buyback

A return of cash to a firm’s shareholders through an offering to buy back shares. When it buys back shares, the share count decreases by the number of shares bought back. This increases the proportionate claim to earnings, book value and cash flow that each remaining share has. Share buybacks alter the ownership structure of the firm, leaving investors who do not sell their shares back with a larger share in a smaller company. Investors who tender their shares back generally have to pay capital gains taxes on the transaction, but only if the buyback price exceeds the price they paid to acquire the shares in a taxable account. If the remaining shares go up in price, shareholders who did not tender their shares can defer their capital gains taxes until they do sell the shares.