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Buy Back of Shares

  • A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market.
  • Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake.
  • Buybacks are carried out in two ways: (a) Tender offer or (b) Open market offer. We will discuss process of participating in buyback through the tender offer process.

Reasons of Buy-back:-

  1. To improve Earnings per Share;
  2. To use ideal cash;
  3. To give confidence to the Shareholders at the time of falling price;
  4. To increase promoters shareholding to reduce the chances of takeover;
  5. To improve return on capital ,return on net-worth;
  6. To return surplus cash to the Shareholder.
OTHER RELATED TOPICS

Modes of Buy-back

A Company may buy-back its Shares or other specified Securities by any of the following method -

  1. From the existing shareholders or other specified holders on a proportionate basis through the tender offer;
  2. From the open market through1. Book-Building process.
  3. Stock Exchange.
    Provided that no buy-back for fifteen percent or more of the paid up capital and reserves of the Company can be made through open market.
  4. From odd-lot holders.

Sources of Buy-back

A Company can purchase its own shares and other specified securities out of -

  1. its free reserve; or the securities premium account; or
  2. the proceeds of the issue of any shares or other specified securities.
    However, Buy-back of any kind of shares or other specified securities cannot be made out of the proceeds of the earlier issue of same kind of shares or same kind of other specified securities.

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