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INTRODUCTION

Intense competition and increased globalization have made it imperative to go fo r corporate restructuring in order to survive. Operational, financial and manage rial strategies are employed to maintain competitive edge and turnaround a sicke ned performance. Financial restructuring involves either internal or external re structuring (i.e. Mergers and Acquisitions). In the internal restructuring an ex isting firm undergoes through a series of changes in terms of composition of ass ets and liabilities. Section 100-105 of The Company's Act 1956 governs the inter nal restructuring of a corporate entity in the form of capital reduction. Sectio n 77A, 77B and 77AA now allow companies to buy back their shares following the r ecommendations of committee on corporate restructuring, which was set up by the government to propose various strategies to strengthen the competitiveness of th e banking and finance sector, companies are now allowed to repurchase their own shares. This will enable the companies to catch up with other developed markets as part of the government's moves to liberalize the local market and hence emerg ed the concept of SHARE BUYBACK in the Indian corporate scenario. MEANING OF BUYBACK Share buyback is a tool for financial re-engineering. It is described as a proce dure that enables a company to go back to its shareholders and make an offer to purchase from them the shares they hold. The rationale behind buy back of shares is to boost demand by reducing the supply, which in theory should push the pric e up. The repurchase of shares reduces the number of shareholders, which in turn enhances the earnings per share (EPS), and thus improves investor sentiments. Internationally it has been observed that companies have opted for Buyback in ti mes when they believed that shares were undervalued in the market or when they h ad surplus cash in their treasury. E.g. In 1997, Coca-Cola opted for Buyback of 8.3% of their equity that raised the price of the scrip by a whopping 42% in the NYSE. Major global companies that have opted for buyback in the last couple of years include IBM, HP, Washington Post, Nestle, etc. In India, Coromandel Fertilisers achieved the distinction of pioneering buyback of its own shares, way back in April 99. After that, a number of companies have o ffered share buybacks in the market but only two have been successful (Reliance and Indian Rayon). These two companies were able to increase the returns to thei r shareholders by pushing the share prices up. OBJECTIVES OF BUYBACK 1. To improve earning of shares. 2. To improve return on capital, return on net worth and to enhance the lon g term shareholder value. 3. To provide an additional exit rou to shareholders when shares are underva lued or thinly traded. 4. To enhance consolidation of stake in the company. 5. To prevent unwelcome takeover bids/ to prevent hostile takeover 6. To return surplus cash to shareholders. 7. To achieve optimum capital structure. 8. To support share price during periods of sluggish market conditions. 9. To service the equity more efficiently.

PROS AND CONS OF BUY-BACK PROS OF BUYBACK There are lots of positive aspects of share buyback that makes it lucrative to t he investors as well as the company. Some of the advantages are as follows: 1. Shareholders have a choice of deciding whether or not to receive the pay out by selling or holding their shares, unlike a dividend payout. 2. Returning excess cash by way of a share buyback gives company greater fl exibility with regard to its dividend policy. It helps the company to increase t he EPS as the number of shares get reduces. 3. Share buyback could enable a company to achieve its desired share capita l structure more quickly or facilitate a major restructuring. 4. A share buyback could avert a hostile takeover bid by reducing the numbe r of shares in circulation. CONS OF BUYBACK The repurchase of its own shares by a company may conversely have a negative sig naling effect as the market place may think that the company has fewer growth op portunities after a share buyback, due to erosion of cash resources. 1. Management may not seek to utilize any existing excess cash effectively by acquiring new investments or developing profitable markets. 2. Possible mismanagement may arise if too high a price is paid for the rep urchased shares, to the detriment of remaining shareholders, or if cash resource s are eroded to the level that could give rise to a risk of insolvency at the ex penses of its creditors. 3. A return of funds by way of a share buyback is less certain than an annu al dividend stream. LEGAL FORMALITIES TO BE COMPLIED WITH

For Listed Companies Under Companies Act, 1956

Section 77A 1. AUTHORITY IN ARTICLE IN ASSOCIATION [SECTION 77A(2)] Buyback should be authorized by Article of Association of the company. I n case the Article does not contain such provision, they should be amended appro priately authorizing the Buyback of Securities.

2.

