Originally Posted by thompr
No, but the shareholders do, in the form of increased price per share.
No, they don't, in reality.
Let's use rough numbers. Apple's market cap is $360 B or $388 per share (or whatever it is today). That value INCLUDES the value of the cash held by the company. One way to look at it is to say that the shares are $300 per share net of cash.
Now, if you take $2 B and distribute it to the shareholders, the total value of the stock drops by $2 B. So you're not really adding anything in value. There IS a perception of greater value in that you'll receive dividends, but investors who are more sophisticated than this analyst (which is apparently anyone except most of the people posting here) realizes that all you've done is converted part of the cash value per share into cash for the shareholder. So each individual shareholder doesn't gain anything (when you figure that Apple would have to pay taxes to repatriate the money and the shareholder also pays taxes on the dividend.
It's a crazy idea.
Originally Posted by chabig
This can't be correct. If so, then the value of all of the shares repurchased before the final one would have to be zero. Repurchased shares don't vanish. They are still shares of ownership. All that happens when a company buys its own shares is that the company owns them. The total number of shares remains the same. If Apple bought every share of AAPL today except one, that last remaining share would still be worth $388.
Please educate yourself on how shares work.
The price per share is the TOTAL perceived value of the company divided by the number of shares outstanding. If the company buys back all the shares but one, the remaining share is equal to the total perceived value of the company divided by the one remaining share.
Now, it gets a little complicated because buybacks are generally with cash. So, at the same time that you're reducing the number of shares in circulation, you're also reducing the cash on hand - and therefore the market cap. When you do the math, a share buyback using cash on hand could actually reduce the total market cap. Think of the company value as "intrinsic value" plus "cash". The intrinsic value doesn't change, but the "cash" value decreases. If ALL The cash were used to buy shares, the market cap would (theoretically) drop to the intrinsic value.
Using Apple's figures, current Market Cap is $360 B. Cash is $80 B (or whatever). So total market cap is $280 B. If the $80 B were used to buy back shares, the market cap would drop to $280 B. Price per share would probably go up, but possibly not as much as the proportional number of shares taken out of circulation (thus resulting in a lower market cap).
Now, the reason my example doesn't work is that Apple doesn't have enough cash to buy every share but one. If they did, my conclusion would be correct - that one remaining share would be worth the entire value of the company. However, the actual dollar figure I assigned was wrong. That one remaining share would be worth $280 B (the intrinsic value of the company) because all of the $80 B would be spent buying shares.
Obviously, the math doesn't work. By the time Apple had bought a large fraction of the shares, the price per share would be astronomical, so Apple could never buy every share but one.