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    Buyback of Shares: Sona Nair Ankita Alwe

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    The document discusses share buybacks by companies. It defines buyback as the cancellation of share capital by a company purchasing its own shares from shareholders. The key objectives of buybacks include increasing promoter holdings, enhancing EPS and financial ratios, and preventing hostile takeovers. The document outlines the provisions and guidelines around buybacks under the Companies Act and SEBI regulations, including the funding sources, approvals required, timeframes, and disclosure requirements. It provides an example buyback scenario and analyses the financial impact on Hindustan Unilever Limited from a buyback transaction.

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    Buyback of Shares: Sona Nair Ankita Alwe

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    Book worm
    20 views33 pages
    The document discusses share buybacks by companies. It defines buyback as the cancellation of share capital by a company purchasing its own shares from shareholders. The key objectives of buybacks include increasing promoter holdings, enhancing EPS and financial ratios, and preventing hostile takeovers. The document outlines the provisions and guidelines around buybacks under the Companies Act and SEBI regulations, including the funding sources, approvals required, timeframes, and disclosure requirements. It provides an example buyback scenario and analyses the financial impact on Hindustan Unilever Limited from a buyback transaction.

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    Buy Back of Shares by Sona & Ankita

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    Final Buyback (4)

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    The document discusses share buybacks by companies. It defines buyback as the cancellation of share capital by a company purchasing its own shares from shareholders. The key objectives of buybacks include increasing promoter holdings, enhancing EPS and financial ratios, and preventing hostile takeovers. The document outlines the provisions and guidelines around buybacks under the Companies Act and SEBI regulations, including the funding sources, approvals required, timeframes, and disclosure requirements. It provides an example buyback scenario and analyses the financial impact on Hindustan Unilever Limited from a buyback transaction.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    20 views33 pages

    Buyback of Shares: Sona Nair Ankita Alwe

    Uploaded by

    Book worm
    The document discusses share buybacks by companies. It defines buyback as the cancellation of share capital by a company purchasing its own shares from shareholders. The key objectives of buybacks include increasing promoter holdings, enhancing EPS and financial ratios, and preventing hostile takeovers. The document outlines the provisions and guidelines around buybacks under the Companies Act and SEBI regulations, including the funding sources, approvals required, timeframes, and disclosure requirements. It provides an example buyback scenario and analyses the financial impact on Hindustan Unilever Limited from a buyback transaction.

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    You are on page 1of 33

    Buyback of shares

    Sona Nair
    Ankita Alwe
    Synopsis
    Introduction
    Meaning
    Objectives of Buyback
    Provisions under the Companies Act ,1956
    SEBI Guidelines
    Effect of Buyback of Shares
    Effect on the Financial Ratios
    Case Study-HUL
    What is buy back ??
    FUNDING OF BUY BACK

    Out of:
    (i) Free reserves; or
    (ii) Share premium account ; or
    (iii) Proceeds of fresh issue
    A Company cannot buyback its
    shares out of the proceeds of an
    earlier issue of the same kind of
    shares.
    Reasons for buy back

    Unused cash

    Tax Gains

    Market perception

    Financial ratios
    Benefits of buy back

    Higher Share Price

    Reduce takeover chances

    Enhances financial ratios

    Creation of goodwill
    Methods of buy back

    Tender Offer

    Open Market

    Book-building process
    E.g. with hypothetical
    data
    Current market price : Rs 45/share

    Max no. of shares to be bought back :


    1,00,000

    Price band : 48-51


    Buy back price in Total no. of shares Cumulative no. of
    ascending order offered at each shares offered for
    price buyback
    48 20000 20000

    49 50000 70000

    50 30000 100000

    45000 145000
    51
    Introduction
    RESTRICTION ON PURCHASE OF ITS OWN
    SHARES BY A COMPANY

    Section 77 (1) of the Companies Act provides that a


    company limited by shares or a company limited by
    Guarantee having a share capital cannot buy its own
    shares.
    What do you mean by share buyback?

    Cancellation of Share Capital


    Buyback is reverse of Issue of Shares
    Reduction in Share Capital
    OBJECTIVES OF BUYBACK
    To increase promoters holding
    Increase EPS
    To thwart takeover bids
    To increase promoters holding
    To shrink equity base
    To increase the underlying share value
    PROVISIONS UNDER THE COMPANIES
    ACT-1956
    Sec 77 A 1
    RESOURCES OF BUYBACK

    The free reserves


    Securities Premium Account
    Proceeds of any shares or other specified
    securities
    Sec 77 a (2)
    Conditions of Buyback
    No company shall purchase its own shares / securities unless:

    a.The buy-back is authorized by its articles

    b.A special resolution

    c.The buy back is less than 25% of total paid up equity capital
    and free reserves

    d.Maintaining debt equity ratio: 2:1

    e.For listed shares as per guidelines issued by SEBI


    Sec 77 A (3)
    Notice of the meeting
    Explanatory statements stating :

    Necessity for buy-back

    Class of security of buy-back

    Amount to be invested

    Time limit for completion of buy-back


    Sec 77 a (4)
    Maximum Period
    Every Buy Back should be completed within 12
    Months from the date of passing of the special
    resolution
    Sec 77 A (5)
    Sources of Buyback
    Existing Shareholders
    Open Market
    Odd Lots
    Employees
    Sec 77 A (6)
    Declaration of Solvency
    Declaration to be filed with
    SEBI
    Register of Companies
    That it is capable of meeting its liabilities and
    will not be rendered insolvent within one year
    of the date of declaration adopted by the
    board.

