61 Pages Posted: 17 Aug 2007
Date Written: August 16, 2007
Antigravity introduces a transaction so implausibly attractive it would be deemed impossible were it not that U.S. companies already float an inferior equivalent at a rate of nearly $500 billion per year. A Cashless Buyback(tm) is exactly like a cash buyback minus the risk and should be viewed as a supplement (or superior alternative) to a 10b-18 cash buyback of stock.
A Cashless Buyback(tm) allows a firm whose stock is at $10.00, immediately on hitting a target of $16.00 anytime within 3 years, to sell new shares at $24.00 apiece or, alternatively, retire 15% of total outstanding shares for $0 cost. If the target is missed, the company pays no penalty - no interest, no assumed debt, no shareholder dilution. Cash only flows in, never out. Accounting and tax are straightforward and neutral. Governance adheres to world class standards. The deal is executable in unusual size (a 75% buyback is feasible).
The instrument can also provide issuers a 25% improvement in pricing controversial IPOs and secondaries.
Though terms may sound too good to be true, antigravity is not required.
Keywords: equity derivative, equity finance, equity valuation, stock buyback, stock repurchase, share buyback, share repurchase, venture finance, distress finance, option compensation, governance, payout, dividend, 10b5-1, 10b-18, capital structure
JEL Classification: C7, G1, G13, G24, G30, G32, G34, G35
Suggested Citation: Suggested Citation
Gumport, M. A., The Cashless Buyback(tm) - A Superior Alternative to 10b-18 Cash Buybacks - How CFOs Can Sell a $10 Stock for $24 as Soon as It Hits $16 (or Buy 15% of Their Company for Zero Cost) Risklessly - Antigravity Not Required (August 16, 2007). Available at SSRN: https://ssrn.com/abstract=1007484 or http://dx.doi.org/10.2139/ssrn.1007484