ECONET Wireless Zimbabwe shareholders on Tuesday approved directors’ proposal to buy back a maximum 10 percent of the firm’s shares.Shareholders endorsed the proposal and two other main resolutions at the 15th annual general meeting of the company held in Harare.
The buyback of its own shares would be allowed provided that the repurchase was not made at a price greater than 5 percent above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase.
Share buybacks are signal to the market that the board thinks the company is strong. When a company is buying back shares, it sends a message to the market that it has confidence in its own operations.
Since the company board knows the best about the company’s performance, the markets often think that the company is getting healthier and puts lesser pressure on the board from activist investors.
This can be compensation for stock options and bonuses. Companies give out stocks to their employees in the form of options and grants. This increases the number of outstanding shares. Many companies want to keep their outstanding shares stable.
Repurchasing shares may also be meant to push up the stock price. The stock repurchase reduces the float (number of stocks held by the public) thereby causing a scarcity of the company’s shares in the market and increase in its demand.
The company could then use a favourable market condition to re-issue these stocks to the public and make a gain on the sale of the shares.
There are many and varied reasons why companies may decide to buy back shares including using the strategy as a tax efficient way to return investors’ money.
Healthy companies make profits and they must find an efficient way to give the profits to shareholders if they do not have a better way to use them.
There are two main ways to return the money, dividends and share buyback. Firms try to keep dividends at a constant rate so as to not hit their shareholders with an unexpected tax event liable after a dividend.
Other resolutions passed at the AGM include US$1,14 million reappointed auditors (Ernst & Young) fees, US$388 000 directors’ fees and the firm’s accounts for the year to February 2013.
Econet posted US$695 million turnover in the year to February 2013, which was 14 percent from US$611 million in last year’s comparable period.
Zimbabwe’s biggest telecommunications group by value and subscriber numbers saw after tax profit falling by 16 percent to US$139 million.
Econet had wanted approval to be “duly authorised by Article 10 of its Articles of Association, to undertake the purchase of its own ordinary shares in such terms as the directors may from time to time determine”.