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Share Buyback Valuation

Share buyback valuation is an extremely powerful tool that is very poorly understood. Share buyback valuation can help your long-term shareholders save billions of dollars by avoiding share buybacks at the wrong price, and it can earn billions of dollars by making share buybacks at the right price.


A share buyback is a peculiar bet on behalf of the remaining shareholders. Not only does the outcome of the bet depend on the company's future earnings, but a buyback of overpriced shares is far more destructive to long-term shareholder value than the gain from repurchasing underpriced shares.

For example, this company went bankrupt because it made large share buybacks for borrowed money at a share price that would require future earnings growth if the share buyback was to be merely value neutral to long-term shareholders. So this was a bet with little or no upside potential but a very large downside risk. It was a reckless bet that could easily have been avoided by using the proper valuation formulas.

Which is Better: Share Buyback or Acquisition?

Share buybacks can also be valued relative to other investments or acquisitions that a company can make. Share buybacks can even be valued relative to corporate restructurings. This can be used to assess which choice will likely be more valuable to long-term shareholders.

For example, the company Hewlett-Packard has made numerous bad decisions regarding share buybacks. Using the proper valuation formulas, the company could have realized in advance that they would likely increase shareholder value much more from a share buyback instead of a $10 billion acquisition they were making. The formulas could also have been used to assess that a share buyback would likely be worth much more to long-term shareholders than a large restructuring in which 29,000 people were fired. See the case study.


I can explain these and other aspects of share buyback valuation to your company's employees, executives and directors. The hourly rate is EUR 170 and you should expect a few days of my work, depending on how quickly you learn, how many follow-up questions you have, and how many valuation scenarios you want me to work through with you until you know how to do it yourself. This consulting is done through e-mail and sometimes phone.

Why Me?

If you hire a large consultancy agency you will get a much larger bill and you will receive advice that could very well destroy shareholder value.

For example, McKinsey & Co. is one of the world's largest consultancy agencies and their financial "experts" wrote in their book entitled Valuation (by authors Tim Koller et al. p. 26, 2010 ed.) that "value is conserved, or unchanged, when a company (...) issues debt to repurchase shares." But the example mentioned above clearly shows this is false because a company went bankrupt by doing this. The McKinsey book continues with such silly and hazardous advice.

I am an independent researcher. My background is in computer science (B.Sc. Degree) and engineering science (Ph.D. Degree). I have used proper scientific principles to derive a comprehensive theory on share buyback valuation. It took me two years to research and write my treatise on this subject. I will teach you how to value share buybacks so you can avoid costly mistakes and take advantage of special opportunities.


Contact Magnus Erik Hvass Pedersen for more information about his consultancy services.

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