Mergers and Acquisitions

HUMAN CHALLENGES IN MERGER

INTERGRATION AND
BUY BACK OF SHARES

GROUP NO: 6

GROUP MEMBERS:
AMRITHA
KEWIN
MAHESH
RAMEEZ
REKHA
RONALD
SARAH

SUBMITTED TO:
Dr. BEENA DIAZ
ASSOCIATE PROFESSOR
AIMIT

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HUMAN CHALLENGES IN MERGER INTERGRATION

Introduction
In an ideal merger, the newly created entity pools the best features of the two merging
organizations. A well planned process built on the foundations of an open, honest and
consistent communication strategy can pave the way.
Mergers and acquisitions have become a common phenomenon in recent times. A merger
of any size has implications for the workforce of these companies across the globe.
Although the merging entities give a great deal of importance to financial matters and the
outcomes, HR issues are the most neglected ones. Ironically studies show that most of the
mergers fail to bring out the desired outcomes due to people related issues. The
uncertainty brought out by poorly managed HR issues in mergers and acquisitions have
been the major reason for these failures.

HUMAN ISSUES IN PRE-MERGER INTEGRATION

The human resource issues in the mergers and acquisitions (M&A) can be classified in
two phases
• The pre-merger phase
• The post merger phase.
Literature provides ample evidence of difference in between the human resource activities
in the two stages: the pre-acquisition and post acquisition period. Due diligence is
important in the first phase while integration issues take the front seat in the later.

The pre acquisition period involves due diligence which is a due diligence in various
industries is the process through which a potential acquirer evaluates a target company or
its assets for acquisition and also assessment of the cultural and organizational differences,

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which will include the organizational cultures, role of leaders in the organization, life
cycle of the organization, and the management styles.

The organizational culture plays an important role during mergers and acquisitions as
the organizational practices, managerial styles and structures to a large extent are
determined by the organizational culture. Each organization has a different set of beliefs
and value systems, which may clash owing to the M&A activity. The exposure to a new
culture during the M&A leads to a psychological state called culture shock. The
employees not only need to abandon their own culture, values and belief but also have to
accept an entirely different culture. This exposure challenges the old organizational value
system and practices leading to stress among the employees. Research has found that
dissimilar cultures can produce feeling of hostility and significant discomfort which can
lower the commitment and cooperation on the part of the employees. In the case of culture
clash, of the cultures that is dominant culture may get preference in the organization
causing frustration and feelings of loss for the other set of employees. The employees of
non-dominating culture may also get feelings of loss of identity associated with the
acquired firm. In certain cases like acquisition of a lesser known or less profitable
organization by a better one can lead to feelings of superiority complex among the
employees of the acquiring organization. In case of hostility in the environment the
employees of two organizations may develop “us” versus “them” attitude which may be
detrimental to the organizational growth.

Problems of Integration
The post-merger integration problems may arise from the following sources:
Determinism
Determinism is a characteristic of managers who believe that the acquisition blue print can
be implemented without any change and without regard for ground realities. They tend to
forget that the blueprint was based on incomplete information. They do not consider that
the implementation process is where mutual learning between the acquirer and the
acquired takes place and the course of process is especially adaptive in the light of this
learning. Determinism leads to a rigid and unrealistic programme of integration and builds

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up hostility from the managers. Such hostility leads to non co-operative attitude among
managers and vitiating the atmosphere for a healthy transfer.
Value Destruction
At personal level, the acquisition is value destroying for managers, if integration
experience is contrary to their expectations. Value destruction may take the form of
reduced remuneration in the post merger firm or loss of power or of symbols of corporate
status. For instance, the target firm managers may be given positions which fail to
acknowledge their seniority in the pre merger target or their expertise. Where there is
perceived value destruction of this kind, again smooth integration is not possible.

Leadership Vacuum
The management of interface requires tough and enlightened leadership form the top
managers of the acquirer. Where the integration task is delegated to the operational
managers of the two firms without visible involvement or commitment of the top
management, the integration process can degenerate into mutual frictions. The top
management must be intervened to avoid frictions that arise between groups of mangers in
the integration process.

HUMAN ISSUES IN POST-MERGER INTEGRATION

Mergers and acquisitions, like organizational transitions in general, are typically followed
by major structural and cultural changes, which may arouse stress, anger, disorientation,
frustration, confusion and fright among personnel. Uncertainty and other negative
emotions, in turn, tend to lead on to the several negative organizational outcomes, like
lowered commitment and productivity, increased dissatisfaction and disloyalty, high
turnover, leadership and power struggles, sabotage and a general rise in dysfunctional
behaviors.

