NEWSWIRE - March 23, 2001
Topics: Divestitures, Stock Repurchases, and Stockholder-Manager Conflict
Source: "Buyback Plan On Staples.com Creates Buzz," by Laura Johannes and John Hechinger, Wall Street Journal, Friday, March 23, 2001, page A3.
Synopsis of Article: Staples, the office supply store chain, began the process to spin off its Internet unit, Staples.com in November 1999. However, by February 2000, it was apparent that it would be difficult to conduct a successful IPO. Since that time, Staples.com has continued to function under separate management. Now the parent firm has decided to bring the Internet unit back into the fold. It proposes to do this by repurchasing shares issued to Staples.com management at $7 per share. However, this is more than twice the unit's peak valuation of $3.25 per share. Some Staples (the parent) shareholders are angry about this buyback since their shares have experienced significant declines in value during this period.
Questions:
- What is a spin off? Why would Staples, Inc. choose to
divest a unit with considerable growth potential?
- Explain the mechanics of a share repurchase? Why are investors
concerned with the repurchase of shares from Staples.com?
- The article provides no direct justification for repurchasing
managers' shares for $7. How would you defend this action?
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