Growth Company Share buyback

Why would a growth company be buying back its shares?
Should the company not be using that cash to fund growth?

The business has sufficient cash to do this, has a majority shareholder who holds most of the shares and the stock is fairly illiquid on the market.

Would the company be doing this to:

A) It has nothing better to spend its cash on (which I find hard to believe)
B) The majority holder wants to take the company private and feels the current market price of the company is undervalued therefore encourages the company to buy back its own shares?
C) They are expecting a large increase in profits/or a profit and the majority shareholder is putting pressure on the company so it can have all the spoils.

What is everyone's thoughts? I am interested to know why as I have seen it in a few small cap companies lately.
4be

All could be a reason.

Another could be for tax reasons. It may not be tax efficient to pay a dividend but if they do a buy back, the remaining shareholders get a return as the share price should increase. I think that is why Apple is doing a mix of dividend and buy back.

Re, not having anything better to spend its money on, the likes of Mircosoft and Apple have so much cash, I am not sure anyone could spend that amount (Apple has $100B doesn't it???).

Which companies are you talking about specifically and we may be able to be more specific.

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Originally Posted by CJ

All could be a reason.

Another could be for tax reasons. It may not be tax efficient to pay a dividend but if they do a buy back, the remaining shareholders get a return as the share price should increase. I think that is why Apple is doing a mix of dividend and buy back.

Re, not having anything better to spend its money on, the likes of Mircosoft and Apple have so much cash, I am not sure anyone could spend that amount (Apple has $100B doesn't it???).

Which companies are you talking about specifically and we may be able to be more specific.

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CJ- Good points

SLG.NZ & ITD.ASX

What ya think?

I think from reading through the notices both have said they want to manage their capital base more efficiently?

With Sealegs, I dont think it has ever made a taxable profit (look for imputation credits in its accounts) so it cant pay an imputed dividend. A on market share buy is therefore more efficient way to return capital. However, given they aren't the most profitable company, I would also question (as you have done) why they have surplus cash and aren't trying to grow their sales, R&D on newer products etc.

Quote:

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Originally Posted by CJ

With Sealegs, I dont think it has ever made a taxable profit (look for imputation credits in its accounts) so it cant pay an imputed dividend. A on market share buy is therefore more efficient way to return capital. However, given they aren't the most profitable company, I would also question (as you have done) why they have surplus cash and aren't trying to grow their sales, R&D on newer products etc.

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Yea its a funny one because the cash they are using to buy back the shares is the money the majority shareholder put into the company in the private placement a couple of years ago. The SH is a offshore company from the Cayman Island (i think) or some other tax haven.

I like the Sealegs products and have always had an interest in them but I am not exactly considering an investment. I think it should be interesting to see how the JV with the Korean partner goes using Sealegs technology with other boat builders. Sealegs' gross margin is small so some scale would help.