Thesis (MBA)--Stellenbosch University, 2007. / ENGLISH ABSTRACT: Share repurchase activity (or buybacks), as a corporate finance decision-making tool, has increased steadily over the years, both in the USA and in other markets around the world. This research report investigates share repurchase (of ordinary shares) activity in South Africa between July 1999 (when buybacks were legalised) and December 2006. Consistent with empirical evidence elsewhere in the world, the results show that South African companies have increased their share repurchase activity in absolute terms (volume and value). Corporate South Africa is estimated to be sitting on a huge cash pile of approximately R600 billion (or 38% of GOP) - a significant prerequisite for share repurchases. In the absence of potential projects and acquisitions that meet the firms' weighted average cost of capital, it is reasonable to expect that the level and value of buyback activity will increase in the foreseeable future. / AFRIKAANSE OPSOMMING: Die aandeleterugkoop-bedrywigheid (of aandeleterugkope), as 'n korporatiewe finansiele besluitnemingshulpmiddel, het geleidelik toegeneem oor die jare, beide in die VSA en in ander markte wereldwyd. Hierdie navorsingsverslag ondersoek die aandeleterugkoop-bedrywigheid in Suid-Afrika tussen Julie 1999 (toe terugkope wetlig geword het) en Desember 2006. In Iyn met empiriese bewyse elders in die wereld, toon die resultate dal Suid-Afrikaanse maatskappye hul aandeelterugkoop-bedrywighede in absolute terme (volume en waarde) verhoog het. Oit word beraam dat korporatiewe Suid-Afrika 'n groat kontantreserwe van bykans R600 biljoen (of 38% BBP) het - 'n noemenswaardige voorvereiste vir aandeleterugkoop. In die afwesigheid van potensiele projekte en aankope wat die firmas se geweegde gemiddelde koste van kapitaal behaal, is dit aanvaarbaar om te verwag dat die vlak en waarde van terugkoopbedrywigheid in die afsienbare toekoms sal verhoog.

Thesis (PhD)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: Share repurchases were allowed in South Africa as from 1 July 1999. The concept of repurchasing shares is therefore relatively new in this country, compared to many other countries (e.g. the United States of America and the United Kingdom), where it is an established practice. Considerable research in the field already exists, providing empirical evidence on the extent of share repurchase activities and current theoretical thinking on the motivations for share repurchases and the determinants affecting the choice of payout methods. In South Africa there are indications, as this study demonstrates, that research on payout methods and payout reform has become a matter of urgency. Share repurchase activity by JSE-listed companies is not comprehensively recorded by South African financial data sources. Prior research on South African share repurchases is limited, mainly owing to the fact that a comprehensive share repurchase database is not available. This study sets out to document the extent of share repurchases by companies in selected JSE-listed sectors (for reporting periods including 1 July 1999 to the 2009 year-ends of the companies) and to test whether empirical evidence and current theoretical thinking also applied in South Africa. The results of these tests were used to develop a model to ascertain what the significant determinants were when a JSE-listed company had to decide between repurchasing shares and paying special dividends. This study found that the South African regulatory environment pertaining to share repurchases differed from the regulatory environments of other countries. The main differences related to the share repurchase announcement structure (namely the JSE Listings Requirements that open market share repurchases need to be announced via SENS only once a 3% limit has been reached) and that subsidiaries are allowed to repurchase shares in the holding company (and have a tax benefit when compared to share repurchases made by the holding company itself). These differences affected the results of this study. On compiling a database on share repurchases by companies in selected JSE-listed sectors, it was found that the share repurchase announcements (made via SENS) could not be used as the main source to compile comprehensive share repurchase data (mainly owing to the 3% rule on open market share repurchases). Annual report disclosures were therefore scrutinised to obtain share repurchase data for this study. These disclosures were found to be applied inconsistently by companies (mainly because subsidiaries were allowed to repurchase shares in the holding company; International Financial Reporting Standards and the JSE Listings Requirements did not adequately cater for the differing South African regulatory environment in their disclosure stipulations; and compliance to the disclosure requirements were not adequately monitored). Consequently, an extensive process of verification was applied in order to compile a comprehensive and reliable share repurchase database for this study. When testing whether empirical evidence and current theoretical thinking on share repurchases also applied in South Africa, it was found that the unique South African regulatory environment