Introduction: A stock buyback, also known as a "share repurchase", is a company's buying back its shares from the marketplace.

It can be thought about as a company investing in itself or using its cash to buy its own shares and because a company cannot act as its own shareholder repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each investor increases because there are fewer shares, or claims, on the earnings of the company. In this report I look at the stock repurchase program of oracle corporation which is an American multinational computer technology corporation that specializes in developing and marketing hardware systems and enterprise systems products particularly database management systems. The stock price of oracle is currently trading at $ 31.69 per share.

Oracle stock repurchase program: On the 20th of October 2008 oracle board of directors have approved a program for oracle to purchase shares of their common stock . Oracle announced that their board of directors has authorized the expansion of their repurchase program by 8.0 billion dollars and as of May 31, 2009 6.3 billion dollars was available for share repurchases pursuant to their stock repurchase program. Their stock repurchase program doesn't have an expiration date and the pace of their stock repurchase activity depends on factors such as their working capital needs , their cash requirement for acquisitions and dividends payment , their stock prices , their debt repayment obligations or repurchases of their debt and economic and market conditions. The following table summarizes the stock repurchase activity for the three months ending May 31, 2009 and the approximate dollar value of shares that may yet be purchased pursuant to our share repurchase program:

(in millions, except per share amounts)

Total Number of Approximate Dollar Total Shares Purchased Number Average as Value of Shares that May Yet Be of Shares Price Paid Part of Publicly Purchased Announced Purchased per Share Programs Under the Programs 16.0 8 19.1 1 18.8 0 17.8 5 6,414 .5 6,331 .1 6,251 .8

March 1, 2009March 31, 2009 April 1, 2009April 30, 2009 May 1, 2009May 31, 2009

5.4 $ 4.4 $ 4.2 $

5.4 $ 4.4 $ 4.2 $ 14. 0

Total

14.0 $

Oracle, which had about $13 billion in cash and marketable securities as of August, is following Microsoft Corp. and Hewlett-Packard Co. in boosting repurchase plans as the credit squeeze pushes down Share buybacks, which the company can elect to do from time to time, offsets the dilution to earnings that results from employee stock option and share purchase plans. By reducing shares outstanding, such programs have the effect of boosting reported earnings per share when the company reports results. The stock buyback is intended to help offset its employee stock plans as well as help it buy shares opportunistically when they are selling at prices too low for the company to resist. In addition companies might go for stock repurchase for multiple reasons such as retaining more control and ownership , to install confidence among investors in a sense when a company goes for stock buyback it means that the company management is confident that company is doing good and hence it is buying back the stocks since it knows that the prices are low and will appreciate in future. Moreover management often responses when asked about the stock repurchase that it is the best use of capital at a particular time. After all, the goal of a firm's management is to maximize return for shareholders, and a buyback generally increases

shareholder value. Nevertheless here are still sound motives that drive companies to repurchase shares. For example, management many feel the market has discounted its share price too steeply. A stock price can be pummeled by the market for many reasons like weakerthen-expected earnings results, an accounting scandal or just a poor overall economic climate. Thus, when a company spends millions of dollars buying up its own shares, it says management believes that the market has gone too far in discounting the shares - a positive sign. Another reason a company might pursue a buyback is solely to improve its financial ratios metrics upon which the market seems to be heavily focused. First of all, share buybacks reduce the number of shares outstanding. Once a company purchases its shares, it often cancels them or keeps them as treasury shares, and reduces the number of shares outstanding in the process.

Moreover, buybacks reduce the assets on the balance sheet (remember cash is an asset). As a result, return on assets (ROA) actually increases because assets are reduced; return on equity (ROE) increases because there is less outstanding equity. In general, the market views higher ROA and ROE as positives.

The buyback also helps to improve the companys price-earnings ratio (P/E). The P/E ratio is one of the most well-known and often-used measures of value. At the risk of oversimplification, when it comes to the P/E ratio, the market often thinks lower is better. The share buyback announcement usually has positive signals to the market. Oracle stock price rose 20% to $18.36 in extended trading after closing at $18.16 on the Nasdaq Stock Market. The executive of oracles do own stock options. In addition The stock buyback of oracle wasn't an alternative to paying dividends , in fact oracle announced a payment of 5 percent per share dividends on 18th of April 2009 effective on May 2009. for an annual rate of 20 cents, declaring that the dividend policy now will add a new dimension to the way it rewards investors - limited in the past to stock repurchases, acquisitions, and technological improvements. The company usually pays $0.24 dividends annually. Oracle stock price is undervalued.

http://www.wikinvest.com/stock/Oracle_(ORCL)/Stock_Repurchase_Programs

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adAY2AfGMQvI

http://blogs.oracle.com/jobsatoracle/entry/oracle_stock_pays_dividends_good_for_investors_and_em ployees