BUYBACK & DELISTING
Share repurchase or share buyback refers to the process of company buying back its own share from its shareholders.
If a company is sufficiently matured and quite stable there may not be a scope for redeploying the internal accruals back in business as the ROE may be less than the opportunity cost. Such business may either pay high dividends or resort to buyback. It could also be because of the following:-
- Correction of over-capitalisation.
- Shoring up management stakes.
- Exit mechanism.
Companies Act was amended in 1998 to provide for the share buyback, prior to which only exit optio was to sell shares in open markets.
CASE-
Bajaj Auto ltd. is a unique case in buyback history. It was done with a motive to reduce cross holding in the co. Bajaj Tempo which had 9% shares valued at that time around Rs. 400 crores. In return Bajaj auto would transfer its 23% stake in Bajaj Tempo.
Problem was in terms of valuing this buyback as Bajaj Tempo holding in Bajaj Auto was close to 7 times to that of Bajaj Auto in Bajaj tempo.
DELISTING:-
It is a process by which co. whose shares are listed on any stock exchange is taken private once again by terminating listing agrement with the stock exchange. AKA "going private".
It is of two types:
a) Voluntary delisting- In this type company by its own will goes for delisting.
b) Compulsory delisting- In this type a co. is compelled to opt for delisting because of violating terms of agreement with the stock exchange.
In India it is done as per the SEBI Guidelines 2003.
CASE:
Digital Global Soft India(Digital India) was delisted using reverse book building method. Digital India which started in 1998 as a JV between DEC U.S.A. & Hinditron later became subsidiary of Compaq. After H.P. acquired Compaq, Digital India became subsidiary of HP, which announced voluntary delisting so that Digital India could become 100% subsidiary of HP.
Offer was made at Rs. 750 per share which was 50% premium on past 26 weeks average. But most offers wre received for Rs. 850. The final dea size worked out to be Rs. 1418 crore as opposed to 1000 crore makin it the largest exit offer till then in India.
Share repurchase or share buyback refers to the process of company buying back its own share from its shareholders.
If a company is sufficiently matured and quite stable there may not be a scope for redeploying the internal accruals back in business as the ROE may be less than the opportunity cost. Such business may either pay high dividends or resort to buyback. It could also be because of the following:-
- Shoring up management stakes.
- Exit mechanism.
Companies Act was amended in 1998 to provide for the share buyback, prior to which only exit optio was to sell shares in open markets.
CASE-
Bajaj Auto ltd. is a unique case in buyback history. It was done with a motive to reduce cross holding in the co. Bajaj Tempo which had 9% shares valued at that time around Rs. 400 crores. In return Bajaj auto would transfer its 23% stake in Bajaj Tempo.
Problem was in terms of valuing this buyback as Bajaj Tempo holding in Bajaj Auto was close to 7 times to that of Bajaj Auto in Bajaj tempo.
DELISTING:-
It is a process by which co. whose shares are listed on any stock exchange is taken private once again by terminating listing agrement with the stock exchange. AKA "going private".
It is of two types:
a) Voluntary delisting- In this type company by its own will goes for delisting.
b) Compulsory delisting- In this type a co. is compelled to opt for delisting because of violating terms of agreement with the stock exchange.
In India it is done as per the SEBI Guidelines 2003.
CASE:
Digital Global Soft India(Digital India) was delisted using reverse book building method. Digital India which started in 1998 as a JV between DEC U.S.A. & Hinditron later became subsidiary of Compaq. After H.P. acquired Compaq, Digital India became subsidiary of HP, which announced voluntary delisting so that Digital India could become 100% subsidiary of HP.
