Company buying own shares

butterfly72

I wondered if anyone could exlpain to me the following from the Telegraph:

'GlaxoSmithKline confirmed that it would continue its share buyback programme in 2008, with plans to purchase up to £6bn of its own stock during the year'.

Why would a company buy back their shares? Just for interest. Thanks.

tradetime

They do it for lots of reasons, tax purposes, it instils shareholder confidence, reduces the float size and thus increases or supports the value of remaining shares in the float, It boosts statistics like EPS and PE, and it can be done as a protection against hostile takeover. I'm sure there are others but that's some to be going on with.

lr1277

Its one way of returning excess profit back to shareholders. The profit is used to buy back the shares.
As the share price is determined by the notional value of the company divided by the number of shares in circulation, by decreasing the number of shares, this may push up the share price.

However not sure I understand as that which makes up the company valuation was used for the share buy back. But anyways, it is supposed to increase the share price.

Anyways it means investors receive a smaller dividend. This process favours the investor looking for growth as opposed to those looking for an income.

Excess cash can also be used for increasing the dividend, making a one off payment to the shareholders, buying stuff e.g. smaller companies (which may or may not integrate well with the parent company), putting into R&D etc.