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Marathon Petroleum Corporation (MPC) is currently offering to buy back $4 billion USD of their stock (reference).

The minimum they will pay is $56, and the maximum is $63.

Given that this equity is currently trading at $63.61, why would someone want to do this?

Even if MPC was currently trading at only $63, why would it be appealing to sell it back to MPC instead of just trading it on the open market?

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    What was the price before the buy-back was announced? I don't know the details of the offer, but if the $63 is more-or-less guaranteed, one might expect the price to rise to roughly that level once it was announced.
    – TripeHound
    Commented Jun 10, 2021 at 9:48
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    Well, if the stock were to fall below $56 upon release of this news then getting $56 is all of the sudden quite attractive.
    – MonkeyZeus
    Commented Jun 10, 2021 at 16:56

3 Answers 3

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One would sell the shares for the same reasons they are sold on the open market. Indeed, many share buybacks are performed on the open market, see how does a share buyback work

Additionally, companies may directly buy back large positions from major investors. If you have a major position, it can be difficult to sell it without affecting the price. In this case it can be more profitable to sell a share at 98% of its market price and not drive the price down.

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    The second reason is the critical one - major investors (when you count your holdings in significant percentages of the total market cap) cannot simply sell an arbitrary number of shares on the open market without running out of buyers. This absolutely drives the share price down and negatively affects the remainder of their position, which takes a hit directly due to the sale. A buyback lets large investors shed some of their position in an environment that favours a share price increase (because supply is contracting), so their remaining position actually gets a boost.
    – J...
    Commented Jun 10, 2021 at 17:06
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    I think this comment does a better job of explaining an idea I was trying to get across in my answer.
    – chepner
    Commented Jun 10, 2021 at 17:54
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    @chepner It's a slightly different angle than your answer (which was also very good, and +1 from me!). I think they're more complementary.
    – J...
    Commented Jun 10, 2021 at 20:45
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The price was around $60/share when the buyback was announced. My wild guess is that in response to selling off the Speedway brand, they were concerned about investors dumping stock, which could send the price much lower. By offering a minimum price, they can absorb the more "panicky" sellers and keep the price above $56. At the same time, if the price did (and apparently has) gone above $63, they see less need to reduce the number of outstanding shares.

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  • "My wild guess is that in response to selling off the Speedway brand, they were concerned about investors dumping stock" — Why would the company think that investors are going to dump the stock? Note that I know next to nothing about Marathon Petroleum Corporation.
    – Flux
    Commented Jun 11, 2021 at 1:14
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    "Dumping stock" may have been an overstatement. But selling off a significant(?) chunk of the company could lead investors to believe that the stock is now overvalued, even after taking into account whatever money was brought in by the sale. (A business unit can continue to bring in revenue indefinitely, but a sale provides a fixed amount of cash.)
    – chepner
    Commented Jun 11, 2021 at 1:16
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A sale via a buy-back, has two major differences between a sale on the open market. One it is a significant statement of confidence in the company by the current stockholders. Two, it prevents the price dropping due to a large sale. Typically, a sale that can be described in percentages, is due to either gain or loss of confidence in the company. If someone is selling 5% of a company, that means they have decided that it is more valuable to have something else. But if someone who owns 10% sells half of that, not only do they get cash, the value of their remaining stock rises. So the sale doesn’t represent the same loss of confidence in the company that it would be if it was sold to a 3rd party.

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