The new program replaces a previous $300 million buyback program, the final $179 million of which the company completed in February, at an average price of $49.15 per share. The new program will enable management to use its discretion to purchase Red Hat stock from time to time, as it judges market conditions to be favorable, until it has gone through the entire $300 million allocation.
The previous program allowed Red Hat to repurchase about 3 percent of its outstanding stock. The $300 million allocation is just 23 percent of the company’s cash stockpile of $1.3 billion.
Repurchasing stock is one way companies use to get rid of excess cash while bolstering their stock price (by reducing the number of shares outstanding), while securing additional shares for future (as employee options or stock grants, or for a possible secondary stock offering in the future). It’s also a strong signal that the company’s board believes that its stock has a good, upward trajectory in its future.
Photo: Do you know how hard it is to find an image to illustrate Red Hat? Instead, please enjoy this photo of an adorable old lady wearing a red hat. Credit: Ross Berteig/Flickr