Legal Definitions - reacquired stock

Reacquired stock, also commonly known as treasury stock, refers to shares of a company's own stock that it has purchased back from the open market or directly from its shareholders. Once reacquired, these shares are no longer considered outstanding in the market and do not carry voting rights or receive dividends while held by the company. Companies typically reacquire their own stock for various strategic reasons, such as to reduce the number of outstanding shares (thereby increasing earnings per share), to prevent hostile takeovers, to have shares available for employee stock option plans, or to signal confidence in the company's financial health.

• Example 1: Boosting Shareholder Value

  InnovateTech Solutions, a leading software development firm, announces a plan to buy back 10 million of its own shares from the stock market. The company's management believes its stock is currently undervalued and that reducing the total number of shares available to the public will increase the earnings per share for the remaining shareholders, thereby enhancing shareholder value.

  In this scenario, the 10 million shares that InnovateTech Solutions purchases become reacquired stock. They are no longer held by public investors but are now owned by the company itself, effectively reducing the supply of shares in the market and potentially boosting the stock price and earnings per share.

• Example 2: Funding Employee Stock Options

  Global Logistics Corp., a large shipping and distribution company, decides to repurchase 5% of its outstanding shares. The primary purpose of this buyback is to create a pool of shares that can be used to fulfill future employee stock option grants and executive compensation packages, without having to issue new shares and dilute the ownership stake of existing shareholders.

  The shares that Global Logistics Corp. buys back are reacquired stock. Instead of being retired, they are held by the company specifically to be distributed to employees and executives as part of their compensation, providing an incentive without diluting the value of existing shares.

• Example 3: Preventing a Hostile Takeover

  When a rival corporation, MegaCorp Holdings, began aggressively accumulating shares of Family Foods Inc., signaling a potential hostile takeover attempt, Family Foods Inc. initiated a substantial stock repurchase program. By buying back a significant portion of its own shares, Family Foods Inc. aimed to reduce the number of shares available for MegaCorp Holdings to acquire, making the takeover more difficult and expensive to execute.

  The shares that Family Foods Inc. bought back to defend against the takeover are reacquired stock. This strategic move allowed the company to consolidate ownership and prevent a change in control by reducing the number of shares available for the hostile bidder to purchase.