Considering a corporate buyback? What you need to know

Recent articles in the financial news suggest more companies may be implementing corporate buyback programs this year. 

A corporate buyback, also known as a corporate repurchase or share buyback, is when a publicly traded company buys its own outstanding shares. Buybacks are executed by companies for several reasons:

• They have excess cash on hand and want to return value to shareholders other than through a dividend
• They believe their shares are undervalued
• To increase their company’s earnings per share (EPS) by lowering the number of shares in circulation
• To prevent a major shareholder from acquiring a controlling stake in the company
• To use the shares as part of executive and employee compensation, while avoiding dilution for existing shareholders

How buybacks are executed

There are generally two ways companies can buy back their shares.

First, the company can extend a tender offer to shareholders. This gives shareholders the option to submit some or all their shares for a specified price, usually above the current market price and during a set period. 

Second, a company may purchase its shares on the open market. This often involves a schedule for buying the shares over a certain period.

Complying with Rule 10b-18

There are many rules and regulations governing the securities industry to ensure that trading is ethical, protecting investors and issuers alike. 

When it comes to corporate repurchases, Rule 10b-18 is a safe harbor provision, adopted by the SEC (Securities and Exchange Commission) in 1982. It was created to allow companies to buy back their own shares without being accused of manipulating the market or share price, or insider trading.

There are specific conditions the company must meet to comply with Rule 10b-18 related to the market price, trading volumes, and timing, as well as reporting timelines and disclosing detailed information about the share repurchases. 

If your company is considering a corporate repurchase program, we can help.

Georgeson Securities Corporation, part of the Computershare group, has been assisting issuers with 10b-18 repurchase programs since 2011. Our team can work with you to understand your strategy and help ensure your buyback program is in line with your objectives, and at the optimal pricing.

If your company is considering a corporate buyback program or you would like to learn more, please contact me or Erik Schwendenman, Vice President, Business Development.

Georgeson Securities Corporation is a member of FINRA and SIPC. For more information, visit the Georgeson Securities Corporation website at www.georgesonsecurities.com

Source: SEC Rule 10b-18 FAQs
SEC.gov | Division of Trading and Markets: Answers to Frequently Asked Questions Concerning Rule 10b-18 ("Safe Harbor" for Issuer Repurchases)

Computershare is not providing, and does not intend to provide, any legal, tax or investment advice.