BOARD RESOLUTION AND QUANTUM OF BUYBACK[PROVISO TO SECTION 77A(2)]

By passing a resolution, the board can authorize the buyback of securiti es not exceeding 10% of the total paid up equity capital and free reserves of th e company. The aforesaid limit is to be applied not to the number of securities to be bought back but to the amount required for buyback of such securities. The Resolution authorizing Buyback of Securities should be passed eeting of the Board (Section 292(1)(aa)). Such a resolution should not be by circulation or at a meeting of a committee of the board. However, the ory, mode of buyback and other procedural requirements for buyback may be ted by the board. 3. at a m passed mandat delega

SHAREHOLDERS RESOLUTION AND QUANTUM OF BUYBACK[SECTION 77A(2)(b) and (c)]

By passing a Special Resolution, the Shareholders can authorize the Buyb ack of securities not exceeding 25% of the total paid up capital and free reserv es of the company in the financial year. Paid up capital shall include both equity and preference share capital. Unlisted Companies should obtain shareholders approval by passing the special res olution only at duly convened general meeting; listed companies should obtain su ch approval by POSTAL BALLOT (Section 192A). EXPLANATORY STATEMENT The notice containing the special resolution proposed to be passed should be accompanied by an explanatory statement stating: i. All material facts, fully and completely disclosed ii. The necessity for buyback iii. The class of securities intended to be purchased under the buyback iv. The amount to be invested under buyback v. The time limit for completion of buyback 4. MAXIMUM QUANTUM OF BUYBACK [SECTION 77A(2)(C )] A company cannot buyback more than 25% of its PAID UP CAPITAL and FREE RESERVES. The aforesaid limit is to the amount required for buyback of such securities to be bought back but to the amount required for Buyback of such securities. As per the provisio of Section 77A(2), if the company Buy- Back its shares throu gh the Board Resolution then the maximum amount of Buy- back can be up to 10 % o f paid up equity capital and free reserves. Buyback of Securities in any financial year should not exceed 25% of the total p aid up capital of the company. Option-A Option - B UP TO 10 % of Paid up equity Capital + Free reserves up to 25% of Total Paid up Capital and free reserves

By Board Resolution As per section 292(1)(aa) By Special Resolution by Shareholders by of Post al Ballot(Section 192A), Provided that in one Financial year Buy-Back Shall not exceed 25% of Paid-up equ ity Capital

5.

FURTHER OFFER OF BUYBACK[SECOND PROVISO TO SECTION[77A(2)]

Once the Buyback has been made with the authorization of the Board and not that of the Shareholders, no further offer for Buyback of any securities can be made without the consent of shareholders accorded by a special resolution within 365 days reckoned from the date of offer. Cases:1. If Buy -Back is by Board Resolution:- No further offer of Buy- Back shal l be made within 365 days by passing the board resolution. However, company can go for buy- back by passing the special resolution. But max imum amount of buy-back should be limited to 25% of paid up equity capital. 2. If Buy -Back is by Special Resolution:- If company makes the buy-back by passing the special resolution, then limit of 365 days do not apply . However b uy back shall not in any financial year exceed 25% of paid up equity capital of the company. 6. AVAILABLE SOURCES FOR BUY-BACK OF SECURITIES

A Company may buy-back its securities out of :(1) Its free reserves; or (2) The securities premium account; or (3) The proceeds of issue of any shares or other specified securities. However, no buy back of any kind of shares or other specified securities shall b e made out of the proceeds of an earlier issue of same kind of shares or same ki nd of specified securities. [Section 77A(1)] (1) FREE RESERVES The term free reserve has been defined to carry same meaning as has been assigne d in clause(b)of Explanation to section 372A. For the purpose of section 372A th e term 'free reserve' has been defined as those reserves which as per the latest audited balance sheet are free for distribution as dividend and it includes bal ance of securities premium account. Free reserve means the balance in the share premium account, capital and debenture redemption reserves shown or published in the balance sheet of the company and created by appropriation out of the profit s of the company. (2) THE SECURITIES PREMIUM ACCOUNT

Securities Premium Account is a broader term than Share Premium Account. Share P remium account represents only premium on issue of equity and preference shares, whereas securities premium account represents premium on issue of debentures, b onds and other financialinstruments. (3) THE PROCEEDS OF ISSUE OF ANY SHARES OR OTHER SPECIFIED SECURITIES Buy back of shares of any kind is not allowed out of fresh issue of shares of th e same kind. If it were so, it would frustrate the very purpose of buy back. Fre sh issue of equity shares for buying equity makes no financial sense. However, f inancial logic of buy back could very well be served if preference shares are is sued and proceeds are used for buying back equity shares.Preference shares carry fixed rate of dividend. Also they are easy to market.Preference shares may give

better yield to the investor than after tax yield on loan or debentures. At the same time it is possible to lower the capital structure by slimming thedividend paying equity. Proceeds of an earlier issue are an unqualified term. Any issue means any issue of hybrid instruments,debentures, bonds, secured and unsecured l oans etc. Thus buy back of equity shares isallowed byissue of any pure or hybrid debt instruments.Then appropriate source of buy back should be the following if the intention is to swap equityfor debt or fixed income bearing instruments:Iss ue of debentures;Issue of loans.However, no buyback of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities, [SECTION 77A(1)] 7. ONLY FULLY PAID UP SECURITIES QUALIFY FOR BUYBACK [SECTION 77A(2)(e)]

