GHI 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 GHI Co. fell by 7 percent. Which one of these explanations could reasonably explain the drop in share price?
A) The willingness of the large investor to accept the targeted stock repurchase signals that the large investor believes the company will not do well in the future.
B) A targeted stock repurchase essentially transfers value from the average investor to the targeted investor.
C) Investors believe that the company's management is entrenching itself by buying off any large block shareholders.
D) Both a and c are possible explanations.
Answer: C
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