Stock buybacks make sense as a way to disadvantage corporate raiders who
will pounce on a company that has more cash in the treasury than the worth
of its stock by share price. Say a million-dollar company has 2 million in cash
on hand. A raider knows they simply need to purchase 500,001 worth of shares
to take possession and control of the company and they can then pay out
the million in cash as a dividend, but wait, before taking the cash out of the
treasury, they take out as many loans as big as they can get, putting a fortune
in the treasury and then pay it out in dividends, sell off parts of the company
to raise even more cash and then walk away from the broken shell they leave
behind. Of course, instead of using buybacks to reduce the treasury, they should
first pay the workers more and invest in improvements before doing the buyback.
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