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The most often mentioned human risks related to the M&A situation are listed as
follows
• Voluntary turnover of key people and losses of expertise
Merger or acquisition process contains uncertainty, instability, disappointments
and creates lack of commitment. When studying the IS personnel particularly, the
voluntary labor turnover is one of the severest human risks caused by these negative
emotions. Voluntary turnover is at its highest in the early stages of the M&A process. This
is due to the uncertain and ambiguous situation where employees are uncertain of what
will happen and in which time scale the changes will came true. In mergers, personnel
issues such as job security, responsibility and salary become the most important factors
for people leaving the company. In order to dispel the suspicions, it is of utmost
importance to make sure the availability of clear information and consistency of
the communication just from the beginning of the process. Unplanned personnel losses are
specifically problematic because the probability of leaving is greatest amongst the most
talented and experienced employees. This is because; the people who are most wanted to
stay are also most readily employable elsewhere. In addition to the outflow of talent and
expertise, the costs of recruitment and retraining, losses of valuable customer contacts
and goodwill are the threats of high employee turnover. The departure of respected
organizational role models and bitter dismissals may also be harmful to the wider
reputation of the organization, which in turn causes difficulties in future recruitment

• Job losses
This is common while merger and acquisition takes place. After merger the new
company need not required all employees of both companies I,e acquired and acquiring
company in such cases the company will try to short its employees. So there is a
possibility of increased job losses.
• Lowered commitment and disloyalty
After merger, definitely the culture varies in the firm so which will result in the
lowered commitment and disloyalty in the firm. But the lowered commitment and
disloyalty may not continue for long time, once the employees becomes familiar to the
company they will try to increase the commitment.

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• Performance drops and lowered productivity

Some employees may not work hard for the company after merger because they
might have loose their interest in their job or designation so which will result in the poor
performance and lowered productivity.
• Motivational problems
After merger, the company may find it difficult to understand the needs and wants
of the new employees. So which results in the motivational problems because the
management will provide some other motivational aspects but it may not be the actual
need of the employees.
• Dissatisfaction, frustration, confusion and stress
It occurs when the merger and acquisition takes place, the initial stage of the
merger the dissatisfaction, frustration, confusion and stress will be very high and there is a
increased chances of voluntary turnover of people to avoid such things.
• Dysfunctional behavior
The dissatisfied employees may stay in the organization but there is more chances
for dysfunctional behavior by the employees. The dissatisfied will not get interest to work
hardly or to put their great commitment to their job.
• People refusing assignments
After merger the employees will not be ready to take any responsibility, each and
everyone will point the others to assign the assignments. In such cases the assignment
have to be allotted through force otherwise they will not accept it.
• Increased absenteeism
The merger and acquisition may result in the increased absenteeism in the initial
stage. Sometimes the employees may be physically present in the organization but they
may not be mentally, such presence of employees will not benefit the organization.
• Health problems
The employees may try to take more leaves to the organization with providing
health problem reasons.

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The measures to overcome the human issues in post merger integration are as
follows.

1. Company management selection criteria must reflect new requirements in

management and leadership behavior and competencies.

2. The selection process should be unbiased, professional, fast paced and managed in
a top-down direction.

3. Candidates from the former companies should be first in line for positions in the
new company.

4. To prevent political machinations a “best of both worlds” selection principle

should be applied.

5. When none of the former managers or employees fulfils the new requirements an
executive search from external sources should be immediately initiated.

6. Especially for strategic positions, the application of a “best of the market”

candidate strategy is the only possible way to lead to optimal success.

7. One of the highest priorities should be to retain the key talent residing in merging
entities and to gain their commitment and active integration support.

8. Merger-associated redundancies should be managed on a highly professional basis

to decrease the possibility of a merger’s negative impact on the rest of the
organization.

