I’ve been trying to understand company buybacks on a deeper level lately. Because on a cursory level it seems like a good thing? Company is showing certainty in it self. Wants to consolidate it’s ownership, use some of that free cash up.
This should bring stock price up as you have an active “whale” exclaiming they want to buy up shares. Right?
Well, it’s not hard to find companies that exclaim a buyback, and then subsequently their stock takes a notable hit. It got me wondering why that would be. I guess there are some sleazy mechanism that insiders would do this for.
But here is something I don’t understand, and I’m going to use Under Armour (UA) class C, As an example.
“09:30 AM EST, 02/25/2022 — Under Armour (UA,UAA) said Friday it has entered into accelerated share repurchase agreements for $300 million of its Class C common shares.
The agreements were signed with JPMorgan Chase Bank, Bank of America and Citibank.”
What I don’t understand is the second paragraph?
Why do they need to deal with these institutions at all to do this? Wouldnt/shouldnt they just be buying them on the open market?
Are they taking on debt to do this?
Why wouldn’t they just use their free cash? Isn’t that the point?
How does taking on debt, if that IS what they are doing, make this stock a more attractive investment if they are just swapping it for debt on the books?
What is the role of these banking institutions here?
Thanks in advance!
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