Description
This is a presentation about process of share buyback, types of share buy back and effect of share buy back on share price.
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A company can buy-back their own shares or other specified securities including employees’ stock option from out of: It’s free reserves; the securities premium account; The proceeds of an earlier issue other than fresh issue of shares made specifically for buy-back purpose. The share buy-back falls under Section 77 of companies’ act.
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However, a company can purchase its own shares only if following conditions are fulfilled: The articles permit such buy-back A special resolution in general meeting authorising buy-back The company in the notice to shareholders must give an explanatory statement about the need for buy-back, the amount required for it, the time limit and completion of the process.
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Following conditions have to be met in the process of buy-back: The buy-back has to be completed within 12 months of passing the special resolution. Buy-back cannot exceed 25% of the total paid capital plus free reserves of the company. Post buy-back the debt equity ratio shall not exceed 2:1.
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Shares that are eligible for buy-back have to be fully paid. Before making purchases under this scheme companies have to file with the Registrar of Companies and SEBI a declaration of solvency.
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The securities purchased under the buyback arrangement should be extinguished and physically destroyed within seven days of the last date of the completion of the buy-back. A company which buys back its securities is prohibited from further issue of securities within a period of two years, expect bonus issues or issues in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares/debentures into equity shares.
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Companies are not allowed to buy-back securities: Through any / own subsidiary company. Through any /group of investment company. If default subsists in respect of repayment of deposits, term loans to any financial institutions and redemption of debentures or preference shares.
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The explanatory statement annexed to the notice should contain following additional disclosures: a) The minimum prices at which the buy-back of securities would be made. If the promoter intends to offer their securities; the quantum of securities proposed to be tendered and the details of their transactions and their holdings for the last six months prior to the passing of the special resolution for the buy back including the information of the number of shares acquired, the price and the date of acquisition
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The company must open an escrow account and deposit the amount as required by the SEBI regulations. The company on or before the opening the offer, deposit in an escrow amount 25% of the consideration payable up to Rs. 100 crores and 10% there after.
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The Company has to appoint a merchant banker for the purpose of the buy back. The offer should remain open to the members for period not less then fifteen days and not exceeding thirty days. The company should complete the verification of the offers, received within fifteen days of the closure of the offer and the securities lodged should be deemed to be accepted unless a communication of rejection is made within fifteen days from the closure of the offer.
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Obligations of the company in share buy back: The company has to ensure: The letter of offer, the public announcement should contain true, factual and material information and not contain any misleading information and must state that the directors of the company accept the responsibility of all this information.
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The company should not issue any securities including by way of bonus till the date of closure of the offer made under these regulations. The company must pay the consideration only by way of cash.
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The company should not withdraw the offer after the draft letter of offer is filed with SEBI or the public announcement in this regard is made. The promoter or the person in control should not deal in the securities of the company in the stock exchange during the period when the buy back offer is open.
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The methods of buy-back: From existing shareholders on a proportionate basis. From the open market. Through the purchase of odd lot shares held by the shareholders. (Under the demat format there is no concept of odd lot.) By purchasing the securities issued to employees of the company under the Stock options scheme or Sweat Equity scheme.
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The effects of the buy-back: It is a way of returning surplus cash to shareholders. To increase the underlying shares value. The decrease in share capital will increase the Earnings per share. It helps to support the prices during a period of temporary weakness in the stock markets.
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It helps the company to maintain target capital structure. It can also be used as the mechanism against a possible hostile take over bid. By buying back the shares the company reduces the floating stock in the market, thereby reducing the scope of the raider to acquire enough shares to gain the management control. This is a method used for down sizing, especially during declining sales. Share buy-back leads to erosion of the net worth of the company. This has negative effect on the creditors and lenders.
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If the shares are not extinguished then the company becomes its own shareholder. In U S A companies who buy-back shares are not required to extinguish them and can reissue them. It is argued that unscrupulous promoters may deliberately keep markets subdued with a view to back shares at lower prices.
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Types of share buy-backs: Open market purchases: This is done by giving notice to the shareholders at least seven days prior to buy-back. The company has to disclose the total number of shares it intends to buy-back. Since the process is carried out in the open market no minimum price is mentioned for the buy-back. This is an easy, quick and simple process.
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Tender Offer: The buying company has to disclose the total number of shares and the price at which it wishes to buy-back. The maximum price offered is 20% above the average price. The offer period could be between 15/30 days. If shares tendered are more than the total number to be bought back, then buy-back is done on the proportionate basis.
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Dutch auction: In this method the price of buy-back is done by the shareholders themselves. This is like the process of book building
doc_563870299.pptx
This is a presentation about process of share buyback, types of share buy back and effect of share buy back on share price.
?