    Note : This declaration is to be signed by at least two


    directors of the co. one of whom shall be M.D. If any.
    DESTRUCTION OF THE SECURITIES
    Sec 77A(7)
    The company shall extinguish and physically destroy
    the securities so bought back within 7 days of
    completion of buy-back

    FURTHER ISSUE OF SHARES Sec


    77A(8)
    On completion of buy-back of shares / securities, the
    company shall not make further issue of the same kind
    of shares / securities within a period of six months
    except:

    a. bonus shares; or
    b. conversion of warrants, or
    c. conversion of preference shares or debentures into
    MAINTENANCE OF REGISTER Sec 77A(9)
    Company shall maintain a register of the :

    a. Securities so bought,
    b. Consideration paid,
    c. Dates of cancellation, extinguishing and physically
    destroying of the securities, and
    d. Other particulars as prescribed.

    FILING A COMPLETION RETURN Sec


    A company shall file a77A(10)
    completion return within 30
    days of completion of buy-back of with ROC and
    SEBI (for listed companies.)
    PENALTIES- Sec 77A(11)

    For default:

    a. Imprisonment upto 2 years; or


    b. Fine upto ` 50,000; or
    c. Both
    TRANSFER TO CRR Sec 77AA

    Where company purchases its own shares out of


    free reserves, then a company is required to transfer
    a sum equal to the nominal value of the shares so
    bought to CAPITAL REDEMPION RESERVE
    ACCOUNT from free reserves.
    SEBI GUIDELINES
    Company is required to make Public
    announcement in,
    One NATIONAL English Daily
    One Hindi National Daily
    One Regional Language Daily

    Public announcement should specify


    Specified Date
    SEBI GUIDELINES (Contd..)
    Company should inform SEBI within 7 days

    Offer shall remain open at least for 15 days

    Company shall complete verification with in 15 days from the


    date of closure
    CASE STUDY HINDUSTAN
    UNILEVER Ltd. (HUL)
    HUL at Glance
    Incorporation: 1933

    Turnover: Rs.17,523 Cr Audited results for April 1,


    2009 to March 3, 2010

    Employment: More than 15000 direct employees


    including more than 1400 managers

    Parentage: HUL is a part of the 40 billion


    Unilever Group
    Buyback offer

    Maximum buyback of Share : ` 545.4 million

    Offered price : ` 280

    Maximum Amount : `630 crores

    Equity and reserves : ` 2583 Crores

    Cash and bank balance : ` 1892 crores


    Reasons For Buyback

    Effective utilization of surplus cash

    Market Price of the Shares are under perform


    Shareholders pattern of HUL
    Promoters 52.01%

    FII/NRI 16.17%

    Institutions: 10.44%

    Private Corp (mutual fund n corporate): 6.19%

    Public: 15.19%
    Balance Sheet of HUL Ltd. As on 31-3-2010 (Rupees in crs)
    Particulars 31-3-2010 31-3-2011(E)
    (A) Sources of Funds
    1.Shareholder`s Fund
    Capital 218.17 174.536
    Reserves & Surplus 2450.76 1864.394

    2668.93 2038.93
    2.Minority Interest 10.46 10.46
    3.Loan Funds
    (a)Secured Loan 10.49 10.49
    (b)Unsecured Loan 0.35 10.84 0.35
    TOTAL OF (A) 2690.23 2060.23

    (B) Applications of Funds
    Net block 2214.36 2214.36
    capital work-in progress 279.98 279.98
    Investment 1224.42 1224.42
    Deffered Tax 248.2 248.2

    Current Assets, Loans and Advances
    Inventories 2,226.41 2,226.41
    Sundry debtors 691.67 691.67
    Cash and bank balances 2,012.38 1382.38
    Other current assets 19.29 19.29
    Loans and advances 589.53 589.53
    5,539.28 4,909.28
    Current Liabilities and Provision -6,816.01 -6816.01
    Net Current Assets -1,276.73 -1906.73
    TOTAL OF (B) 2690.23 2060.23
    DATA 2010 (Rs. in 2011 (E) (Rs. in
    Crs) Crs)
    Total assets 2690.23 2060.23
    Net Worth 2668.93 2038.93
    No. of share 218.17 174.54
    Market price of 265 280
    share 2,156.63 2,156.63
    PAT
    Assuming PAT to remain same in the year
    2010-11
    KEY FINANCIAL RATIO (31st March)
    Particulars 2010 2011(E)
    Return on 0.80 1.04
    assets
    Return on 0.81 1.06
    equity
    Earning per 9.88 12.35
    share
    Price earning 26.82 22.67

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