Evaluation on Share Repurchase Proposal of Blaine Kitchenware Inc.

Hampton decided to buy back their stock because they were confronting many dissident stockholders at the moment. Besides, the company had always maintained a conservative financial policy. Having to spend 3 million on the repurchase affected their cash balance, as well as their payable accounts, that in turn it increases creditors and suppliers claims against the company.

The idea of repurchasing shares was no stranger to Bill Marriott by January 1980. Almost five million shares of common stock had been repurchased on the open market by Marriott Corporation during 1979 at a total cost of $74 million and an average price of $15.16 in the belief that they were undervalued—a belief that still was not fully reflected in the market price. At $19 5/8, the stock was selling at only six times cash flow per share; and its price/earnings ratio of nine was a far cry from historical multiples as high as fifty times as recently as 1973. Its low price seemed to offer once again an obvious opportunity to benefit shareholders. However,

From the perspective of stockholders, debt finance may be more attractive compared with other financial approaches. The reasons are as follows. Firstly, it may ensurestockholders’ ownership unchanged (Mooij, 2012). If the board of the company intend to adopt the approach of equity finance such as issuing new rights, there is a possibility that the former stockholders may not be able to purchase all new issuing rights and then lead to dilution of control which they do not expect. Secondly, debt finance is a relatively cost-effective method as there is tax advantage of debt.If a firm only has equity finance, an extra tax then needed to pay because dividends which come from profits are income for investors which

We can say that the dividend changes have been so much less volatile than earnings changes because: 1) management believed that shareholders prefer a steady progression in dividends 2) managers are reluctant to make dividend changes that might have to be reversed. They are particularly worried about a dividend increase, which would affect the stock price. Broadhead needed money to invest in FPL; therefore, he needed to make the stock price increase in order to

Following 1987 crash, Interco’s board authorized repurchase of 5 million shares (by end of fiscal 1988 over 4 million shares had been repurchased – over 10% of the equity)

In recent history, leading companies have adopted a regular buyback strategy in order to return all excess cash to shareholders. By definition, stock repurchasing allows companies to reinvest in themselve by reducing the number of outstanding shares on the market. Typically, buybacks are carried out on the open market, similarly to how investors purchase stocks. While there has been a clear shift in wealth distribution from dividends to stock repurchasing, this doesn’t mean a company cannot pursue both. Apple has a robust capital return

The second strategy involves a 40% dividend payout, approximately $0.80 per share annually. Many within the company argue that investors would see this as a sign that the company was on sure footing again as its dividend payout would be comparable to that of other firms in the industrial equipment industry. However, this would leave a question in the minds of the growth oriented investors who would be looking for stock price appreciation. Finally, the company would have to be using debt to pay for this dividend for some time to come given the best of scenarios. For a company who so dislikes the use of debt this would be controversial.

The recent attack on September 11, 2001 has caused the market to see some low results. Since the stock price has fallen from $30 to $22.15, this would be a good opportunity for EASI to repurchase some stock to help increase the value to the shareholders. Repurchasing some stock at this point will signal to shareholders that management feels strongly about the restructuring of the company. This, also, will give the shareholders the confidence to remain with the company.

In April 2015, the capital return program was raised to $200 Billion through March 2017. The authorization made to repurchase shares rose to $140 Billion, in which the quarterly dividends increased to $0.52 per common share from the previous amount of $0.47. The amount of dividends paid to shareholders totaled $11,031 Million. Also, the quarterly dividend payout is expected to increase by 11% within the coming years. A payout ratio of 25.26% indicates the company’s ability to pay its shareholders. An increase in the percentage would mean there is less of the net income being reinvested by the company. Since, the return program is to be completed by March 2017 all dividend equivalents must be repaid along with returning withheld taxes. The Board of Directors agreed to enter an accelerated share repurchase agreement, in which $6 Billion of the common stock could be repurchased. Although, the number of outstanding shares have been reduced the earnings per share increases as well as the market value of remaining shares. On September 26, 2015, it had been declared that of the $140 Billion only $104 Billion had been used by the company.