If some security holders have not made the payment of calls or any sums due on t he securities, it would not disentitle the company from buyback. However, the se curities on which the call money remains in arrears cannot be bought back. Fully paid up Securities, even if quoted below par on the stock exchanges, quali fy for buyback. If a security has been issued at a discount, the payment of the total amount due thereon should be considered as a sufficient qualification for its buyback. 8. DEBT-EQUITY RATIO AFTER BUYBACK OF SECURITIES[SECTION 77A(2)(d)]

After Buyback of Securities, the company should have a Debt-Equity ratio not exc eeding 2:1 i.e. all secured and unsecured debts of the company should not be mor e than twice the aggregate of its capital and free reserves. However, Central Government may by notification for certain industries may chang e the limits. For the purpose of calculating Debt-Equity ratio, Debt means: a. Long term loans/deposits (repayable after 12 months) including interest bearing unsecured loans from Government. b. Debenture including convertible debentures c. Deferred payments d. Redeemable preference shares due for redemption between 1 to 3 years Equity means: a. Paid up equity share capital b. Redeemable preference shares due for redemption after 3 years c. Share premium d. Free reserves less accumulated losses, arrears of unabsorbed depreciatio n, all items of assets which are of intangible nature or expenditure not written off e. Government subsidies 9. COMPLETION PERIOD[SECTION 77A(4)]

Buyback should be completed within 12 months from the date of passing of the boa rd resolution or the special resolution or where the resolution is passed throug h postal ballot, the date of declaration of result of the postal ballot, as the case may be. 10. FURTHER ISSUE OF SHARES[SECTION 77A(8)]

No further issue of the same kind of securities should be made within a period o f 6 months from the date of completion of buyback of securities. The date of fur ther issue of securities means the date on which board or shareholders resolutio

n, as the case may be, is passed. However, further issue of same kind of securities is allowed by way of Bonus iss ue or in discharge of substituting obligations such as conversion of warrants, s tock option scheme, sweat equity or conversion of preference shares or debenture s into equity shares. No issue of bonus shares can be made till the closure of o ffer of buyback of securities. 11. DECLARATION OF SOLVENCY[SECTION 77A(6)]

Where the board or the shareholders of a listed company pass a resolution to buy back shares, the company should, before making such buyback, file with the Regis trar and SEBI a declaration of solvency in the prescribed form. A private company and a public company whose shares are not listed on a stock ex change should file the declaration of solvency (Form 4A) with Registrar in the p rescribed form. The declaration of solvency should be verified by an affidavit to the effect tha t the board has made a full enquiry into the affairs of the company as a result of which it has formed an opinion that the company is capable of meeting its lia bilities and will not be rendered insolvent within a period of 1 year from the d ate of adoption of the declaration by the board. The declaration of solvency sho uld be signed by atleast 2 directors, one of whom shall be managing director.

Section 77A (6) read with Section 77A(2)(a) Board Resolution or Special Resolution as the case may be

Date of Completion of Buy Back 15 Days Company will remain Solvent 12. EXTINGUISHMENT OF SECURITY CERTIFICATES [SECTION 77A(10)]

Where a company buyback its own securities it should extinguish and physically d estroy the security certificates within 7 days of the date of completion of buyb ack. 13. RESCINDING OF BUYBACK

The passing of the resolution by a company does not create any obligation on the company to buyback its securities.

