## Share Buyback (Share Repurchase)
### Meaning
A share buyback occurs when a company purchases its own shares from existing shareholders — either through the stock exchange or via a direct offer. This reduces the number of shares outstanding and results in a reduction of share capital.
> Share buyback is treated as an alternative form of dividend because it returns cash to shareholders.
### Effects of Buyback
```
Buyback → Fewer shares in circulation
→ EPS increases (same earnings ÷ fewer shares)
→ DPS increases (same dividend pool ÷ fewer shares)
→ Market price may increase (reduced share supply)
```
### Types of Buyback
| Type | Mechanism |
|---|---|
| Open Market | Company buys shares through the stock exchange at prevailing market prices over a period of time |
| Tender Offer | Company announces a fixed buyback price (usually at a premium) and invites shareholders to tender their shares within a set window |
### Why Companies Buy Back Shares
- Return surplus cash to shareholders when profitable investment opportunities are limited
- Signal that management believes the stock is undervalued
- Improve financial ratios (EPS, ROE, Book Value per Share)
- Optimise capital structure