A Game Plan for Share Repurchases

Corporate share repurchases grew strongly as a popular means of returning cash to shareholders first in the US, then the UK, and later in the 1990s, in Continental European countries. Only in 1999 did the high rate of growth decline. This article documents the repurchase cycle and examines reasons given by corporates for undertaking repurchases which are then weighed against the evidence in practice. Several caveats can be issued against repurchases which diminish or reverse the positive valuation effects. In addition, alternative methods used in practice to implement repurchases are examined, and further measures which can enhance the effectiveness of repurchases are reviewed. The article concludes with a checklist or 'Game Plan' for a firm wishing to maximise financial value-added as well as strategic advantage from using the techniqueShare repurchases Valuation Financial strategy Dividend policy Cash distributions Derivatives