Why Companies Buy Back Shares

A company can buy back a part of its shares held with public. In US it’s called Stock repurchase. A company buys back shares if it feels the shares are undervalued. Company uses surplus cash to buy back the shares. This reduces number of shares outstanding in the market. Company may take this step to prevent other companies/individuals try to get the controlling stake (hostile acquisition).

Usually company offers a premium to the current market price so that share holders will come forward to sell their shares. Recently DLF bought back some shares from the public.

If a company wants to get de-listed from an exchange it will have to buy back all the shares outstanding in the market. On a specific date (declared in advance) the exchange stops the trading in the counter and all the share holders who are in the books of the company will get paid the price that is announced earlier.