led to certain aspects of the South African share repurchase experience not mirroring the global precedent. The main differences between the South African and global share repurchase evidence which emerged from the present study are that the open market share repurchase type is not the outright favoured repurchase type (as is the case globally); that subsidiaries repurchasing shares in the holding company are the favoured South African share repurchasing entity (as opposed to subsidiaries not being allowed to repurchase shares in most other countries); and that share repurchases announced via SENS do not represent comprehensive share repurchase data (as opposed to global security exchanges requiring share repurchase announcements on a regular and accurate actual-time basis). When testing the current theoretical thinking on the information-signalling motivation for share repurchases, it was found that the motivation for South African open market and pro rata share repurchases mirrored the current theoretical thinking. Open market share repurchases were found to be motivated by the information-signalling hypothesis, while the short-term abnormal returns of pro rata offers were offset by the negative abnormal returns over the long term. A share repurchase type unique to the South African share repurchase environment (namely the repurchase of treasury shares by the holding company) was found not to be motivated by the information-signalling hypothesis. This study also found that companies repurchasing shares were generally classified as value companies (which tend to be undervalued) prior to the repurchase transaction which mirrored the current theoretical thinking. In developing a model of choice to determine what the main determinants were when a company had to decide between open market share repurchases and special dividends, this study found that some of the South African determinants mirrored the current theoretical thinking, but also identified determinants which were not identified as significant determinants in global research. This study found that ownership structure, size of the distribution and level of company undervaluation were the significant factors which affected a company’s choice of payout method. It was found that smaller companies, with fewer shareholders and more public investors favoured open market share repurchases over special dividends. Open market share repurchases were found to be selected for smaller distributions when compared to special dividends. Companies paying special dividends were found to exhibit lower degrees of undervaluation when compared to companies which repurchased shares in the open market. This study found that share repurchases became a popular means of distributing excess cash as from 2005. A total amount of about R384 billion was spent on share repurchases during the reporting periods including 1 July 1999 to the 2009 year-ends of the companies included in the population of this study. Share repurchases did not exceed dividend payments over the target period and represented about 36 per cent of total payouts. In 2009, the final year of the study, share repurchases represented about 44 per cent of total payouts. The results of this study showed that investors would benefit over the long term when investing in companies which repurchased shares in the open market. It was also found that there were certain characteristics which were evident in companies when choosing open market share repurchases rather than special dividend payments. This study concluded that the South African regulatory environment possesses many characteristics of a developing economy’s financial systems. Suggestions are given on how to improve and better align the South African repurchasing environment to those of developed economies.

Thesis (MBA)--Stellenbosch University, 2008. / ENGLISH ABSTRACT: Repurchasing of shares by South African companies were legalised on 1 July 1999. This introduced an alternative to dividends for distributing cash to shareholders. Although dividends and share repurchases realise the same value in a perfect efficient market, the inefficiencies of the South African stock market require managers to carefully evaluate factors like taxation and stock price valuation when selecting appropriate distribution methods. This research report aims to update shareholder distribution trends for industrial JSE listed companies over the past 10 years in order to determine the impact of share repurchases on dividend payouts. Furthermore, this research report examines the factors that may have had an impact on shareholder distribution choices in order to provide some guidelines for choosing appropriate distribution methods. An initial analysis of SENS share repurchase announcements revealed that 121 JSE listed companies repurchased about R50 billion worth of shares up to 30 June 2007. The bulk of the shares, 65% by value, were repurchased on the open market, while 35% was repurchased through specific fixed price offers. However, a comparison of accurate share repurchase data obtained from a sample of company annual reports, indicate that repurchase announcements understate actual repurchases by more than 20% on average. Further analysis of