Share repurchase

Share repurchase (or stock buyback) is the re-acquisition by a company of its own stock. It represents a more flexible way (relative to dividends) of returning money to shareholders.

In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance.

Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction. More than 95% of the buyback programs worldwide are through an open-market method, whereby the company announces the buyback program, and then repurchases shares in the open market (stock exchange). In the late 20th and early 21st centuries, there was a sharp rise in the volume of share repurchases in the US: US$5 billion in 1980 rose to US$349 billion in 2005. Large share repurchases started later in Europe than in the US, but are nowadays a common practice around the world.