SHARE

REPURCHASE

PRESENTED BY-NIRAJ SAH

Take back the equity shares from market

or shareholders by paying cash and

reduce equity shares available in the

share market. It is also known as a stock

repurchase. cash is exchanged for a reduction in the

number of shares outstanding. The firm

either retires the shares or keeps them

as treasury stock, available for re

issuance.

Buy- Back of shares-Meaning

Valuation Of Buy back:-

Average Closing Price:-

W

eighted Average for Volume

Invitation To Shareholder:-

T

o invite shareholder to sell some or all

of their shares within a set price range.

1.Low Price Range 2.Top Price Range

methods 1. Open market share purchase: --95% of repurchase is done through this

method--Daily re-purchase of shares from market

is limited--The company may not openly announce

that it will re-purchase shares from open market

Fixed price tender offer

Single purchase price and number of shares sought are mentioned.

Person would like to sell to the company should come with offer of the price and number of shares that he offers to the company.

The fixed price is usually set at a premium above the current market price.

3. Dutch auction share repurchases

Range of prices that the company

would like to re-purchase are

mentioned in the offer. Shareholders

can indicate their prices within the

rage prescribed.

Lowest bidder to highest price bidder

are chosen

The company has right to cancel the

entire offer if a few take holders.

4.Equal access buy-backs

All share holders have given equal opportunity to sell shares to the company.

5.Selective buy-backs

In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. The scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favour of a special resolution to approve a selective buy-back

on-market buy-backs and minimum holding buy-back

A listed company may also buy back its shares in on-market trading on the stock exchange, following the passing of an ordinary resolution.The stock exchange’s rules apply to on-market buy-backs.

A listed company may also buy unmarketable parcels of shares from shareholders (called a minimum holding buy-back). This does not require a resolution but the purchased shares must still be cancelled.

CASE STUDY : BERGER PAINTSCASE STUDY : BERGER PAINTS

17 December, 1923- Started

Presently Dhingra , their relatives and companies controlled by them, currently hold 73.53% of the paid-up capital of the Company.

Profit making company having an uninterrupted dividend record since 1981.

OBJECTIVE

To provide an exit opportunity to those shareholders who so desire

In a manner that does not substantially impact the market price of the Company’s shares, has been made

This is expected to enhance the EPS of the Company in future and create long-term share value.

THE OFFER AND PRICE

29 April, 2005 -approved the proposal for buy-back of the Company’s own fully equity shares of Rs. 2/- each.

Buy-back to the extent of or less than: 10% of the paid up equity capital and free

reserves of the Company not exceed 25% of the paid up equity capital

of the Company at a price not exceeding Rs. 60/- per equity

share and the total amount of consideration not

exceeding Rs. 1859 lakhs.

• The number of equity shares bought back would depend upon the average price paid for the equity shares bought back.

maximum offer price = Rs. 60/- per equity share

aggregate consideration amount=Rs.1859 lakhs

maximum number of shares = 3098333 equity shares

aggregating=1.56% of the total paid up equity shares as on 29 April 2005.

The aggregate shareholding of the promoters as on 29 April 2005 is 146543273 equity shares constituting 73.53 % of the listed share capital of the Company.

Share purchased - 1009924 equity shares The maximum purchase price - Rs. 37.00 on

2 February, 2005 The minimum purchase price was Rs. 30.75

on 9 November, 2004 Shares Sold - 89620 equity shares

representing inter se sale among promoters only.

IMPACT

• The buy-back had not impaired the growth of the Company and also contributes to the overall enhancement of shareholder value.

• Generated sufficient cash flows to meet the requirements of the present business and to its stakeholders.

• The debt equity = 2:1

Why Companies Go For Buy Back

Restriction’s On Buyback

A special resolution has to be passed in general meeting of the shareholders.

Buyback should not exceed 25% of the total paid-up capital and free reserves.

A declaration of solvency has to be filed with SEBI and Registrar Of Companies.

The shares bought back should be extinguished and physically destroyed.

The company should not make any further issue of securities within 2 years, except bonus, conversion of warrants, etc.

Effect of Buy Back on Stock Exchange

Abnormal increase In Share Price

Reduction In Investors Interest

Penalty:-Company or Any Officer Who At The Default:-

Punishable with Imprisonment May Extend To 2 Year’s.

May Be Rs.50,000.

Or Both Of Above.

Contradicting sections on Buy- back of shares in India

Section 77 of the Companies Act does not allow a company to buy its own shares until the winding up of companies.

But the subsequent Section 77A permits buyback subject to certain conditions.

Section-77 of the Companies Act Most of the sections in the Companies

Act tries to protect the interest of the outsiders who had lent money in the form of debentures or loans or deposits by restricting company not to pay unless outsiders(loan vendors) are paid fully.

Share holders are paid last and has taken maximum risk in the company.

Buy Back Of Reliance Energy 2008

Mr. Anil Ambani (Reliance Energy) bought back 6,50,000 equity shares of the company in the morning on Tuesday at nearly Rs.1,279.23/share aggregating Rs.831.5 million.

Amounting 10 % the company`s equity and free reserves.

Reason:- To increase the price of its shares.

Result:- At noon Friday, shares of the company were trading at Rs.1,310 up by Rs.28.20 from its previous close at the BSE.

Buy Backs in Future

Reliance Industries, 12 crores shares worth Rs 10,440 crores.

JP Morgan chase and co, 370 million shares worth $15 billion

Apple, shares worth $10 billion following the end of fourth qtr.

CONCLCONCLUSIONUSION CONCLUSION

Buybacks should be used as an opportunity to exit only when there is concern over a company’s prospects or when the post-buyback free float is expected to shrink considerably. In most other cases, buybacks do offer the lure of an immediate benefit–but you might be better off as a residual shareholder, and gain from a hike in the share of assets and profits of the business.

THANKS!!!

PRESENTED BY-NIRAJ & SISHIR, FF1