Module 5

 Open market repurchase

 Tender offers
 Private Negotiations
 Open market repurchase s of common stock is virtually identical to what
happens when any other investor purchases the company stock through a
broker.

Microsoft Corporation’s Share Repurchases

On September 22, 2008, we announced the completion of the two repurchase
programs approved by our Board of Directors during the first quarter of fiscal
year 2007 to buy back up to $40.0 billion of Microsoft common stock. On
September 22, 2008, we also announced that our Board of Directors approved
a new share repurchase program authorizing up to $40.0 billion in share
repurchases with an expiration date of September 30, 2013. We repurchased
318 million shares for $8.2 billion during the fiscal year ended June 30, 2009;
101 million shares were repurchased for $2.7 billion under the repurchase
program approved by our Board of Directors during the first quarter of fiscal
year 2007 and 217 million shares were repurchased for $5.5 billion under the
repurchase program approved by our Board of Directors during the first quarter
of fiscal year 2009. As of June 30, 2009, approximately $34.5 billion remained
of the $40.0 billion approved repurchase amount. All repurchases were made
using cash resources. The repurchase program may be suspended or
discontinued at any time without notice.
 Fixed price tender offer repurchases
 Dutch auction share repurchases
MC(New) = MC (Old) - TO + W

MC(New) :Post Repurchase Market Cap

MC (Old) : Pre Repurchase Market cap
TO: Tender Offer
W: Shareholder Wealth Effect
 Dividend or Personal Tax hypothesis
 Leverage hypothesis
 Information or signaling hypothesis
 Wealth transfers among shareholders

hypothesis
 Defense against outside takeovers
An exchange offer provides the right or
option to exchange part or all of one form of
security for different form of security of the
same firm.
 Leverage increasing or decreasing
 Implied increases or decreases in future

cash flows
 Implied Undervaluation or overvaluation of

common stock
 Management Share ownership is increased

or decreased.
 Free cash flows increased or decreased