Buyback of Shares

Group Members
Amir Khusroo (JIML-09-010)
Ankit Srivastava (JIML-09-022)
Divyank Gupta (JIML-09-051)
Gyan Prakash (JIML-09-055)
Hari Shanker Tiwari (JIML-09-56)
Harsh Nagar (JIML-09-057)
Mayank Sharma (JIML-09-078)
Shrey Sharma (JIML-09-150)
Agenda
What is buy back
Pros and cons
History of buy back
Conditions of buy back
Methods of buy back of unlisted and listed
companies with case studies
Pitfalls
Manipulations
Other points

What Is Buyback?
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.

In simple words, "Buyback is the buying back
of shares from the existing shareholders of a
company by the company."
Objectives of Buyback
To increase promoters holding


Before BB

After BB
Total number of o/s shares

100000

80000

Promoters 40000
(40%)

40000
(50%)
Others
60000
(60%)


40000
(50%)

ObjectivesContd
To increase earning per share



Before BB

After BB
Total number of o/s shares

10000

9000

PAT

100000

100000

EPS (PAT/No of o/s shares)

10

11.11

ObjectivesContd
Rationalize the capital structure by writing off
capital not represented by available assets
Show rosier financials
To pay surplus cash as an alternative to a higher
dividend payment or investing
To thwart the attempts of a hostile take-over
ObjectivesContd
Exit option
Employee stock option plans (ESOPs)
Support share value- Eg.Bajaj Auto & Reliance
Tax Gains
Market Perception
Pros of buyback
To the company:
Prevent hostile takeovers
Gives flexibility in the capital structure & financial
position
To support share prices
Reduces capital and thus improves EPS & ROE of the
Company post buy-back
Freeing up cash reserves will improve ROA & ROE

Pros of buyback
To the Shareholders:
Tax Gains
Higher share price
Higher proportional share

Cons of Buyback
Regulatory requirement
Reduces cash surpluses
Post Buy-back Debt Equity ratio not to exceed
2:1
Maximum equity shares limit
Maximum Amount


History of Buy Back
Prior to 98 restricted buybacks
Ordinance by Government of India (GOI) on
October 31, 1998
Insertions of sections 77A,77AA,77B
Governed by SEBI (SAST), SEBI (Buyback of
securities) regulation
MNCs- Delisting
e.g. Cadbury India, Kotak India, Blue Dart etc.

Resources of Buy Back
(under Companies Act 1956 section 77A)

A company can purchase its shares out of:
free reserves
securities premium account; or
proceeds of any shares or other specified
securities.
Methods of Buy Back of Shares for
listed companies (under SEBI Regulations)
from the existing shareholders on a
proportionate basis through the tender offer

from open market through stock exchanges, and
book building process

from shareholders holding odd lot shares.
General Procedure
Special Resolution
The Explanatory Statement.
Public announcement specifying the record date.
Appointment of Merchant Bankers.
Compliance officer and an investor service center.
Filing of the offer document.
Freedom to fix the price of shares for buy back.







General Procedure

For Promoters

Advertisement has to be given in the
newspapers within 2 days of completion of buy
back.
General Restrictions

For Promoters

For the company

Buy back is not allowed through spot transactions or
private arrangements

Public announcement

The shares which are locked-in or which are non-
transferable are not allowed to be bought back

Special Resolution
7 days
File with SE & SEBI
File with SE and SEBI and give Public
Notice in News Paper
2days
Public Announcement
7 days
File draft LoF
SEBI modifies
document if needed
21 days
+ 30 to 42 days
Specified date
+ 7 to 30 days
Opening Day
+ 15 to 30 days
Closing Day
Verification of shares / Acceptance
Rejection of Offer
15 days
Payment of consideration / Extinguishment of
shares
7 days
Board Resolution
Time line for tender offer
The Company manufactures and markets speciality drugs and
active pharmaceutical ingredients for chronic therapy areas
the Company was ranked 5th among all Indian pharma
companies with an about 2.93% Market Share in 2003-04

1
st
buyback
Sun Pharma in the past has already bought back equity
shares.
This was through Open Market through Stock Exchanges for
25%.
Particulars of first buy back

Particulars 1
st
buy back
Date of offer:
Opening:
Closing:

7 Jan 2003
6 Oct 2003
Merchant banker JM Morgan Stanley
No. of shares bought back 832938
Offer price 750
Shares prior to buy back 46794308100
Shares post buy back 46793475162
Details of BuyBack
The offer was for 100% Buy-back of 154517050
outstanding 6% Cumulative Redeemable Preference
Shares of face value of Re.1/- each
At a price of Rs. 1.03/- per Preference Share
Through Tender Offer. .

