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To: JRI who wrote (61459)8/27/1998 12:53:00 PM
From: Lee  Read Replies (1) | Respond to of 176387
 
John,..Re:I couldn't think of a reason why a company would do a stock buyback if they were looking to buy other firms (in the industry).

In the current market climate, most acquisitions today are done with stock. Even Warren did a stock transaction in his recent purchase of General Re. He has stated several times that the use of stock in transactions implies that the stock is overvalued relative to cash. So if a company normally does stock buy backs as standard practice, and finds itself in a market where asset prices are at the upper end of what's considered reasonable, then the use of stock for purchases makes a lot of sense.

Alternatively, if a company feels it's stock is undervalued relative to industry equivalents, then many times they will use cash rather than stock for the transaction.

Regards,

Lee



To: JRI who wrote (61459)8/27/1998 1:02:00 PM
From: Chuzzlewit  Read Replies (1) | Respond to of 176387
 
Hi John,

There are only three reasons I can think of for a company to repurchase its stock:

1. A defense against a hostile takeover;
2. A surrogate for a dividend (i.e., a drip); and
3. Part of a plan to increase leverage in the capital structure (i.e., borrow and use the proceeds to purchase stock).

TTFN,
CTC


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