One of the best methods a private company can use to hire and retain good companies is to offer stock incentives. When the company later goes public, the employees are typically rewarded for their efforts. This gives people incentive to work for the company and stay working even in difficult times.
Last week, Demand Media stock (DMD) hit a low price of $7.12/share. This morning, the company announced a $25 million share repurchase program. In announcing the news, company CEO Richard Rosenblatt stated, “This share repurchase program reflects confidence in our business and our commitment to maximize shareholder value.”
This is how the company explained the program in the press release:
Under the program, Demand Media is authorized to repurchase up to $25 million of its outstanding shares from time to time on the open market or in negotiated transactions. The timing and amounts of any purchases will be based on share price, market conditions and other factors. The program does not require the Company to purchase any specific number of shares and may be suspended or discontinued at management’s discretion at any time without prior notice.
The part about “in negotiated transactions” makes me wonder if this will allow the company to purchase shares directly from employees who own company stock.
One might imagine employees are nervous about the precipitous decline in stock price since the company went public and managed to reach a price of $27.38/share just a few months prior. By repurchasing shares from employees, the company could allay some of their fears and reward them for their hard work over the past months and years.
I am certainly not the most knowledgable about this type of thing, but if I were a DMD employee with stock, I would be nervous about the value of my stock, especially given the state of the economy. If you aren’t aware, Demand Media owns domain registrar Enom as well as NameJet.