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Kimberly-Clark Corporation Message Board

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  • briannna614 briannna614 May 12, 2012 5:21 AM Flag

    Split

    When a company buys back stock I thought those shares were retired... But I could be wrong

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    • When a company buys back stock they have two choices for the purchased stock, retire it, or hold it as treasury stock. Most companies hold as treasury stock so that they might capitalize on takeovers or other opportunities by reissuing those treasury shares to fund a purchase rather than use cash. If a company splits it's shares while holding treasury stock, those treasury shares are also split in proportion to the spit ratio. With regard to a CEO's strategy of buying shares to improve EPS, his comp plan will also "split" in proportion to the split ratio. If he's targeting 1.00 per share in earnings and the company shares split 2/1, then his new target is .50 per share. Effectively changing nothing. The only real purpose to have a stock split is to reduce the overall price (not cost) of the shares in an effort to draw in more smaller investors. IE 100 shares @ 100 bucks is 10k....split it 2/1 and now 100 shares is just 5k. The percentage of ownership is smaller, however. Typically a stock split in and of itself is not important nor does it materially affect the company's performance, however, it's generally a result of a company that is performing well. Hope that helps.

      Good Luck To All,

      -Jim

      PS - Long KMB @ 61.00

      • 2 Replies to my911jim993
      • Jim,

        Explain this to me.
        I was an officer of a privately held company.
        The company had 1000 shares of stock. Half or 500 shares were Treasury and 500 were common shares.
        The treasury shares could not be dispursed, they stayed with the company. The common shares could be given away or sold.
        Common shares are broken into two(2) catagories. Common & Preferred.
        If a dividend is paid, the preferred shares get paid first, the common gets what's left.

        If someone buys a company, they are actually buying the Treasury shares, not the common shares.

      • You are repeating the book learning concept of why a company buys their shares back. Although this is the educated theory of acadamecians, ceos that have an accounting education have learned how to manipulate accounting practices to promote their own wealth and pretend to help stockholders. More pundits are beginning to downplay the neutrality of stock buy backs and are trying to figure out the whys a ceo may be doing this.

        This ceo is more in tune with how to manipulate his board of directors through accounting practices in order to maximize his bonus while choosing intentionally not to grow the business.

        Will he chose to split the stock? History of this company is not a predictor of this ceo. I don't beleive he will, but I could be wrong since I am not an accountant by education. This accountant ceo does not know how to grow the business, but he has proven to be quite effective at manipultaing the stock, his board and his immediate underlings.

        You might want to follow the lead of his most senior executive who recently cashed in his stock options and sold an additional 24267 shares for a net gain of almost 10 million.

 
KMB
125.22-1.26(-1.00%)Sep 29 4:01 PMEDT