How to Value Resale of Treasury Stock
Treasury stock is the stock a corporation buys back from its shareholders. It is held in the company treasury and has no voting rights, ownership or liquidation value while held in treasury. The cost of buying the stock decreases the company's shareholder equity because the stock has been removed from the stock outstanding. If treasury stock is not retired by the board of directors of the company, it can be used for employee bonuses or stock dividends, or re-sold to investors.
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Instructions
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If the company is trading on an exchange, value the stock at market price. The investor does not pay any additional sales commissions on the stock purchase, which is why many investors buy stock directly from the issuing companies.
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Issue the stock at market price less a discount. This method is used to pay for services, to obtain financing, and to reissue stock in a secondary offering to the market. Discounts to market price vary from a few percent below market price to as much as 50 percent below market price and are determined through negotiation.
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If the stock of the company is not trading on an exchange, have the company professionally valued. Determine the value of treasury stock by dividing the total asset value of the company, or the most recent valuation, by the number of shares of stock outstanding, which will give you the valuation per share. This is an appropriate price to charge for resale of treasury stock. When figuring the valuation per share, use the proforma valuation that includes the additional shares to be reissued.
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If the treasury stock is a different series of stock in a company that has a stock trading on an exchange, the procedure for valuing it is slightly different. The price must be adjusted for rights differences between the common stock that is trading and the series being reissued. For example: if the series being reissued from treasury is non-voting or subordinated in liquidation rights, it should be priced lower than the market price of the common. If it carries a dividend or is senior in liquidation rights to the common, it should be priced higher. The way to determine that price is to select a group of similar-size companies with trading stock similar in provisions to the one you are pricing. Adjust for price/earnings ratio differences across industries and then adjust for return on equity, price-to-book-value and cash per share until you arrive at a stock price that can be supported by examples as a proper valuation.
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Tips & Warnings
All stock sells via negotiated pricing. Even exchange traded stock is priced by negotiation via the bid and ask system. It just is more organized in its operation. So, if you are attempting to price a difficult-to-compare series, negotiation with the buyer may be the only way to arrive at a price that is mutually agreeable. This would be particularly applicable in pricing stock that had originally been issued for a special purpose, then repurchased by the company and held as treasury stock.
In pricing treasury stock, the difference in what you paid for it and the price at which you resell it directly impacts paid-in capital. Always take into account the effect of any purchase or sale of your company stock before you complete the transaction.
