I own some stocks and I got a packet from my online broker today apparently about some reorganization. The packet’s title is “Offer to Purchase for Cash by The Home Depot Inc” and below that it says “Up to 250 million shares of its common stock at a purchase price not greater than $44 nor less than $39.” I’m also supposed to go to reorgaction.com to accept the offer.
So uhm, what does all of this mean? Why is Home Depot offering to buy my stock back? Investapedia said a reorganization often means the company is going bankrupt.
Either way I only have a tiny amount of money invested in this stock, so I’m not too worried about losing it if any, I’m just curious as to what’s going on!
IOW, it’s a simple internal personnel reorganization, not the reorganization that proceeds bankruptcy. I didn’t see any sign of that in any news article.
The stock buyback appears to be unrelated. Here’s a good article from Forbes about the buyback.
Stock buybacks are common these days. They usually occur when a company thinks its stocks are undervalued. Here’s the buyback article on investopedia.
Home Depot is buying back some of its shares. This should increase earnings per share, since a similar amount of earnings will be divided by fewer shares (arithmetic is fun!). Stock buybacks are a tax-efficient method of returning cash to shareholders.
Separately, “Home Depot agreed to sell the contractor-supplies unit to three buyout firms for $10.3 billion to focus on retail stores, where sales and customer service have lagged behind Lowe’s, the No. 2 home improvement retailer.”
Stock buybacks are generally thought not to be a good sign. The key here is “generally thought”. Every case is different and you have to do your own research. Whatever the terminology used (buyback, normal course issuer bid, etc.), when a company buys some of its own shares it’s often, but not always, trying to create a small shortage to boost demand and get the price back up to where the company’s directors feel it oughta be. It’s typically seen as a small to medium red flag by many investors. Why doesn’t the market push the stock to where it oughta be all on its own without the company’s help? I currently have one company that’s involved in a buyback. The stock is at historic lows, and the directors claim it shouldn’t be because all is well. They feel it isn’t good to just let the price languish down there and so are buying back up to ten percent of the stock. My limited experience says that buybacks rarely do much good, in that they scare off many investors. The scare-off is sometimes stronger than the effect of the buyback, but maybe the scare-off is temporary. I dunno. Much research is required.
As far as HD goes, I have no idea. Personally, when really large companies do buybacks or negative splits, I get nervous.