Particulars of Second Buy Back

Reasons For The Offer
Requests from some of the Preference Shareholders of
Company for Buy-back of Preference Shares
The Company had sufficient accumulated free reserves
and satisfactory liquidity. There was no immediate need for
these funds
Reserves and Surplus (Rs. In Lacs)
Capital Reserve 67
Share Premium Nil
Capital Redemption Reserve 3472
Share Capital Buy back Reserve 41
General Reserve 58631
Profit & Loss Account 22113
TOTAL 84324
Result
The offer received 90.77% success at RS 1.03 per share.
The total consideration paid was Rs 144469780
They received 140261922 preference shares
The post buyback preference shares had come down to
10047270 from 154517050

Ratios

Particulars Pre- buy back Post buy back
Earning Per Share 9.6 4.3
Price / earning ratio 67.60 99.30
Buyback from Open Market
The buy-back of shares from the open
market may be in any one of the following
methods:
a) through stock exchange
b) Book Building process.
Conditions
General procedures
Stock exchanges with electronic trading facility
Buy-back only through order matching
mechanism
Information to stock exchange on regular basis
Verification of Acceptances
Extinguishment of certificates
Public Announcement

File copy with SEBI
Commencement of Buy Back
2 days
7 days
Purchase of Shares
15 days
Verification of Acceptances
Pay- Out
Extinguishment of shares
7 days
Completion of buy back
Special / BOD Resolution
1 year
Timeline
Reliance Industries
Largest private sector company
Total assets of 93,095 crores
4% of the total market capitalization
Weightage of 10.6% in the Sensex
Weightage of 8.6% in the Nifty
8% in Indirect tax revenues

Brief background
Announced the largest buyback programme
in April 2000
Set apart 1100 crore
Share priced not more than Rs.300
RIL did not pick a single share in the last
buyback programme

Particulars of buyback
Announced on 28
th
Dec04
Date of Offer:
Opening
Closing

11
th
Jan05
Dec05
Shares to be bought back 52 million
Aggregate Amt Rs.2999cr
Max offer price per share Rs.570
One of the Merchant Bankers
J.M.Morgan
Stanley
Reasons for buyback
The buyback proposal in response to the fall in the
RIL share price
Stock had fallen 12% from Rs.544 on 17th
November to Rs.480.65 on 20th December
To manage stock price volatility
Decrease overall cost of capital
Increase earning per share
To return money to the shareholders in a tax
efficient and investor friendly fashion
Buy Back Period
Result of buyback
1
st
day of buyback- 6,29,800 shares

Rs.539.62
Scrip price (fell 1.36%) Rs.533.50
Buyback closed on

2
nd
Aug05

Shares bought back
2.86 million
shares
Total Amt (a small fraction)

Rs.149.6 cr
India Bulls Ltd.
Indias leading Financial Services and Real Estate
company having presence over 414 locations in more
than 124 cities

Listed at NSE, BSE, LSE, Luxemburg Stock
Exchange

Market Capitalization - $800 million ( approx )

Net Worth USD 500 million ( approx )

Source :- Company Website
Particulars of Buy Back
Announced on 18
th
Nov, 2005
Date of Offer:
Opening
Closing

09
th
Dec, 05
16
th
Feb, 06
Shares to be bought back 18,09,523
Aggregate Amt Rs.38 crores
Max offer price per share Rs.210
One of the Merchant Bankers J M Morgan
Stanley Pvt Ltd.
Stock Movement
Public
Announcement
Approval
in BM
1
st
day of buy-back
Effect of Buy Back
Particulars Before Buy Back After Buy Back
EPS 4.13 4.38
P/E 47.94 58.38
Shareholding Pattern
After Buy Back
30.34
35.7
33.96
0
5
10
15
20
25
30
35
40
Promoters Non -
Promoters
Others
% Stake
Before Buy Back
30
22.78
47.22
0
10
20
30
40
50
Promoters Non -
Promoters
Others
% Stake
Role of a Merchant Banker
The merchant banker shall ensure that :
Furnish to the Board a due diligence certificate with the draft
letter of offer
The public announcement of buy-back is made as per the
terms of the regulations
The merchant banker shall ensure that the contents of the
public announcement of offer as well as the letter of offer are
true, fair and adequate and quoting the source wherever
necessary
The letter of offer has been filed as per SEBI guidelines
The company is able to implement the offer

Role of a Merchant Banker
The provisions relating to Escrow Account, as per the
regulations, has been made
Firm arrangements of money for payment to fulfill the
obligations under the offer are in place
The merchant banker shall ensure compliance of section 77A
and section 77B of the Companies Act, and other laws or rules
as may be applicable
Ensuring release of balance Escrow amount deposited with the
bank
Ensuring that the certificates of the bought back shares are
destroyed as per the guidelines of SEBI
The merchant banker shall send a final report to the Board
within 15 days from the date of closure of the buy-back offer