distribution trends were therefore based on actual repurchase data published in annual reports rather than SENS announcements. After the legalisation of share repurchases in South Africa, a decline in dividend paying companies was expected similar to that experienced by the United States since the 80's. However, a detailed analysis of 132 industrial listed companies indicated that the proportion of dividend paying companies increased from a level of 50% to almost 75% since the introduction of share repurchases. On the other hand, the proportion of companies repurchasing shares initially rose to over 25%, but then declined to below 20% by 2007. Ordinary dividends are the dominant shareholder distribution choice with 64% of companies opting for this method. Open market share repurchases have been well adopted with 17% of companies using this method, while only 5% and 4% of companies using special dividends or specific repurchases respectively. Dividends paid out of share premium (capital distributions) have also emerged as a favourite over recent years with almost 20% of companies using this shareholder distribution method. Current tax legislation do not provide all the advantages usually enjoyed by share repurchases internationally and have largely prevented dividends from being substituted by share repurchases. The decline in share repurchases up to 2007 also indicates that share repurchases become less effective as share prices increase to overvalued levels. While tax implications and stock price valuation remain the dominant determinants of shareholder distribution choice, this study shows that shareholder diversity, dividend preferences, size of distribution, and BEE requirements also have significant influences on the choice of distribution method in the South African context. / AFRIKAANSE OPSOMMING: Die terugkoop van aandele deur Suid-Afrikaanse maatskappye is wettig sedert 1 Julie 1999. Dit het 'n alternatief tot dividende in werking gestel om kontant aan aandeelhouers uit te keer. Alhoewel dividende en aandele-terugkoop dieselfde waarde in 'n perfekte doeltreffende mark realiseer, vereis die tekortkominge van die Suid-Afrikaanse aandelemark dat bestuurders faktore soos belasting en aandeelpryswaardasie versigtig moet oorweeg tydens die keuse van geskikte uitkeringsmetodes. Die doelwit van hierdie navorsingsverslag is om die tendense van uitkerings aan aandeelhouers te hersien vir industriele JSE-genoteerde maatskappye oor die laaste 10 jaar om sodoende die effek van aandele-terugkope op dividenduitbetalings te bepaal. Verder ondersoek hierdie navorsingsverslag ook die faktore wat moonlik 'n invloed op aandeelhouers-uitkeringskeuses gehad het, om sodoende riglyne vir die keuse van geskikte uitkeringsmetodes saam te stel. 'n Voorlopige analise van SENS-terugkoopaankondigings toon dat 121 JSE-genoteerde maatskappye ongeveer R50 miljard se aandele teruggekoop het tot en met 30 Junie 2007. Die grootste gedeelte van hierdie aandele, 65% se waarde, is op die ope mark teruggekoop terwyl 35% deur spesifieke vasteprys terugkope verkry is. 'n Vergelyking met terugkoopsyfers wat uit 'n steekproef van maatskappyjaarverslae geneem is, dui egter daarop dat aankondigings die ware terugkope met gemiddeld 20% onderskat. Verdere ontleding van aandeelhouers-uitkeringstendense word derhalwe gebaseer op syfers wat in jaarverslae gepubliseer is, eerder as SENS-aankondigings. Na die wettiging van aandele-terugkoop in Suid-Afrika, is verwag dat dividenduitbetalings sou daal soortgelyk aan dit wat in die Verenigde State ondervind is sedert die 80's. Die ondersoek van 132 genoteerde industriele maatskappye toon egter dat die persentasie van maatskappye wat dividende betaal van 50% tot bykans 75% toegeneem het sedert aandele-terugkoop 'n beskikbare opsie is. In teenstelling hiermee, het die persentasie maatskappye wat aandele terugkoop aanvanklik tot 25% gestyg, maar sedertdien afgeneem tot onder 20% teen 2007. Gewone dividende is die gewildste aandeelhouers-uitkeringsmetode met 64% van maatskappye wat van hierdie metode gebruik maak. Aandele-terugkope op die ope mark is goed verteenwoordig met 17% van maatskappye wat van hierdie metode gebruik gemaak het, terwyl slegs 5% en 4% van maatskappye onderskeidelik van spesiale dividende en spesifieke aandele-terugkope gebruik gemaak het. Dividende uit aandelepremie (kapitaaluitkerings) het ook na vore getree as 'n gunsteling keuse in die laaste paar jaar met bykans 20% van maatskappye wat hierdie uitkeringsmetode gebruik het. Huidige belastingswetgewing bied nie al die belastingvoordele aan aandele-terugkope wat normaalweg deur internasionale maatskappye benut word nie en het grotendeels verhoed dat dividende deur aandele-terugkoop vervang is. Die afname in aandeleterugkope tot en met 2007 is ook 'n aanduiding dat dit minder effektief raak soos wat aandeelpryse oor gewaardeerde vlakke styg. Terwyl belasting-oorwegings en aandeelpryswaardasies steeds die dominante drywers van aandeelhouersuitkeringskeuses bly, bevind hierdie studie dat faktore soos aandeelhouers se diversiteit, dividendvoorkeure, grootte van uitkerings, en vereistes van swart ekonomiese bemagtiging ook 'n noemenswaardige invloed op uitkeringskeuses binne die Suid-Afrikaanse konteks het.