Buyback Shares

Buyback Shares

What is Buyback Share?

Buyback refers to a strategic move employed by a company to repurchase its shares from the open market. This process effectively reduces the number of outstanding shares available to the public. The motivation behind such a corporate action can vary, from boosting the stock price to increasing shareholder value.

By repurchasing shares, a company can demonstrate confidence in its financial health and signal to investors that it believes the stock is undervalued.

Types of Buyback Share

Companies can utilise different types of buybacks to repurchase their shares. One common type is open market purchases, where the company buys its shares directly from the market at prevailing market prices.

This allows for flexibility in the timing and quantity of shares purchased. Another type is tender offers, where the company makes a public offer to shareholders to buy back their shares at a specified price within a specified time frame.

Tender offers allow shareholders to sell their shares back to the company if they choose to do so. Both options aim to reduce the number of outstanding shares and can have various implications for the company and its shareholders.

How to Bid for Buyback Share?

To apply for a share buyback online, ensure you understand the tendering process. Check your Demat account for the buyback option, noting the fixed price and offer validity. Verify eligibility based on the record date, ensuring shares are held before this date.

Complete the tender form provided by the company, specifying the number of shares for buyback. Upon submission, shares are transferred to the company's R&T agent, with acknowledgement from your brokerage.

Any excess tenders beyond the acceptance ratio are credited back to your Demat account. The acceptance ratio, determined by total tenders, estimates the likelihood of your shares being repurchased. Ultimately, applying for a buyback involves submitting the tender form, considering factors like the record date and fixed price.

Features of Buyback Share

One of the key features of such a corporate action is that it allows companies to repurchase their shares from existing shareholders. This process can have several reasons and implications for the company and its shareholders. Here are some important features to consider:

Reasons for Companies to Buyback Shares

• Enhancing shareholder value: By buying back shares, companies can reduce the number of outstanding shares in the market, leading to an increase in earnings per share and potentially driving up the stock price.
• Capital allocation: Companies may choose buybacks to deploy excess cash or surplus capital, particularly when they believe reinvesting in the business or paying dividends may not yield as much return.
• Tax-efficient distribution: It can be a tax-efficient way for companies to return value to shareholders, especially in comparison to issuing dividends.

Financial Implications

• Impact on earnings: By reducing the number of shares outstanding, it can boost earnings per share, potentially attracting new investors and increasing stock demand.
• Balance sheet management: It can help companies optimise their capital structure by reducing equity and improving key financial ratios.
• Debt-equity ratio: Companies may use it to offset dilution caused by equity-based compensation plans or to adjust their debt-equity ratio.

Effects on Shareholders

• Increased ownership percentage: Shareholders who do not tender their shares in the buyback can see an increase in their ownership percentage as the total number of outstanding shares decreases.
• Potential capital gains: Shareholders who participate and sell their shares at a higher price than their original purchase price can realise capital gains.
• Decreased dividend payouts: As companies allocate funds towards buybacks, it may result in reduced dividend payments, impacting income-focused investors.