? ? ?
A company can buy-back their own shares or other specified securities including employees’ stock option from out of: It’s free reserves; the securities premium account; The proceeds of an earlier issue other than fresh issue of shares made specifically for buy-back purpose. The share buy-back falls under Section 77 of companies’ act.
?
? ?
However, a company can purchase its own shares only if following conditions are fulfilled: The articles permit such buy-back A special resolution in general meeting authorising buy-back The company in the notice to shareholders must give an explanatory statement about the need for buy-back, the amount required for it, the time limit and completion of the process.
?
?
?
?
Following conditions have to be met in the process of buy-back: The buy-back has to be completed within 12 months of passing the special resolution. Buy-back cannot exceed 25% of the total paid capital plus free reserves of the company. Post buy-back the debt equity ratio shall not exceed 2:1.
?
?
Shares that are eligible for buy-back have to be fully paid. Before making purchases under this scheme companies have to file with the Registrar of Companies and SEBI a declaration of solvency.
?
?
The securities purchased under the buyback arrangement should be extinguished and physically destroyed within seven days of the last date of the completion of the buy-back. A company which buys back its securities is prohibited from further issue of securities within a period of two years, expect bonus issues or issues in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares/debentures into equity shares.
?
? ? ?
Companies are not allowed to buy-back securities: Through any / own subsidiary company. Through any /group of investment company. If default subsists in respect of repayment of deposits, term loans to any financial institutions and redemption of debentures or preference shares.
?
The explanatory statement annexed to the notice should contain following additional disclosures: a) The minimum prices at which the buy-back of securities would be made. If the promoter intends to offer their securities; the quantum of securities proposed to be tendered and the details of their transactions and their holdings for the last six months prior to the passing of the special resolution for the buy back including the information of the number of shares acquired, the price and the date of acquisition
?
The company must open an escrow account and deposit the amount as required by the SEBI regulations. The company on or before the opening the offer, deposit in an escrow amount 25% of the consideration payable up to Rs. 100 crores and 10% there after.
?
?
The Company has to appoint a merchant banker for the purpose of the buy back. The offer should remain open to the members for period not less then fifteen days and not exceeding thirty days. The company should complete the verification of the offers, received within fifteen days of the closure of the offer and the securities lodged should be deemed to be accepted unless a communication of rejection is made within fifteen days from the closure of the offer.
?
? ?
Obligations of the company in share buy back: The company has to ensure: The letter of offer, the public announcement should contain true, factual and material information and not contain any misleading information and must state that the directors of the company accept the responsibility of all this information.
?
?
The company should not issue any securities including by way of bonus till the date of closure of the offer made under these regulations. The company must pay the consideration only by way of cash.
?
?
The company should not withdraw the offer after the draft letter of offer is filed with SEBI or the public announcement in this regard is made. The promoter or the person in control should not deal in the securities of the company in the stock exchange during the period when the buy back offer is open.
? ?
? ?
?
The methods of buy-back: From existing shareholders on a proportionate basis. From the open market. Through the purchase of odd lot shares held by the shareholders. (Under the demat format there is no concept of odd lot.) By purchasing the securities issued to employees of the company under the Stock options scheme or Sweat Equity scheme.
?
? ?
?
The effects of the buy-back: It is a way of returning surplus cash to shareholders. To increase the underlying shares value. The decrease in share capital will increase the Earnings per share. It helps to support the prices during a period of temporary weakness in the stock markets.
? ?
? ?
It helps the company to maintain target capital structure. It can also be used as the mechanism against a possible hostile take over bid. By buying back the shares the company reduces the floating stock in the market, thereby reducing the scope of the raider to acquire enough shares to gain the management control. This is a method used for down sizing, especially during declining sales. Share buy-back leads to erosion of the net worth of the company. This has negative effect on the creditors and lenders.
?
?
If the shares are not extinguished then the company becomes its own shareholder. In U S A companies who buy-back shares are not required to extinguish them and can reissue them. It is argued that unscrupulous promoters may deliberately keep markets subdued with a view to back shares at lower prices.
?
?
Types of share buy-backs: Open market purchases: This is done by giving notice to the shareholders at least seven days prior to buy-back. The company has to disclose the total number of shares it intends to buy-back. Since the process is carried out in the open market no minimum price is mentioned for the buy-back. This is an easy, quick and simple process.
?
Tender Offer: The buying company has to disclose the total number of shares and the price at which it wishes to buy-back. The maximum price offered is 20% above the average price. The offer period could be between 15/30 days. If shares tendered are more than the total number to be bought back, then buy-back is done on the proportionate basis.
?
Dutch auction: In this method the price of buy-back is done by the shareholders themselves. This is like the process of book building
doc_563870299.pptx