n Tydskrif vir die Suid-Afrikaanse Reg - Share repurchases and the protection of shareholders

Volume 2010, Issue 2
  • ISSN : 0257-7747
  • E-ISSN: 1996-2207



From a creditor's perspective there is not much difference between the payment of a dividend in respect of a share and a payment for the acquisition or repurchase of that share. However, from the point of view of the shareholder a dividend is a return capital while a repurchase is a return capital to the vendor shareholder. Share repurchases change the structure of the company's share capital and consequently also the allocation of rights among shareholders. A repurchase combines a distribution to the selling shareholder with an increase in the relative stakes of the non-selling shareholders. Alternatively, a repurchase has also been described as a constructive dividend to non-vendors which they use to buy out vendors. Dugan explains that repurchases are tripartite in nature and thus pose different types of risks. A repurchase comprises (1) a distribution of assets with the attendant risks of asset stripping and debt avoidance, (2) a reorganisation of ownership with the risk of unfair and discriminatory treatment of shareholders, and (3) a transfer of shares which may lead to insider trading and market manipulation. While repurchases pose risks for the company, its shareholders, creditors and the investing public, this article concerns the protection of shareholders.

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