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kim j asked:
In Wall st. journal of April 5, it says Border’s books expended money derived from loans (probably 8 percent interest) for a stock buyback. They are indebting themselves to support their stock-price…any finance pro’s here ? Why is this done, presumably the scale is too small to raise the price, and the
“controlling” type class B or A stocks won’t readily be available for purchase, right, in advent of possible takeover ?
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Tags: Advent, Loan Programs, Loans, Money, S Books, Stock Buyback, Stock Finance, Stock Price, Stock Programs, Stocks, Takeover, Wall St Journal
October 11th, 2008 at 3:50 pm
Did the Journal say how much they were buying back? What was the value?
Currently, the Border’s Group has $2.6 billion in assets and $1.9 billion in debts, so they can afford to take on a little more debt without a problem.
Apparently they’re strapped for cash. They have about $120 million in the bank and $370 million in liquid assets (not counting inventory), but they have more than double that in short term obligations, so they certainly won’t be able to buy back any stock with their cash on hand. That’s likely what made them turn to borrowing.
As far as their strategy, we’d probably have to get hold of the minutes for that. It was likely one of many common reasons companies wish to buy back their stock, and the loan was just their means to an end. If I were them, I wouldn’t be concerned so much about the loan as I would the interst, and just to make sure it wouldn’t be a prohibitive expense, which is a minor concern.
Common reasons for wanting to buy back stock:
1) excessive shares outstanding might be diluting the value of their shares, and they want to reverse the trend
2) they’re getting ready to offer employee stock options, and they need shares on hand to satisfy the deal
3) they’re getting ready to tender an offer of stock to merge with another company and need the shares to cover the offer
4) they have already made the offer and are following through
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