15-1 Buybacks 1

15-1 Buybacks 1 - Stock Buybacks have Fans as well as Foes...

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Stock Buybacks have Fans as well as Foes – Repurchasing Shares can raise Prices, but Some call it a PR Move Source: Austin American-Statesman, 1 August 2004 Staktek Holdings Inc. went public less than six months ago, a move that earned it at least $130 mil- lion. On Wednesday, with its shares trading more than 60 percent off the initial $13 price, the Austin- based company said it would give some of that money back. Staktek said it will repurchase up to $15 million of its outstanding shares. It's just one of many companies -- from Austin-based SigmaTel Inc. to national names such as Comcast Corp. and J.P. Morgan Chase and Co. -- that have announced major repurchase plans in the past two weeks. The companies say buybacks are a way to boost the value of their undervalued shares. But others question the utility of share repurchases, characterizing them as short-term PR moves rather than long-term strate- gies that protect shareholders. "Companies often do it the next two or three quarters, then reduce the amount or eliminate the buyback al- together as their cash situation dictates," said Jeremy Siegel, a finance professor at the University of Penn- sylvania's Wharton School of Business. Siegel prefers dividends or the dividend/buyback combination Microsoft Corp. announced July 20. The software giant said it would use both channels to re- turn $75 billion of its cash hoard to shareholders over the next four years. For smaller, newer public companies such as Staktek, the questions about a stock buyback are more pointed than they are for Microsoft. At first blush, it wouldn't make sense -- a company that just raised cash by go- ing public, now turning around and giving it back? "Our shares are trading substantially below the IPO
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This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

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15-1 Buybacks 1 - Stock Buybacks have Fans as well as Foes...

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