Share buyback

In a buyback, a company purchases its own shares, usually gradually on the stock market over months, or sometimes through a tender offer to all shareholders at a set price. The repurchased shares are either cancelled or held in treasury. With fewer shares outstanding, each remaining share represents a slightly larger slice of the company's profits and assets, so earnings per share rise even if total profits do not. Buybacks and dividends are the two main ways companies return surplus cash to shareholders, and in many markets a buyback programme needs shareholder approval.

Supporters argue buybacks are a flexible way to return cash: unlike a dividend, they create no expectation of repeat payments, and in some countries they are taxed more lightly for shareholders because any gain is taxed only when shares are sold. Critics point out that a buyback creates value only if the shares are bought for less than they are worth; buying at inflated prices destroys value for the shareholders who remain. Buybacks can also flatter per-share measures to which executive pay is linked, and are sometimes funded with debt. How much a buyback helps depends on the price paid.