Whay do companies sell stock? Why do companies buyback their own stock?
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St Joe stock appears to rebounding, why?
- Thread starter wrobert
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Whay do companies sell stock? Why do companies buyback their own stock?
They sell stock to raise capital--expanding operations is a good reason to sell stock, raising money because the company is going down the crapper is a bad reason to sell stock. Selling stock dilutes the earnings of current shareholders, or in JOE's case, spreads out the losses.
Companies buy back stock when they believe it's cheap and/or need it to dole out for employees' stock options.
A buyback is usually good for current shareholders since it decreases the amount of shares on the market thereby giving each shareholder a larger percent in the company's equity. However, if a company screws up and buys back stock when the price is too high, those equity gains vanish quickly. JOE has done a few big buybacks at too high prices--mostly to benefit DuPont and, I suspect, a number of JOE insiders.
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If I understand this correctly JOE had previously announced that it was selling non-strategic assets and the pending contracts on same were going to pay off their last corporate debt's. If the sale of the non-strategic assets fell through and they satisfied the debt by giving up 1/2 Billion US worth of Corporate Stock it seems like a loan.
JOE engineered the sale of stock to pay off debt in Feb '08: http://www.secinfo.com/dsvRx.t166.htm
Why do you think of stock sales as a loan?
Selling bonds is more like a loan..
JOE engineered the sale of stock to pay off debt in Feb '08: http://www.secinfo.com/dsvRx.t166.htm
Why do you think of stock sales as a loan?
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Is this a proper example:
If I wanted to raise money to pay off a mortgage and I was unable to sell a property I might have considered transfering an ownership interest in my firm to someone with cash. I would assume that my firm would be diluted as the party would share in the profits. This would cost money. In order to regain the ownership control my company would have to raise cash to repay the shareholder.
I know we are not publicly traded, it's a rudimentary example. Am I thinking of it to simply?
Is there anyone on Sowal who is truely informed on the subject who can share the knowledge?
Let's look at this another way.
We'll use GOOGLE as an example (fractured fairytale style).
Two snot-nosed kids started up Google and saw that it was good. They wanted to grow the company, but they couldn't do this with just the two of them. They didn't have much money to pay a staff, so they got a few of their closest friends and said they'd pay them $10.50 per hour and give them each 1,000 shares a month in their "private" company. Everything was swell, but they could make it more swell if they could get some more money. They give more "shares" of their private company to venture capitalists in exchange for cash.
Time passes and Google grows. The two snot-nosed kids decide to take the company public. So they do some razzle-dazzle paperwork with the SEC and sell off 19 million shares of the company @ $85 per share and get a nice pile of money to build a beautiful campus and restock the company fridge. The employees, venture capitalists and the snot-nosed kids continue to sit on their pile of stock for several months until they decide to sell it (or keep it).
Now, there are millions of shares of GOOG stock circulating in the market. Even though the two snot-nosed kids are still hanging on to a bunch of the stock (enough to control the company), there's little chance that they're going to be able to reel in all those shares in order to regain ownership of the company.
The stocks served a purpose--to first pay employees when funds were low; then to raise additional funds from venture capitalists; and finally to raise a HUGE pile of cash to grow the company, reward the employees, make the venture capitalists very happy and to establish the company as credit-worthy and able to borrow money with just a wink and a nod. Once the stocks are sold into the secondary market--they're scattered around the world. Buying back stocks doesn't help the two snot-nosed kids regain ownership of the company, all-in-all any holders of GOOG stock each "own" a piece of the company now--that happened when the SEC gave its blessing to make GOOGLE a publicly owned company.
There are cases where hedge or vulture funds buy up enough stock in troubled or weakened companies to gain a controlling share (51%) and will then be able to take over the company by buying out the remaining shareholders and making the company private again. They then fire all the deadwood; do a little spit-and-polish; run up a lot of debt; pay themselves all a big, fat dividend; and file with the SEC to go public again (IPO), sell off the shares, take the pile of money, and slink back under a rock.
So your example of selling shares in your house is similar to a private company--like Publix, where the stock is not sold on the secondary market. But when a company like GOOG or JOE is approved to become a publicly-owned company--those shares are sold on the stock exchange and scattered to the four winds. The stockholders are fractional owners of the company and the main objective of the CEO is to maximize shareholder value. The CEO and executives may have a bigger ownership "stake" in the company by virtue of the fact that they are holding more shares than you--but you, as a stockholder, own the company too.
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FYI JOE has acquired a $100M LOC with BB&T, yet unused.
Think of it as a black Centurion AMEX card you tossed into your sock drawer in case of short term need. Bridge financing of sorts.