The original author has a point, but the reasons I would think...

The original author has a point, but the reasons I would think it could be a problem, are different than his (hers?). Anyhoo, this kind of buyback creates an instant change of control in the company, with no premium paid. Think RHG.

As so many shares will be cancelled, the major holders won't participate in the buyback for a reason: they go to bed with say, 5% of the company, and they wake up with X% of the company and post-buyback, they wake up with XX% of the company. RHG, by not participating in a buyback, could just end up owning pretty much all of the company. That got stomped on by shareholder activists.

Buybacks really favour large holders, because it is the opposite of dilution. People don't like dilution, but it keeps a register "fair" and adds diversity. Say a major holder wanted to buy a company. They don;t have to actually *buy* shares in this case- they have to just not *sell* their shares. If on-market buybacks continued in the future, it would just be shareholder funds who cancelled te company shares, and the major holders just get an increasing share of the pie (ok, so do small holders, but they get a bigger share). If the big holders were company people (dunno if they are, but just as an example), these kind of buybacks could result in the cheapest management buyout in the world. Continuing buybacks, and they just mop up the few shares left at the end of it all- the company paid for the rest of them.

Anyway, just some ideas.