This study aims to find the impact of repurchase of stocks by a company. We have chosen IBMas an example of it. In May, IBM repurchased $12.5 billion of its common stock from threebanks through accelerated share repurchase agreements which concluded at the end of February 2008.
We are following a structured way to analyse the impact of repurchase beginning with thereasons to repurchase. The steps followed have been listed below:1)
Selection of live example of a company which has done this exercise in the past.2)
Highlighting the need for repurchase by this company3)
Major reasons of repurchase4)
The financial condition of the company before the repurchase5)
The financial condition of the company after the repurchase6)
1.B. Reasons for repurchase
When a company feels that the exchange has discounted the price of its share by alarger than expected value, the company goes for a repurchase.2)
Improved financial ratios
namely ROA, ROE, EPS and P/E ratio. However it’s the by
product of the first motive.3)
To avoid dilution4)
They are subjected to lower capital gains tax rate.5)
To integrate all sister companies less than one umbrella
as is the reported case of iGATE.