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Share Repurchases and the Protection of

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Share repurchases and the protection of shareholders* KATHLEEN VAN DER LINDE**
1 Introduction
From a creditor’s perspective there is not much difference between the payment of a dividend in respect of a share and a payment for the acquisition or repurchase of that share. However, from the point of view of the shareholder a dividend is a return on capital while a repurchase is a return of capital to the vendor shareholder. Share repurchases change the structure of the company’s share capital and consequently also the allocation of rights among shareholders.1 A repurchase combines a distribution to the selling shareholder with an increase in the relative stakes of the non-selling shareholders.2 Alternatively, a repurchase has also
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They are coerced into either accepting the offer and giving up a part of their interest in the company, or rejecting it and facing an increase in the relative size of their shareholding.7 If the company has more than one class of shareholders a proportionate repurchase in a specific class of shareholders can still result in unfair treatment among different classes. Even in a company with a single class of shares, a proportionate offer may have a discriminatory effect if the intention is that particular shareholders will not accept the offer.8 For example, in a going private transaction a company’s management or controllers could use a share repurchase as a way of increasing their own shareholding to a level where they are able to freeze out the remaining shareholders by compulsorily acquiring their shares.9 Similarly, in an empowerment transaction the idea may be to repurchase shares from shareholders other than black investors so that the resultant stake of the black investors is increased.10
Shareholder protection can be achieved in different ways. Some jurisdictions prescribe procedural requirements for repurchases while others rely primarily on substantive principles of fairness. Takeover regulation often addresses the use of repurchases as takeover mechanisms or as defensive strategies. I make some reference to shareholder protection in the context of takeovers,
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