Lets do an analogy. You and a partner own a business. You want to buy him out. He says yes. You pay him for his ownership stake, and continue on with the business A little smaller, but still profitable. Your partner uses the money to go out and invests in another business. That other business grows.
Similar to a stock buyback. It is currently legal, and should remain so. All businesses, big and small should be allowed to expand, or contract as they see fit. Free market capitalism at work. Remember, the bought out stockholders will be doing something with the money they get from the the buyback. In many case they will be investing in the stock of other companies.