9. Extensive and honest communication helps to prevent destructive rumors.

Managing M & A

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Clearly defined communication strategy during M&A plays an important role in removing
the employee fears and kill rumors floating around in the organization. The organizations
need to reach their employees before the press as the employees will have feelings of
getting cheated. Studies show that communication strategy that involves senior managers
of the acquired organizations work well. Involving other employees who are trusted by the
employees for instance trade union leaders are also helpful. The employees meeting in
small groups so as to discuss their concerns, fears and positive feelings also helps to
lessen the stress on employees of acquired firm. The group meetings seem to help because
many-a-times employees are reluctant to come out and speak their concerns, whereas in
groups where everyone shares same set of feelings to an extent, it becomes easier to come
out with the common set of concerns and fears. This also provides confidence to
employees that the new management is willing to listen to their concerns and feelings,
building an atmosphere of mutual trust.

The transition period also becomes crucial from communication point of view. In case of
lengthy transition period the employee stress increases, the best strategy in this period is to
convince the employees that they are part of new organization and their concerns will be
taken care of. The transition period can also be used to improve communication with the
employees of acquired firm. Improved communication will help to better understand each
other’s cultures and practices. Firms can also use this period to analyze the human capital
of the acquired firm and define their possible roles in the new organizations. The
transition period provides ample opportunity to design the new organization, explain the
new roles to the employees, plan synergies and train the employees as the new role. This
will make the integration process easier for the acquiring organization.

HR takes control

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• Train managers on the nature of change

• Technical retraining

• Family assistance programs

• Stress reduction program

• Meeting between the counter parts

• Orientation programs

• Explaining new roles

• Helping people who lost jobs

• Post merger team building

• Anonymous feedback helpline for employees

The communication aspect being very important should be handled carefully by the
human resource department. The communication should provide precise information to
the employees, providing any piece of information which is unreal can lead to rumors and
counteract. The communication should be sufficient enough to answer the queries and
worries of the employees. The first set of information should be related to their future
jobs, this will help to lessen their worries related to job security. The communication
shouldn’t involve false promises which may counteract later. The communication can be
through trusted and credible employees of the acquired company and trade unions can be
involved in the process too.

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Acquisition strategy of GE Capital

The GE Capital uses a successful model called “Pathfinder” for acquiring firms.
The model disintegrates the process of M&A into four categories which are further
divided into subcategories. The four stages incorporate some of the best practices for
optimum results. The pre-aquisition phase of the model involves due diligence,
negotiations and closing of deals. This involves the cultural assessments, devising
communication strategies and evaluation of strengths and weaknesses of the business
leaders. An integration manager is also chosen at this stage. The second phase is the
foundation building. At this phase the integration plan is prepared. A team of executives
from the GE Capital and the acquiring company is formed. Also a 100 day communication
strategy is evolved and the senior management involvement and support is made clear.
The needed resources are pooled and accountability is ensured. The third is the integration
phase. Here the actual implementation and correction measures are taken. The processes
like assessing the work flow, assignment of roles etc are done at this stage. This stage also
involves continuous feedbacks and making necessary corrections in the implementation.
The last phase involves assimilation process where integration efforts are reassessed. This
stage involves long term adjustment and looking for avenues for improving the
integration. This is also the period when the organization actual starts reaping the benefits
of the acquisition. The model is dynamic in the sense that company constantly improves it
through internal discussions between the teams that share their experiences, effective tools
and refine best practices.

Acquisition strategy of Cisco

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The acquisition strategy of Cisco is an excellent example of how thorough planning

can help in successful acquisitions. After experiencing some failures in acquiring
companies, Cisco devised a three step process of acquisition. This involved, analyzing the
benefits of acquiring, understanding how the two organizations will fit together – how the
employees from the organization can match with Cisco culture and then the integration
process. In the evaluation process, Cisco looked whether there is compatibility in terms of
long term goals of the organization, work culture, geographical proximity etc. For
example Cisco believes in an organizational culture which is risk taking and adventurous.
If this is lacking in the working style of the target company, Cisco is not convinced about
the acquisition. No forced acquisitions are done and the critical element is in convincing
the various stakeholders of the target company about the future benefits. The company
insists on no layoffs and job security is guaranteed to all the employees of the acquired
company. The acquisition team of Cisco evaluates the working style of the management
of the target company, the caliber of the employees, the technology systems and the
relationship style with the employees. Once the acquisition team is convinced, an
integration strategy is rolled out. A top level integration team visits the target company
and gives clear cut information regarding Cisco and the future roles of the employees of
the acquired firm. After the acquisition, employees of the acquired firm are given 30 days
orientation training to fit into the new organizational environment. The planned process of
communication and integration has resulted in high rate of success in acquisitions for
Cisco.

