Whatever else Microsoft will achieve by buying back $40 bn of its own shares, it has certainly achieved demonstrating how confused I am about finance.
It seems to me if a company “buys back” 10% of its shares, the remaining shares are worth 10/9 of what they were before, and the company has billions of dollars less to use. I fail to see what advantage accrues to the company.
If a company buys back all but one of its shares, is the remaining shareholder the sole owner of the company? If the company buys back all of its shares, is it owned by nobody?
Can anyone help?
Update: OK, so there is no direct advantage to the company, I guess. It’s just a form of dividend, a way to pump money back into the hands of shareholders and thus make it easier to issue shares in the future. In the case of Microsoft and cash-rich tech companies in general, a rising share value also helps recruit talented engineers who stand to benefit from that increase.
The hardest question seems to be this: what happens if a company buys back its last share?
Suppose a failing company secretly acquires a fabulous patent. The shares are worthless; outstanding debt exceeds cash on hand but cash on hand exceeds market valuation. The board is in a position to buy up all the outstanding shares and does so, using the company’s money, not their own. Who owns the valuable patent?
(Is the board a corporate entity itself in that it can own things? If so how does one own a share of the board? This is like Zeno’s paradox, but I don’t see the calculus that resolves it. Does the sequence converge?)