I own some stock in Apple. Yesterday they announced they will be doing a stock buyback. Will I be compelled to sell the stock back to them? Will I receive some kind of offer from Apple? Will nothing happen?
I’ve searched for this and can only find articles about why companies do stock buybacks, not from the perspective of the shareholder
In: Economics
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With a publicly traded stock the company will generally be buying stock on the public markets. All the announcement really does is sets the money aside and puts into motion the process for them to buy the stock.
Because Apple is publicly traded they can use the “stock market” to handle the actual transaction. If a private company did a stock buyback then they would need to get in touch with shareholders in order to determine who is interest in selling and so on just like you are asking. But for a public company they just buy the stock on the open market from whomever wants to sell it.
You won’t be forced to sell. The shares you own will now own more than they did before without you spending any more money.
If apple had 100 shares and you owed 10, you would own 10% of apple.
If apple bought back 20 shares, you would still own 10 shares but total shares would only be 80. So you would own 10/80 = 12.5% instead of 10%
This matters because it means that you get 12.5% of all future earnings instead of only 10%
You will not be compelled to sell your Apple stock back to the company. A stock buyback is when a company buys back its own shares on the open market, reducing the number of outstanding shares. This can increase the value of the remaining shares.
As a shareholder, you will not receive a direct offer from Apple to sell your shares back to them. However, you may see the price of your Apple stock increase as a result of the buyback. You can choose to sell your shares at any time, either to Apple if they are buying on the open market or to another investor.
If a company does a stock buyback, typically they just buy on the open market over a period of time. They typically just announce the amount and timeframe so markets know what’s going on. It’s different than if a company goes private and you’re compelled to sell. In the case of a buyback, if you want to hold your shares you can.
Stock buybacks play the same role as dividends: returning some value stored in the company back to investors.
Dividends do this directly by paying a small sum to the holder of each share. The problem is this money is taxed as it’s received.
Enter stock buybacks: the company goes to the open market and uses its own cash to buy up stock and (usually) retire the stock. Now there is less shares representing the same company (minus the amount used for the buybacks), so each share should be worth more. This returns value to those shareholders who are still holding, but without an immediate tax consequence.
So for you, all that happens is that the price will likely got up a bit.
There is one exception case: in the case of a takeover or the company going private, if the board (or shareholders if the charter requires it) approve a purchase of the company by other entities, then the shareholders can be forced to sell their shares. This is more common with smaller companies, and for a company the size of Apple would effectively be impossible as there are no entities in the world that could afford to buy 100% of Apple other than maybe a handful of governments (and even then it’s questionable).
Everyone already answered but: you do nothing. The company buys stock from people who don’t want it anymore. Because they’re out there buying stock, it’s creating excess demand for Apple stock, and prices go up (or could go up).
Companies may also look to buy when their stock drops to certain levels, say if Apple drops to 170 a share or 165 a share, so it sort of sets up a floor where Apple is supporting the price at that price point. If it’s hovering at 190 they may not buy much that day or week, waiting to buy back when prices dip.
Everyone at school knows I really want pikachu pokemon cards and will pay $1 for every one = the going rate of a pikachu card is $1.
Bart has 5 pikachu cards but wants to sell them for $2 each so holds in hopes the price will go up.
Principal Skinner wants to crack down on campus frivolities and decides the best way is to just buy everyone’s cards so they won’t have them, and since Scott is demanding $2, Skinner buy all 5 for $2 each = the going rate of a pikachu card is now $2 (the price has increased)
All good stuff here already but this is generally a good thing for investors. The company has excess cash reserves. A stack buy back can increase the value of the stock.
This can also be a bad sign as the company doesn’t know what to do with their cash reserves such as more investment in R&D. Apple has so much cash in hand that, to their management and board, the best decision was to pay back their shareholders.
Last, Apple isn’t doing anything out of the ordinary. This happens all the time. It’s the scale that is newsworthy.
When Apple buys back shares, those shares are absorbed back into the company. That means the shares you own are now a larger proportion of the total number of shares, so the price goes up.
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