The Regulations provide that a company should not withdraw the offer to buyback its securities after the draft letter of offer is filed with SEBI or a public an nouncement of the offer to buyback is made. [Regulation 19(1)(d)] The rules provide that the company should not withdraw the offer once the draft letter of offer is filed with ROC. [Rule 8(1)(d)] 14. MAINTANANCE OF RECORDS AND REGISTERS[Section 77A(9)]

Where a company buyback its securities, it should maintain a register co ntaining information of the securities so bought back, the consideration paid fo r the securities bought back, the date of cancellation of securities, the date o f extinguishing and physically destroying the securities and such other particul ars as may be prescribed. The company should also maintain a record of name, folio numbers, type o f securities, number of securities, date of transfer. Such particular should enterin the register of buyback of securities wit hin 7 days of the date of completion of buyback of securities. The company shoul d keep all the documents relating to buyback of securities for a minimum period of 8 years. 15. nths , as ould back 16. DISCLOSURES IN BOARDS REPORT (Section 217(2)(B) Where a company fails to complete the buyback of securities within 12 mo from the date of passing of the resolution by the board or the shareholders the case may be, authorizing the buyback of securities, the boards report sh specify the reason for such failure. It is desirable that completion of buy of securities is also disclosed in the boards report. SHAREHOLDING OR VOTING RIGHTS

As a consequence of buyback of securities by a company, a person may not be aware that his shareholding or voting rights have increased. Therefore, it i s desirable that immediately after completion of buyback, a communication is sen t by the company to the shareholders whose shareholding and/or voting rights hav e increased consequent to the change in capital structure due to buyback of secu rities, to enable such shareholders to make an official communication. CHART ON LEGAL COMAPLIANCES AS PER THE COMPANIES ACT, 1956

PRICING FOR BUY-BACK The Board should either determine or recommend to the shareholders a fair price forbuy-back based on all relevant parameters such as: a) b) c) d) e) f) g) h) Earnings per share Prices of securities quoted on the stock exchange Past performance Book value per share Previous buy-back undertaken, if any Net worth of the company Post buy-back scenario Industry outlook

STAMP DUTY ON BUY-BACK Transfer of shares attracts stamp duty vide schedule 1, entry 6 to the Indian St amp Act, 1899. For completion of transfer of shares, a company is required to re gister of shares in the name of transferee, in the case of buyback, the shares b ought back have to be statutorily extinguished within 7 days from the last date of completion of buy back. Hence, no registration of such shares takes place in the name of the company. The names of the members/holders of the shares have to be struck off from the register of members if the entire holdings bought back. T herefore, buy back cannot be considered as transfer and stamp duty would not be payable in a case where buy-back of takes place in physical form even if the sha res are accompanied by an application form for transfer of shares in favour of t he company. Further, buy back of shares will not be construed as release falling u nder articles 55 of the Indian stamp attracting stamp duty. Shares received by the company for buy back in electronic mode do not attract st amp duty in terms of the provision contained in the Depositories Act, 1996. SECURITIES NOT AVAILABLE FOR BUYBACK 1. SECURITIES IN LOCK IN PERIOD

In case of a listed company, securities issued to the promoters, to a group, or to employees, subject to lock in period as per SEBI (ICDR) Regulation, 2009 are not available for buyback until the lock in period expires. 2. NON TRANSFERABLE SECURITIES

Securities which are under lien or are pledged or restricted by any court for tr ansfer or which otherwise statutorily cannot be transferred are not available fo r buyback until such securities again become freely transferable. 3. DISPUTED SECURITIES KEEP IN ABEYANCE

Securities which are under dispute and have been kept in abeyance under Section 206A, or in respect of which transfer or transmission has not been affected, are not available for buyback. Section 77AA Transfer of certain sum to Capital Redemption Reserve Account (CRR) If the Buy Back is from the free reserves then, the company should transfer to t he capital redemption reserve account referred in to section 80(1)(d), a sum equ al to the nominal value of shares so bought back and details of such transfer sh ould be disclosed in the balance sheet. Section 77B Restriction on Buy- Back of Shares A company should not buyback its securities if default subsists in repayment of deposits or interest payable thereon, or in redemption of debentures or preferen ce shares or repayment of any term loan or interest payable thereon to any finan cial institution or bank. Buyback should not be made if a company has defaulted in relation to preparation and filing of its annual return. Buyback should not be made in the event of any default in relation to payment of dividend to any equity or preference shareholder.

Buyback should not be made in the event of default in preparation of the annual accounts. Buyback should not be made by a company: (i) Through any subsidiary company including its own subsidiary companies (ii) Through any investment company or group of investment companies.

