A buyback theoretically should not have any influence on the stock price, barring any immediate psychological market (short term) factors.
If OZL undertake a 1.5billion buyback, two things occur: - Net assets of company decrease by 1.5 billion - Share Capital decreases by 1.5 billion.
The market capitalisation (theoretically) DOES change.. in fact it decreases by 1.5 billion as net assets have decreased. However there is also a smaller piece of the pie (less shares on issue due to buyback) so the net effect should cancel out.
In practice, buybacks may be effective in that they signal to the market that the company considers the current share price as undervalued, thereby putting a floor on any further falls.
Ryan, Im not sure what your talking about... but when a company undertakes a share buyback, those shares are destroyed, they are not kept as an asset within the company. (a company cannot invest in itself).
Also, a share buyback would NOT result in massive increases in the share price as per your 'restricting supply' theory. The reality is, is that if the buyback pushes up the price, then further selling pressure would result stabilising the price to its true value.
OZL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
