Venus Co. has just announced that the board has reached a targeted stock repurchase agreement with a large stockholder. The company will repurchase all of the large investor's stock for 90 percent of the current market value. When the stock repurchase was announced, the shares of Venus Co. fell by 7 percent. Which of these explanations could reasonably explain the drop in share price?

Question

Quizplus · Accepted Answer

The drop in share price can be attributed to both the perception that the large investor selling their shares might believe the company will perform poorly in the future (A), and the concern that the management is entrenching itself by removing potential challengers through targeted repurchases (C). Both of these reasons can lead to negative sentiment among other investors, causing a decrease in share price.

Venus Co Has Just Announced That the Board Has Reached a a Targeted