Repurchase of stock can be a way to use firm’s excess debt capacity. By doing so, firm can lower the cost of equity financing. If debt financing is more flexible and cheap, replace equity financing with debt financing is a good way to lower the weighted cost of capital. In this sense, such action is a financing issue because it controls the cost of financing.

Buy back means that a company can repurchase its own shares or any other specified securities. Section 77A, 77AA and 77B of Companies (Amendment) Act, 1999 regulate the buyback of shares. When the company is overcapitalized then the company proceeds to buy back its shares in order to reduce its capital and distribute the surplus among shareholders. Generally whenever a buyback is done it’s seen that the share prices moves in an upward direction or in other words share price rises because the customer’s trust or confidence over the company increases. There can be cases when buy back can lead to fall in share price. This generally happens when there is a difference between the buyback price and what was expected by the investors.

Dividend payout ratio refers to the amount of earnings of a particular company that seeks to issue out to its investors in the form of cash dividends. Dividends payouts may vary depending on the industry and a low dividend payout may signify a good thing or a bad thing. Investors who may opt for a low dividend payout may mean that they are willing to allow the company plough back its annual earnings for the purpose of capital growth of the company they have invested in as well as capital gains incur lower tax rates. It may show that the investors are willing to forgo part of their dividends to generate greater returns which lead to higher stock market prices (Sedzro 2010). On the bad side, it may mean that the company does not have enough capital to pay dividends to its investors. The relationship between dividend payout and cash flow is that a company that pays higher dividends may seem to be having a greater cash flow to meet its daily operational needs but a company paying low dividend payout may seem to be having a low cash flow hence, the company needs to retain the dividends for operational needs. This therefore, translates to an increase in cash flow and a decrease in dividend payout when using low dividend payout (Sedzro 2010).

Journal of Financial COMMON Economics 9 (1981) 139-183. STOCK REPURCHASES North-Holland Publishing Company AND MARKET SIGNALLING An Empirical Study* Theo VERMAELEN lJ/niversity of British Columbia, Vancouver, BC, Canada V6T 2 W5 Received January 1980, final version received January 1981 This paper examines the pricing behavior of securities of firms which repurchase their own shares.

Vermaelen (1981) inspected 131 purchase back delicate offers and credited the positive offer market response to data indicating impact whereby the administration embraces purchase once more to persuade the shareholders that the shares of the organization are undervalued. Grullon and Ikenberry et al (1995 and 2000) have underpinned this contention. Wang & Johnson (2005) likewise embraced the thought that impart buyback is an administration device to pass on data to the business around a guaranteeing organization future.

Symbolically, P = [m (D+E/3)]  Where P is the market price,  M is the multiplier,  D is dividend per share,  E is Earnings per share.  Drawbacks  of  the  Traditional  Approach:  As  per  this  approach,  there  is  a  direct  relationship  between P/E ratios and dividend pay­out ratio. High dividend pay­out ratio will increase the P/E ratio  and low dividend pay­out ratio will decrease the P/E ratio. This may not always be true. A company’s  share prices may rise in spite of low dividends due to other factors.  15.3 Dividend Relevance Model  Under this section we examine two theories – Walter Model and Gordon Model.  15.3.1 Walter Model  Prof.  James  E. Walter  considers  dividend  pay­outs  are  relevant  and  have  a  bearing  on  the  share  prices  of  the  firm.  He  further  states,  investment  policies  of  a  firm  cannot  be  separated  from  its  dividend  policy  and  both  are  inter­linked.  The  choice  of  an  appropriate  dividend  policy  affects  the  value of the firm. His model clearly establishes a relationship between the firm’s rate of return r, its  cost of capital k, to give a dividend policy that maximizes shareholders’ wealth. The firm