BUY BACK OF SHARES

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INTRODUCTION
Buy back of securities simply implies purchase of its own shares by the Company. The
Company generally resorts to buyback so as to enhance the true or intrinsic value of its
shares or to return surplus cash to its shareholders, or to achieve desired capital structure.
The buy-back of the shares or other specified securities, if listed on a stock exchange,
shall be carried out in accordance with the Regulations framed by the SEBI. However, in
the case of securities of unlisted companies, the buy-back shall be done as per the
guidelines framed by the Central Government.

MEANING

Buyback is reverse of issue of shares by a company where it offers to take back its shares
owned by the investors at a specified price; this offer can be binding or optional to the
investors.

REASONS FOR COMPANIES TO BUYBACK

• Unused Cash

If they have huge cash reserves with not many new profitable projects to invest in
and if the company thinks the market price of its share is undervalued. Eg. Bajaj
Auto went on a massive buy back in 2000 and Reliance's recent buyback.
However, companies in emerging markets like India have growth opportunities.
Therefore applying this argument to these companies is not logical. This argument
is valid for MNCs, which already have adequate R&D budget and presence across
markets. Since their incremental growth potential limited, they can buyback shares
as a reward for their shareholders.

• Tax Gains

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Since dividends are taxed at higher rate than capital gains companies prefer
buyback to reward their investors instead of distributing cash dividends, as capital
gains tax is generally lower. At present, short-term capital gains are taxed at 10%
and long-term capital gains are not taxed.

• Market Perception

By buying their shares at a price higher than prevailing market price company
signals that its share valuation should be higher. Eg: In October 1987 stock prices
in US started crashing. Expecting further fall many companies like Citigroup, IBM
et al have come out with buyback offers worth billions of dollars at prices higher
than the prevailing rates thus stemming the fall.

Recently the prices of RIL and REL have not fallen, as expected, despite the spat
between the promoters. This is mainly attributed to the buyback offer made at
higher prices.

• Exit Option

If a company wants to exit a particular country or wants to close the company.

• Escape Monitoring of Accounts and Legal Controls

If a company wants to avoid the regulations of the market regulator by delisting.

They avoid any public scrutiny of its books of accounts.

• Show Rosier Financials

Companies try to use buyback method to show better financial ratios. For example:
When a company uses its cash to buy stock, it reduces outstanding shares and also
the assets on the balance sheet (because cash is an asset). Thus, return on assets
(ROA) actually increases with reduction in assets, and return on equity (ROE)
increases as there is less outstanding equity. If the company earnings are identical
before and after the buyback earnings per share (EPS) and the P/E ratio would

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look better even though earnings did not improve. Since investors carefully
scrutinize only EPS and P/E figures, an improvement could jump-start the stock.
For this strategy to work in the long term, the stock should truly be undervalued.

• Increase Promoter's Stake

Some companies’ buyback stock to contain the dilution in promoter holding, EPS
and reduction in prices arising out of the exercise of ESOPs issued to employees.
Any such exercising leads to increase in outstanding shares and to drop in prices.
This also gives scope to takeover bids as the share of promoters dilutes. Eg.
Technology companies which have issued ESOPs during dot-com boom in 2000-
01 have to buyback after exercise of the same. However the logic of buying back
stock to protect from hostile takeovers seem not logical. It may be noted that one
of the risks of public listing is welcoming hostile takeovers. This is one method of
market disciplining the management. Though this type of buyback is touted as
protecting over-all interests of the shareholders, it is true only when management
is considered as efficient and working in the interests of the shareholders.

Generally the intention is mix of any of the above. Sometimes Governments nationalize
the companies by taking over it and then compensates the shareholders by buying back
their shares at a predetermined price. Eg. Reserve Bank of India in 1949 by buying back
the shares.

RESTRICTIONS ON BUYBACK BY INDIAN COMPANIES

Some of the features in government regulation for buyback of shares are:

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

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

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

4. The shares bought back should be extinguished and physically destroyed;

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

These restrictions were imposed to restrict the companies from using the stock markets as
short term money provider apart from protecting interests of small investors.

