When a company BUYS BACK STOCK and the stock is RETIRED or canceled what happens to the other stock holders?

Question

Okay so a company buys back stock it says they can cancel that stock out or retire it. My question is would that reduce the book value of the company? Since each stock holds a certain amount of assets or cook value does that just disappear with the canceled shares or does it go to the other stockholders who are currently invested in the company? In other words as a small example we have a company with 100 shares each share has 10 dollars of book value. The company buys back 50 shares and then retires them so they don't exist, now there are only 50 shares so wouldn't their book value double to 20 dollars a share or would that book value just disappear and the stockholders would still only have 10 dollars of book value per share?

http://www.investopedia.com/ask/answers/05/retiredstock.asp

Answer 1

The market price of the shares in clean stock buyback increases the price of the stock by the arithmetic and there is additional momentum effect on the stock price.  Of course, the physical assets of the company remain intact.

Answer 2

book value wouldn't automatically double, because assets would decrease by the amount of cash needed to buy back those 50 shares, but future earnings per share would increase, and with public stock, with less shares on the market, demand would drive up stock prices and the percentage of ownership of each remaining stockholder increases (doubles in your example)

Answer 3

Their book value would not double, however when the company posts earnings, they will be fewer shares to divided the earnings per share or EPS. The result can increase share value.

"A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings).

Stock repurchases are often used as a tax-efficient method to put cash into shareholders' hands, rather than pay dividends. Sometimes, companies do this when they feel that their stock is undervalued on the open market."

http://en.wikipedia.org/wiki/Treasury_st...

Answer 4

The value of the outstanding shares goes up.  But the overall value of the company stays the same.  In your example, if 1/2 of the shares were repurchased and retired, yes, I would expect the value of the rest of the outstanding shares to approximately double to reflect the lower amount of shares available.  To a certain extent, its a shell game, really.

Answer 5

The shares bought back by the company still exist with the company. Only instead of a shareholder owning them, the company owns them.

The value of other shares in the market have a tendency of going up slightly. This is because the company signals that they are performing well enough to generate enough free cash flow to buy back the shares. However, this growth in value does not co-relate with the number of shares bought back..

Answer 6

If a company buys back 50 shares of stock, then the dollar value of the company's cash decreases by that amount, but there are fewer shares outstanding, so it should be a wash. The value of the remaining oustanding shares should stay the same.

The controlling interests of the remaining shares may change however.

Answer 7

In your example, it would be as you said.  The 50 shares of stock in your company would have a book value of $20 instead of $10 per share. The book value of the company would remain static.