Reacquired shares: Overview, definition, and example
What are reacquired shares?
Reacquired shares refer to shares that were previously issued by a company but are later bought back (or repurchased) by the company itself. This process is known as a share buyback or stock repurchase. Companies may reacquire shares for various reasons, such as reducing the number of outstanding shares, increasing shareholder value, or using the repurchased shares for employee stock options or mergers and acquisitions. Reacquired shares are typically held in the company’s treasury and are not considered outstanding shares unless they are reissued or sold at a later date.
For example, if a company buys back 1 million of its own shares from the market, those shares are now considered reacquired shares and are held in the company’s treasury.
Why are reacquired shares important?
Reacquired shares are important because they can impact a company’s financials, stock price, and shareholder value. When a company repurchases its own shares, the remaining shares become more valuable because the company’s earnings are now divided among fewer shares. Reacquired shares can also be used for strategic purposes, such as fulfilling obligations related to employee stock compensation or executing a merger or acquisition.
For businesses, buying back shares can be an effective way to return excess cash to shareholders or demonstrate confidence in the company’s future prospects. For investors, the reduction in shares outstanding can result in increased earnings per share (EPS), which may drive stock price growth.
Understanding reacquired shares through an example
Imagine a publicly traded company, XYZ Corp., that has 10 million shares outstanding. If the company believes its stock is undervalued, it may decide to repurchase 1 million shares from the open market. After the repurchase, XYZ Corp. will have 9 million shares outstanding, with the 1 million repurchased shares held in the company’s treasury as reacquired shares.
This repurchase can lead to an increase in earnings per share (EPS) because the same amount of profit is now divided by fewer shares, potentially raising the stock price. If the company later decides to sell the reacquired shares, it can use them for raising capital or fulfilling stock option plans for employees.
In another example, a company repurchases shares to prevent hostile takeovers. By reacquiring shares, the company reduces the number of shares available to potential acquirers, thus protecting itself from being taken over.
An example of a reacquired shares clause
Here’s how a reacquired shares clause might appear in a corporate document or shareholder agreement:
“The Company may, at its discretion, repurchase its own shares from the open market or through a tender offer. Any shares repurchased under this Agreement shall be held in the Company’s treasury as reacquired shares and shall not be considered outstanding shares unless reissued or sold in accordance with applicable laws.”
Conclusion
Reacquired shares are an important tool for companies to manage their capital structure, return value to shareholders, and fulfill strategic objectives. By repurchasing shares, companies can increase shareholder value, raise earnings per share, and maintain control over their equity.For businesses, reacquired shares provide flexibility in managing financial strategies and meeting shareholder expectations. For investors, understanding the impact of share repurchases can offer insights into the company's financial health and future growth potential.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.