BUY-BACK FROM THE OPEN MARKET

A company can buy-back its shares from the open market by any one of the following two
methods.
• Stock exchange
• Book building process

Buy-back through exchange

The important provisions of the SEBI regulation, as contained in the regulations

15 and 16, in respect of this method are as follows:

• The resolution passed by the general body or the board has to specify the
maximum price.
• The company shall appoint a merchant banker.
• Public announcement, as referred to in regulation8, has to be made at least
seven days before commencement of purchase from the stock market and
within two days of the announcement a copy, thereof, needs to be filed with
SEBI.’As referred to in regulations must be contained in the public
announcement.
• Additionally, the public announcement shall disclose the names of stock
exchanges and brokers through which buy back is to be effected.
• Buy-back can be done only though nationwide exchanges and though the
normal order matching mechanism, i.e.,excluding’all or none’ order matching
system.

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• Further, identity of the company as a purchaser must appear on the electronic

screen when the order is placed.
• The company and the merchant banker are required to submit to the stock
exchange, information regarding shares or other specified securities bought on
a daily basis. Further, they are also required to publish this information in a
national daily on a fortnightly basis as also every time an additional 5 per cent
purchase in made.
• The company has to complete the verification of the securities bought within
fifteen days of the pay out, and the securities have to destroyed and
extinguished in the same manner and time frame as in the case of buy-back
through tender offer.

Buy-back through book building:

The important provisions of the SEBI regulations, as contained in the regulations 17 and
18, in respect of this method are as follows:’
• The resolution passed by the general body or the board has to specify the
maximum price.
• The company shall appoint a merchant banker.
• Public announcement , as referred to in regulation 8, has to be made at least seven
days before commencement of buy-back and within two days of the
announcement a copy, thereof, needs to be filed with the SEBI. ‘As referred to in
regulation 8’implies that all the details as specified in schedule 2 of the
regulations must be contained in the public announcement.
• Additionally, the public announcement has to contain details about the building
process, the manner of acceptance, the format of acceptance to be sent by the
security holder and the details of the bidding centres.
• Book building process has to be made through electronically linked transparent
facility.
• The number of bidding centres shall not be less than thirty and each centre must
have at least one electronically linked computer terminal.

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• The offer has to remain open for a minimum of fifteen days and a maximum of
thirty days.
• The final buy-Back price, being the highest accepted price, shall be paid to all the
shareholders.
• The provisions relating to the verification of securities, opening of a special
account for making payment of the consideration and extinguishment of securities
shall apply as in the case of buy-back through tender offer.
The detailed procedures along with specified deadlines with regard to the buy-back
from open market method and buy-back through book building method are give in a
tabulated from in appendices 7 and 8 .The readers may go through the same.

Obligations of the merchant banker:

For any method of buy-back, the company has to appoint a merchant banker. For the
obligations of the merchant banker as specified in regulation 20, readers are advised to
refer to the text of these regulations reproduced in Appendix5. The gist of these provisions
is that the merchant banker is responsible for not only carrying out the processes but also
for:
• Ensuring that the company has an ability –financial or otherwise-to carry out the
buy-back and firm arrangements have been made for the payment of
consideration.
• Ensuring adequacy of the escrow account and releasing it only after all
obligations of the company under the regulations have been met with
• Ensuring that the contents of the public announcement and letter of offer are true,
fair and adequate.
• Ensuring compliance with the SEBI regulations, the companies act, 1956,and any
other applicable laws, rules and regulations.

Procedure for buy back of Shares by the company

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1. Where a company proposes to buy back its shares, it shall, after passing of the
special/Board resolution make a public announcement at least one English
National Daily, one Hindi National daily and Regional Language Daily at the
place where the registered office of the company is situated.
2. The public announcement shall specify a date, which shall be "specified date" for
the purpose of determining the names of shareholders to whom the letter of offer
has to be sent.
3. A public notice shall be given containing disclosures as specified in Schedule I
of the SEBI regulations.
4. A draft letter of offer shall be filed with SEBI through a merchant Banker.
The letter of offer shall then be dispatched to the members of the company.
5. A copy of the Board resolution authorising the buy back shall be filed with
the SEBI and stock exchanges.
6. The date of opening of the offer shall not be earlier than seven days or later
than 30 days after the specified date
7. The buy back offer shall remain open for a period of not less than 15 days and
not more than 30 days.
8. A company opting for buy back through the public offer or tender offer shall open
an escrow Account.

Methods of buyback of shares

Share buyback can take place in 3 ways:

1. Shareholders are presented with a tender offer where they have the option to submit a
portion of or all of their shares within a certain time period and at usually a price higher
than the current market value.

