Why Do Companies Skip Cheaper Preferred Shares When Canceling Stock?

A large corporation announces it will spend 100 billion won canceling its own shares. Shareholders cheer. But a few investors notice something odd: the company's preferred shares trade at more than 50% below the common share price. Quietly, they wonder — why buy the expensive ones?

What Are Preferred Shares?

Stocks come in two main flavors. Common shares are what most people picture when they think of stocks — they come with voting rights at shareholder meetings and the potential for dividends. Preferred shares live up to their name by receiving dividends first, before common shareholders. The trade-off? Preferred shares carry little to no voting rights. You can't vote on who runs the company or how it's managed. Economically, both types represent ownership in the same business — yet that single difference in voting power causes preferred shares to trade at a 30–70% discount to common shares.

Why Is Share Cancellation Good for Shareholders?

When a company buys its own shares on the open market and destroys them, that's called a share buyback and cancellation. Think of a pizza cut into 8 slices — if 4 slices disappear, each remaining slice gets bigger. As the total number of shares in circulation shrinks, each surviving share represents a larger slice of the company's value. Earnings per share go up, and so does each shareholder's proportional stake. That's why share cancellation is considered one of the most direct forms of shareholder return — giving value back to the people who own the company.

So Why Do Companies Always Cancel Common Shares?

Actually, companies have their reasons — though they're not always flattering. First, there's liquidity. Common shares trade in massive volumes every day, making large purchases straightforward. Preferred share markets are far thinner. Try to buy a significant block of preferred shares and the price spikes before you can accumulate enough — erasing the discount you were counting on. Second, there's the voting structure. Canceling common shares shifts the proportion of remaining shares, quietly increasing the controlling shareholders' voting power. Canceling preferred shares leaves the voting balance untouched. Third — and honestly — there's simple managerial convenience. Choosing the more complex path takes effort that some management teams prefer to avoid.

For small investors, this matters for a specific reason. It means a more efficient option existed — and wasn't taken. If the company had used that same 100 billion won to cancel preferred shares, each remaining share could have gained significantly more value. That gap is real, and it didn't flow back to shareholders.

'Shareholder return' sounds like one thing, but how it's done is always a choice — management's choice. Dividends, common share buybacks, preferred share buybacks: each path delivers a different outcome for investors. The size of a buyback grabs headlines, but the method quietly shapes how much value actually reaches shareholders. Paying attention to both is one way of seeing a company more clearly.