cases, the company retains the repurchased shares as "treasury shares", no longer belongs to the issued shares, and does not participate in the calculation and distribution of earnings per share. Treasury shares can be used for other purposes in the future, such as issuing convertible bonds, employee benefit plans, etc., or selling them when funds are needed.

Stock repurchase

Prevent mergers and acquisitions

Take the United States as an example. After entering the 1980s, especially since 1984, hostile mergers and acquisitions have prevailed.

From November 23, 2018, the "Detailed Implementation Rules for Share Repurchase of Listed Companies on the Shanghai Stock Exchange (Draft for Solicitation of Comments)" will be open to the market for comments. The "Repurchase Rules" focuses on solving the key "pain points" and "difficulties" in the implementation of share repurchase by listed companies, and giving better play to the institutional functions of share repurchase ^[2]

On-site public takeover and off-site agreement takeover

According to the location of share repurchase, it can be divided into two types: on -market public acquisition and off-site agreement acquisition .

On- market public acquisition refers to a listed company equating itself to any potential investor and entrusting

1. Implications for shareholders

After stock repurchase

China's "Company Law" stipulates that a company can repurchase its shares only in the following six situations:

1. Reduce the company's registered capital;

2. Merger with other companies holding shares of the company;

3. Reward shares to employees of the company;

4. Shareholders disagreed with the merger and division resolutions made at the shareholders' meeting and asked the company to purchase its shares.

5. Use of shares for conversion of corporate bonds issued by listed companies that can be converted into stocks;

6. Listed companies are necessary to maintain company value and shareholders' rights.

Release unit and time, etc.

"Supplementary Provisions on Listed Companies Repurchasing Shares by Concentrated Auction Transactions (Draft for Soliciting Opinions)"

China Securities Regulatory Commission

September 21, 2008

In order to meet the needs of the development of the capital market, the supplementary regulations on listed companies' behavior of repurchasing shares through centralized bidding transactions in the "Administrative Measures for the Repurchase of Public Shares by Listed Companies (Trial)" (Zheng Jian Fa [2005] No. 51) are as follows :

Required Essays

I. Listed companies repurchasing shares through centralized bidding transactions (hereinafter referred to as listed companies repurchasing shares) shall be resolved by the board of directors in accordance with law and submitted to the shareholders' meeting for approval.

The independent directors of a listed company shall express their independent opinions on the issue of share repurchase on the basis of fully understanding the relevant information.

2. A listed company shall register the names, number and proportion of shares of the top 10 shareholders on the trading day immediately before the board of directors announcement of the repurchase of shares and the equity registration date of the shareholders meeting 3 days before the shareholders meeting. Published on the stock exchange website.

3. The resolution made by the shareholders' general meeting of the listed company on the repurchase of shares shall include the following matters:

(1) the price range of the repurchased shares;

(2) the type, quantity and proportion of the shares to be repurchased;

(3) the total amount of funds to be used for repurchase and the source of funds;

(4) the time limit for repurchasing shares;

(5) the validity period of the resolution;

(6) Specific authorization for the board of directors to handle the repurchase of shares;

(7) Other related matters.

4. The decision of the shareholders' general meeting of a listed company to repurchase shares must be approved by more than two-thirds of the voting rights held by shareholders present at the meeting.

V. The listed company shall announce the resolution on the next working day after the shareholders' general meeting has made a decision to repurchase shares, notify creditors in accordance with the law, and submit relevant materials.

Stock repurchases are used more in high-tech companies such as the IT industry. Companies such as Shanghai Belling (600171) and Galaxy Technology (000806) have adopted virtual stock incentive mechanisms.

The impact of stock repurchase on listed companies is mainly reflected in the following aspects:

(1) Stock repurchase requires a large amount of funds to pay for repurchase costs, which can easily lead to capital shortage, reduce asset liquidity, and affect the subsequent development of the company.

(2) Stock repurchase is tantamount to a shareholder's withdrawal and a reduction in the company's capital, which not only weakens the protection of the interests of creditors to a certain extent, but also ignores the company's long-term development and harms the company's fundamental interests.

(3) Stock repurchase can easily lead the company to manipulate the stock price.

According to rumors, the Securities Regulatory Commission intends to allow securities dealers to carry out stock repurchase business, and the three securities firms may become the first batch of pilots. This column believes that this is a double-edged sword for investors. Although it can obtain short-term financing, it may amplify risks.

Stock repurchase business, for a simple example, suppose investor Zhang San holds 10,000 shares of PetroChina (601857) stocks at the time, the market price was 9.8 yuan, Zhang San needs temporary money at this time, but Zhang San is optimistic about the future market of PetroChina , Unwilling to sell shares, at this time Zhang San can sell PetroChina stocks to the brokerage firm at the price of 7.8 yuan, and agreed to buy back one month later at the price of 8 yuan, the brokerage firm made a difference of 0.2 yuan, Zhang San With temporary working capital, everyone is suitable.

It should be said that the stock repurchase business still has a certain value, but it is also related to

When a company buys back its own stock, assets flow to shareholders, and from a creditor's perspective, stock buybacks are similar to cash dividends.

First, the distribution of dividends is based on the shareholding ratio, and share repurchases are not necessarily performed on a proportional basis. Correspondingly, in the distribution of dividends, all shareholders are treated equally, and share repurchases are not necessarily.

Second, during the distribution of dividends, the shareholders did not waive the remaining claims on the future company, and in the case of repurchase, the shareholders gave up some of their shares in the company's owner's equity.

Third, dividend distribution often includes a small portion of a company's property, and stock repurchases may involve significant property of the company.

Fourth, dividend distribution generally requires continuity and stability. If a company suddenly interrupts dividend distribution, it is often considered to be a problem with the company's operations, and stock repurchase is a special dividend policy that does not create a future for the company. Distributing pressure. ^[4]