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Another variety of this is Dutch auction, in which companies state a range of prices at
which it's willing to buy and accepts the bids. It buys at the lowest price at which it can
buy the desired number of shares.

2. Through book-building process.

3. Companies can buy shares on the open market over a long-term period subject to
various regulator guidelines like SEBI

In both 1 & 2 promoters can participate in buyback and not in 3.

Buyback and its effect on investors Wealth

Background:
Buyback of shares, i.e., buying of own shares by a company having substantial cash
reserves, has been permitted in India with effect from 31st October, 1998. Before 1998, an
Indian company could buy its own shares only in consequence of reduction of capital or
ordered by the Company Law Board under Section 402, to give relief in a petition of
oppression / mismanagement.

In 1998, the Government of India in consensus with the captains of industry and stock
market fraternity decided to introduce buyback in company legislation. Since 1998,
around 250 companies have come up with Buyback offers.

Analysis: The buyback programme has seen increasing popularity amongst MNCs which
can be gauged from the growing number of open offers made by them. Over all while
there were only six buyback offers in 1999, the figure rose to eight in 2000, and jumped to
over 22 in 2008-09.
An analysis of the price movement of 22 companies which made buyback offers in 2008-
09 are as follows.
Appreciation or Depreciation of Share price after announcing Buyback

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Co Name Date Price on CMP as on 17th Returns

approval Mar-09 (%)
Reliance Infra Mar-08 1460 500 -65.75
Madras Cement Jan-08 220 66 -70.00
Sasken Com. Apr-08 190 54 -71.58
SRF Apr-08 160 73 -54.38
GT Offshore Mar-08 637 230 -63.89
Rain Comm. Sep-08 307 73 -76.22
DLF Jul-08 365 170 -53.42
TTK Healthcare Feb-09 98 96 -2.04
Supreme Indust. Dec-08 130 96 -26.15
GDL Jul-08 110 48 -56.36
Bosch Sep-08 4048 2972 -26.58
Gujrat Floro Aug-08 300 70 -76.67
Avon Org Nov-08 21 14 -33.33
ANG Auto Jul-08 99 27 -72.73
Goldiam Inter Apr-08 65 11 -83.08
HEG Sep-08 210 100 -52.38
T V India Mar-08 75 74 -1.33
India Infoline Dec-08 70 50 -28.57
IPCA Dec-08 398 307 -22.86
Monnet Ispat Nov-08 156 151 -3.21
EID Parry Dec-08 160 140 -12.50
Godrej Consumer Dec-08 145 112 -22.76
All the companies studied have shown a decline in their share prices. More than 50% (12)
of the companies have seen their share price decline by over 50% from the date of the
announcement till the date of the study, some companies declined by as much as 83
percent.

From a study of the fundamentals, its understand that price should appreciate, but as is
visible from the table above, we can see that the share prices have depreciated
substantially in general.

Indeed as a result of the buyback EPS will be stronger and price should appreciate
but people have the fear that the buyback programmes reveal that there is limited
scope of business expansion, therefore promoters put surplus money in strengthening
promoters' stake. The reason for this belief is simple, when a company has no plan of
capex or expansion and at the same time has huge cash in hand and bank, the company

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goes for buyback. This also indicates that the company has not been left with any option
of expansion or capex. Therefore people expect that growth is limited and share price
starts declining.

Conclusion of the study :

Going by the statistical data, we find that the share price always declines abruptly after the
announcement of buyback

It is a bad signal for retail investors who enter at high price during or immediately before
the announcement of buyback and exit at low prices. Therefore the prudent suggestion for
retail investors is not to enter into such scrips and the concerned authority should also take
note of the same.

Recent Examples of Buy back by MNC’s in India

• Reliance Infra buys back shares worth Rs127 crore April 15, 2009,

Anil Ambani controlled Reliance Infrastructure has bought-back 2.5 million shares,
worth Rs 127.38 crore at an average price of Rs 509.54 a share. The company has
extinguished 21, 74,572 shares till date and is in the process of extinguishing 325,428
shares that bought- back.

The buy-back commenced on February 25, 2009 and closed on April 08, 2009.

• DLF buys back shares worth Rs 140.69 cr May 2, 2009,

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The country's largest realty player, DLF, today said it has bought back over 76.38 lakh
equity shares worth Rs 140.69 crore and will close the offer with effect from May 6.

