Dutch auction investment & finance definition
An
auction with one seller and many buyers in which the price is reduced from a
high starting point until the bidders find a point that is attractive to enough
buyers. This is the auction system that is used by the U.S. Department of the
Treasury to sell its debt obligations.
See Dutch auction in Wall Street Words
An auction in which the seller reduces the offering price until a level can be found that clears the market. This is the price at which all sales will take place. The auction for Treasury bills is similar to this except that the Treasury accepts the highest bids first and works through progressively lower bids until an issue is completely sold. Thus, in a Treasury bill auction, various prices are accepted.
Case Study Whittaker Corporation announced plans in 1986 to sell several of its business units and use the proceeds to repurchase a significant proportion of its own outstanding stock. The stock buyback was to occur through a process by which Whittaker's shareholders could submit offers for varying numbers of shares at various prices. A shareholder might submit an offer to sell 500 shares at $35; 500 shares at $34; and 500 shares at $33, for example. Depending on the number of available shares and the prices offered by the shareholders, Whittaker would then set a price at which it would purchase the stock. Thus, if Whittaker set a price of $34.75, the shareholder would sell 1,000 shares (those offered at $34.75 or less) at a price of $34.75 each. Whittaker undertook the Dutch auction to determine the lowest price at which it could buy back the desired number of shares.
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