COMPLIANE WITH

THE
BUY BACK OF SHARES
 Definition of buy back
• 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.
 Background
• The buyback ordinance was introduced by the Government of
India (GOI) on October 31, 1998.

• There was Insertion of new sections 77A, 77AA and 77B in the
Companies Law which allowed buyback.

 The major objective of the buyback ordinance was to revive the

capital markets and protect companies from hostile takeover bids.

 The buy back of shares is governed by

1.SEBI
2. Buy Back of Securities Regulation,1998
3. Amended Companies Act 1956
OBJECTIVES
 Register of the Securities
 The consideration paid for these securities bought-back,

 The date of cancellation of securities,

 The date of extinguishing and physically destroying of

securities, and

 Such other particulars as may be prescribed

PROVISIONS RELATING TO
BUYBACK
 PENALTY

• If a company makes default in complying with the provisions

the company or any officer of the company who is in default
shall be punishable with imprisonment for a term which
may extend to two years, or with fine which may extend to
fifty thousand rupees, or with both. The offences are, of
course compoundable under Section 621A of the Companies
Act.
 METHODS
MAIN METHODS OF BUYBACK :
1. Tender Offer
2. Open Market
3. Book-building process.

Other methods of buyback are :

•Odd-lot purchases.
•Selective buy-backs – a buy-back that does not fall within any
of the other categories, such as the purchase of a particular
member’s shares.
Great Eastern Shipping Company
(GESCO)
• To protect itself from a hostile takeover bid led by the A H
Dalmia group.

• In October 2000, the A H Dalmia group of Delhi made a

hostile bid for a 45 per cent stake in the Great Eastern
Shipping Company (GESCO) at Rs. 27 a share.

• The offer and counter offers made by the A H Dalmia group

and the promoters of GESCO pushed up the bidding cost.
The A H Dalmia group ultimately sold its 10.5% stake (around 3
million shares) at Rs 54 per share for a consideration of Rs. 163
million before the year end.

The A H Dalmia group had acquired the 10.5% stake in Gesco at

an average cost of Rs. 24 per share for a consideration of Rs. 72
million.

Hence,

The A H Dalmia group was able to make a profit of Rs. 91 million

through green mail transaction in less than 6 months.
 Hindustan
Unilever Limited
• Hindustan Unilever Limited decided to go for buyback of
shares at its meeting held on 29th July, 2007.

• The company proposed to buyback shares at a price not

exceeding Rs 230 a share and up to an aggregate amount of
Rs 630 crore that was less than 25% of the total paid-up
capital.
 REASON
• The Unilever management felt the stock was undervalued
and they believed in the prospects of the Indian FMCG story.

• The buyback was proposed to effectively utilize the surplus

cash and make the balance sheet leaner and more efficient
to improve returns.

• Financials of the company (Pre and Post Buyback):

Post Buyback Assumption: 100% buyback happens at the
maximum price quoted by the company Rs 230 per share.