"As on May 1, the company has bought back over 76.38 lakh equity shares for an
aggregate amount of Rs 140.69 crore".

• Godrej Ind to buyback shares February . 24. 2008

Godrej Industries (GIL) is to buy back up to 2.46 crore equity shares of Rs. 6 each
representing 40 per cent of the capital from the shareholders at Rs. 18 per share.

• Bosch to buy back equity shares December 8, 2008,

Bosch, the Indian subsidiary of Germany's Bosch Group, a supplier of technology and
services in the areas of automotive and industrial technology, consumer goods and
building technology, today announced yet another open offer to buy back its fully paid-up
equity shares from its shareholders.

The company intends to buy back equity shares of face value of Rs 10 each at a price not
exceeding Rs 4,500 per equity share for an aggregate not exceeding Rs 639.2 crore.

• Madras Cements buyback at Rs 4,200/share January 31, 2008

The board of directors of Madras Cements, which met today, approved a proposal to buy
back shares at a maximum price of Rs 4,200 per share. The current market price is around
Rs 3,831.

• Sken buys back shares worth Rs 15.48 cr November 04, 2008,

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Telecom software services provider Sasken Communication’s promoters have bought

back about 14.49 lakh shares worth Rs 15.48 crore from the open market under its
buyback offer.
The promoters purchased 14.49 lakh shares, of a face value of Rs 10 each, at an average
buyback price of Rs 106.80.

ADVANTAGES OF BUY-BACK
1. One of the major advantages is that it may provide a way of increasing insider
control in firms, for they reduce the number of shares outstanding. If the insiders
do not tender their shares back, they will end up holding a larger proportion of the
firm and, consequently having a greater control.
2. Equity repurchase are much more focused in terms of paying out cash to those
stockholders who need it.
3. The decision to repurchase stock affords firms much more flexibility to reverse
themselves and/to spread the repurchase over a longer period than does the
decision to pay an equivalent special dividend. There is substantial evidence that
many firms that announce ambition stock repurchase plans do not carry them
through to completion.
4. In case of equity repurchase, shareholders have option not to sell their shares back
to firm and therefore they do not have to realize the capital gains in the period of
the equity repurchases. In the case of tax on dividends, impact of tax cannot be
avoided. Given the option between dividend and stock buy-back, both firm and an
individual stockholder stand to gain, if latter is opted for.
5. Unlike regular dividends, which imply a commitment to continue payment in
future periods, equity repurchase are viewed primarily as one-time returns of cash.
6. Equity repurchase may provide firms with a way of supporting their stock prices
when they are under assault.
7. Achieve even higher overall shareholder value enhancement.
8. Manage volatility in share price. Neutralize the impact of speculative forces and
attract long term investors.

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9. Send powerful signal to the market on perceived under-valuation.

10. Improve financial parameters, like ROE, EPS and optimize WACC, thereby
enhancing global competencies.
11. By issuing debt (source of financing) and buy-back its stock, companies should be
able to increase its leverage and accomplish financial restructuring.

DISADVANTAGES OF BUY-BACK
Manipulation: If companies are allowed buy-back of shares, management may resort to
manipulation. They may, through collusive trading, depress prices, create anxiety among
common investors, and tempt them to sell the shares to the company by making
apparently attractive offers. Corporate energies may be diverted from the main business of
the company to stock market games that may hurt the more gullible shareholders. A
company that has long-term plans would not indulge in such practices.

CONCLUSION

Buyback has no impact on the fundamentals of the economy or the company.

Therefore investors should be cautious of unscrupulous promoters' traps.

Thus buy-back is a procedure, which enables the Company to go back to its

shareholders and offer to purchase from them the shares that they hold. The decision
to buy-back reflects management’s view that the Company’s future prospects are good
and hence investing in its own shares is the best option. It also signals undervaluation
of the Company’s shares in relation to its intrinsic value. It appears that only
financially sound companies should be able to resort to buy-back. Companies should
follow the principles of model corporate governance and there should be transparency
in buy-back deals.

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BIBLIOGRAPHY

http://www.indianmba.com/Occasional_Papers/OP78/op78.html

http://en.wikipedia.org/wiki/Share_repurchase

http://ekikrat.in/Buy-Back-Shares

http://en.wikipedia.org/wiki/Treasury_stock

http://www.legalserviceindia.com/articles/shares.htm

Presented By Group No 6