Abstract
This article focuses on the public stock buyback tender offers carried out in France between 1996 and 2005. First, we will study the impact of The Public Stock Buyback Tender Offers’ announcements on stock prices. The results of the event studies show that these announcements are welcomed by a very favorable price reaction. Secondly, we try to explain the premium in the repurchase mode. The results of the linear regressions show that a low level of liquidity and the securities’ performance, during the period preceding the public stock buyback tender offer, seems to push companies to pay large premiums. It also appears from these regressions that smaller companies, accepting the over demand and for a significant percentage from the capital; are also encouraged to offer high premiums.
Highlights
The repurchase of own shares is a technique that enables listed companies to redeem a part of their securities in the stock exchange
The Public Stock Buyback Tender Offer allows listed companies to buy back an unlimited part of their capital at a price fixed in advance, which is generally higher than the market price at the announcement date of the operation
We found that in almost 43% of cases, the shareholder declares to participate in a Public Stock Buyback Tender Offer
Summary
The repurchase of own shares is a technique that enables listed companies to redeem a part of their securities in the stock exchange. The listed company is presenting itself on the market as an ordinary buyer in order to repurchase its own shares. This redemption is made at the market price and shall not exceed 10% of the company's capital. The Public Stock Buyback Tender Offer allows listed companies to buy back an unlimited part of their capital at a price fixed in advance, which is generally higher than the market price at the announcement date of the operation. In the US market, Barclay and Smith (1988) show that in 1986, 12.4% of companies, listed on the NYSE, use repurchase on the market, and only 2.79% chose The Public Stock Buyback Tender Offer. According Grullon and Michaely (2004), the repurchases on the market represent 90% of the repurchases made over the period 1984-2004
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