Share buy backs

[Aaron]

Can someone please explain to me the purpose of company share buy backs?

Not sure but this is Mercury's explanation.

Mercury Chair Joan Withers said the Board’s view is that a purchase of the company’s shares at current market prices is an efficient use of excess balance sheet capacity that also reflects Mercury’s desire to maintain capital flexibility for future value-enhancing initiatives for its shareholders.

“The Board believes that the buyback is a prudent method of addressing the company’s low gearing relative to its target capital structure and is an efficient way of returning capital to shareholders,” said Mrs Withers. The buyback will bring the company’s gearing levels near 2.0x for debt to EBITDAF, consistent with the conservative end of Mercury’s target range of 2.0x to 3.0x.

Mrs Withers said that holding the shares as treasury stock reflected the company’s desire to maintain capital flexibility. This will add to the 1.6% of shares already held as treasury stock from Mercury’s buyback in FY2014.


So they buy their own shares on market with debt? So they have shares to sell if they need additional capital to provide "capital flexibility". Although they would be less likely to need capital flexibility if they didn't buy back their shares and left their "excess capacity" on their Balance Sheet. They could have used their excess capacity to bump up our dividends.

I don't really know either, maybe check to see if Management bonuses depend on an increasing share price or if consultants or brokers get fees for pointless fluffing around. Maybe it is just sensible to have more debt in a world trying to destroy the value of debt through inflation? Certainly wish I had been less scared of debt over the years.

I will need to wait with you for a more knowledgeable poster to provide a purpose for it all.