What is an 'Expanded Share Buyback'

An expanded share buyback is an increase in a company’s existing share repurchase plan. An expanded share buyback accelerates a company’s share repurchase plan, and leads to a faster contraction of its share float. The market impact of an expanded share buyback depends on its magnitude. A large expanded buyback is likely to cause the share price to rise.

BREAKING DOWN 'Expanded Share Buyback'

Although share repurchase and expanded buyback announcements are generally received enthusiastically by investors, skeptics contend that companies would be better off deploying excess cash in more efficient ways, such as investing in research and development or acquiring a rival company. Apart from reducing the number of outstanding shares, an expanded share buyback signals management’s confidence in the company’s future and is construed as a bullish sign by investors. Companies that have little leverage and sound credit ratings may occasionally raise capital at low interest rates and use the proceeds for an expanded share buyback.

Example of an Expanded Share Buyback

For example, Company X with a $2 billion market capitalization may announce its intention to expend $100 million in share buybacks over the next fiscal year. Six months into the fiscal year, the company may find that cash flows are likely to be substantially higher than its projections. Company X wants to return this excess cash to shareholders, and decides to expand its share buyback by $25 million – or 25%. Because of the greater flexibility it has in the timing of this expanded buyback, it has chosen this option rather than increasing dividend payments.

Assume Company X had 100 million shares out when it commenced its buyback, with each share trading at $20. Over the course of the year, X may repurchase 4 million shares at an average price of $25 each through its regular buyback, and an additional million shares through the expanded buyback. The company’s outstanding share count would be 95 million at the end of the fiscal year, which means that the share count has decreased by 5% including the expanded buyback, rather than 4% if the buyback had not been expanded.

RELATED TERMS
  1. Direct Repurchase

    Direct repurchase is the buying of shares in a publicly-traded ...
  2. Share Repurchase

    A share repurchase is a program by which a company buys back ...
  3. Share Purchase Rights

    A holder of share repurchase rights has the option to repurchase ...
  4. Idle Funds

    Idle funds refers to money that is not invested or deposited ...
  5. Rule 10b-18

    Rule 10b-18 is an SEC rule that protects companies and their ...
  6. Earnings Per Share - EPS

    Earnings per share (EPS) is the portion of a company's profit ...
Related Articles
  1. Investing

    How MasterCard Pulled Off a Buyback

    Stock buyback refers to publicly traded companies buying back their shares from shareholders. Why would they do that?
  2. Investing

    Why Buybacks Might Spell Bad News for Investors

    Buybacks have helped drive stocks higher since 2009 and have accelerated in 2016. Is this still good news for investors?
  3. Investing

    The impact of share repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  4. Investing

    The Share Buyback Report: The Telecom Sector (T, VZ)

    Examine telecommunications sector share repurchase data to identify which companies and catalysts drove buyback trends between 2006 and 2015.
  5. Insurance

    The Share Buyback Report: The Financial Sector

    Examine historical buyback data from the financial sector to determine which quarters and companies contributed the most to repurchase activity.
  6. Investing

    How Buybacks Warp The Price-To-Book Ratio

    Relying on price-to-book can get ugly if a company has repurchased stock. Learn why.
  7. Investing

    10 Stocks That Will Thrive On Buybacks

    Buyback Boost: Repurchases are more likely to bolster these stocks
  8. Investing

    PKW: PowerShares Buyback Achievers ETF

    Take a look at a thorough analysis of the Invesco PowerShares Buyback Achievers ETF, which focuses on firms that buy back their own stock.
  9. Investing

    Have $2 Trillion in Buybacks Paid Off?

    Major U.S. companies have spent trillions on buybacks with only a modest impact on stock prices.
  10. Investing

    How Banning Buybacks Would Help the Economy

    Stock buybacks are popular, but they're not helping the economy. Here's what would happen if they were banned.
RELATED FAQS
  1. In what situations does it benefit a company to buy back outstanding shares?

    Learn about the reasons a company may choose to buy back its outstanding shares, such as reducing the cost of capital and ... Read Answer >>
  2. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  3. What Is Treasury Stock?

    Find out about shares called treasury stocks that were once part of shares outstanding for a company, but have since been ... Read Answer >>
  4. What Is an Odd-Lot Buyback?

    Odd-lot buybacks involve lots of less than 100 shares. Learn how companies get these shares back. Read Answer >>
  5. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
Trading Center