Yahoo! Inc. (NASDAQ:YHOO) shareholders have something to smile about after the company’s board of directors approved an additional $2 billion to the current $5 billion share buyback program, approved in 2013. CNBC contributor, Karen Finerman, affirms that the increase averts earlier concerns that the company was planning to use its cash on further acquisitions.
“I like buybacks, and I think some investors are afraid of acquisitions that aren’t so great here, so a buyback would be preferable to them,” said Mrs. Finerman.
Share buybacks are an important component of large companies as they go a long way in boosting share price by reducing the amount of shares available in the open market, consequently boosting each outstanding share price. The increase in buyback should shield Yahoo! Inc. (NASDAQ:YHOO) from activist investor Starboard Value LP which has consistently argued that the company continues to diminish investor’s value by overspending on acquisitions.
Yahoo! Inc. (NASDAQ:YHOO)’s valuation in the recent years has mostly been tied to its stakes in Alibaba Group Holding Ltd (NYSE:BABA) as investors continue to call for other creative ways to boost the share price. The buybacks are also part of CEO, Marissa Mayer, efforts to unlock value in Yahoo’s Asian asset geared towards returning value to shareholder.
“They are still much tied to Alibaba but they are not going to have this tax spin until the second half of the year. So they really have to figure out how to keep this stock going. They need to figure out how to create some value for the core. Like Karen said that is the biggest worry that they take this cash and go and make some bad acquisition that’s been the biggest knock against the CEO,” said Mr. Dan Nathan.
Yahoo! Inc. (NASDAQ:YHOO) has already highlighted plans to spin off its remaining 15% stakes in Alibaba which means that in the years to come the company could solely be valued only on its core business. The new buyback program is poised to add some value to the stock while temporarily averting shareholders concern of how the company’s cash is being spent.
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