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How to Create $104 million Out of Thin Air - When Your Stock Is Getting Creamed, Start a Buy Back Program
posted by MR WAVETHEORY at 9/27/2006 04:35:00 PM
What is more morally reprehensible and more financially lucrative: backdating stock options or buying back your own stock when your stock is cratering? Apparently, buying back your stock. The management of Cryptologic, Inc. (Nasdaq CRYP) recently announced "CryptoLogic Announces Renewal of Normal Course Issuer Bid"
While the stock was tanking recently, the company has been supporting the stock (see the chart price in July). The buyback added about $8 to the stock price from a low of roughly $18 between July and September. The stock reached as high as $26. In other words, the buy back created roughly $104 million in market cap for a company that prior to the buyback was worth $244 million.
CryptoLogic's share purchase program authorizes the company to purchase up to 1.35 million shares of the issued common shares, representing approximately 10% of the public float. There are currently 13,604,984 common shares issued and outstanding.
Buying back stock can be very lucrative. It looks like the company is manipulating the stock price and fighting short sellers. This follows after negative news that it is moving its headquarters from Toronta to Ireland and that it will have to take charges.
Under its 2005/2006 bid, CryptoLogic most recently repurchased and cancelled 239,200 shares at an average price of Cdn$19.44.
Shareholders continued to punish CryptoLogic Inc. after the company's announcement Monday that it will take a one-time charge of $8-$8.5 million, plus an additional $2.5-$3 million annual expense, to move its corporate headquarters to Ireland.