Buy-Back vis-a vis other sources of Reduction of Capital

Sections Section Section Section Requirement BR/ SR

Section 77A 100 to 104 390 to 394 402

SR + HC Approval SR + HC Approval As in case of Section of 397 & 398 Under Securities and Exchange Board of India (BUY-Back of Securities) (Amendment Regulation, 2012 Every Company Listed on Stock Exchange has to follow the regulations prescribed by Securities and Exchange Board of India (SEBI), while making the buy-back of o ffer. 1. CONDITIONS:(1) A company may buy-back its shares or other specified securitiesby any one o f the following methods: (a) from the existing shares or other specified securities on a proportionate ba sis through the tender offer; (b) from open market through (i) book-building process, (ii) stock exchange, (c) from odd-lot holders. (2) A company shall not buy back its shares or other specified securities from a ny person through negotiated deals, whether on or of the stock exchange or throu gh spot transactions or through any private arrangement. (3) Any person or an insider shall not deal in securities of the company on the basis of unpublished information relating to buy-back of shares or other specifi

ed securitiesof the company. 2.SPECIAL RESOLUTION:For the purposes of passing a special resolution under sub-section (2) o f section 77A of the Companies Act, the explanatory statement to be annexed to t he notice for the general meeting pursuant to section 173 of the Companies Act s hall contain disclosures as specified in regulations. A copy of the resolution p assed at the general meeting under sub-section(2) of section 77A shall be filed to ROC within 30 days (Section 192(4)).A copy of the resolution passed at the Ge neral meeting under sub - section (2) of section 77A of the Companies Act, shall be filed with the Board and the stock exchanges where the [shares or other sp ecified securities] of the company are listed, within seven days from the date o f passing of the resolution. 3. BOARD RESOLUTION A company, authorized by a resolution passed by the Board of Directors at its me eting to buy back its shares or other specified securities under first proviso t o clause (b) of sub-section (2) of section 77A of the Companies Act, 1956, as in serted by the Companies (Amendment) Act, 2001, shall file a copy of the resoluti on, with the Board and the stock exchanges, where the shares or other specified securities of the company are listed, within two working days of the date of the passing of the resolution.

(A) (a)

BUY BACK THROUGH TENDER OFFER Buy- Back from Existing Security holders

A company may buy-back its shares or other specified securities from its existingshares or other specified securities on a proportionate basis. Provided that fifteen percent of the number of securities which the company propo ses to buy back or number of securities entitled as per their shareholding, whic hever is higher, shall be reserved for small shareholders. (b) Additional Disclosures

The explanatory statement annexed to the notice under section 173 of the Companies Act shall contain the disclosures mentioned in regulation] and also t he following disclosures; (i) The maximum price at which the buy-back of [shares or other specified secur ities] shall be made and whether the Board of Directors of the company are being authorized at the general meeting to determine subsequently the specific price at which the buy-back may be made at the appropriate time; (ii) If the promoter intends to offer their [shares or other specified securiti es], a)the quantum of [shares or other specified securities] proposed to be tendered, and b) the details of their transactions and their holdings for the last six-months prior to the passing of the special resolution for buy-back including informatio n of number of [shares or other specified securities] acquired, the price and t he date of acquisition. (c ) Filing of offer document, etc. (1) The company which has been authorised by a special resolution or a resolutio n passed by the Board of Directors at its meeting shall make a public announceme nt within two working days from the date of resolution in at least one English N

ational Daily, one Hindi National Daily and a Regional language daily all with w ide circulation at the place where the Registered office of the company is situa ted and shall contain all the material information as specified in Schedule II, Part A. (2) A copy of the public announcement along with the soft copy shall also be sub mitted to the Board simultaneously through a merchant banker. (3) The Company shall within five working days of the public announcement shall file with the Board a draft-letter of offer along with soft copy of same contain ing disclosures as specified in schedule III through a merchant banker who is no t associated with the company. (4) The draft letter of offer shall be accompanied with fees specified in schedu le IV. (5) The Board may give its comments on the draft letter of offer not later than seven working days of the receipt of the draft letter of offer: Provided that in the event the Board has sought clarifications or additional inf ormation from the merchant banker to the buyback offer, the period of issuance o f comments shall be extended to the seventh working day from the date of receipt of satisfactory reply to the clarification or additional information sought: Provided further that in the event the Board specifies any changes, the merchant banker to the buyback offer and the company shall carryout such changes in the letter of offer before it is dispatched to the shareholders. (6) The company shall file along with the draft letter of offer, a declaration o f solvency in the prescribed form and in a manner prescribed in sub-section (6) of section 77A of the Companies Act, 1956. (Form-4C) (d) Offer procedure (1) A company making a buyback offer shall announce a record date for the purpos e of determining the entitlement and the names of the security holders, who are eligible to participate in the proposed buyback offer. (2) The letter of offer along with the tender form shall be dispatched to the se curity holders who are eligible to participate in the buyback offer, not later t han five working days from the receipt of communication of comments from the Boa rd. (3) The date of the opening of the offer shall be not later than five working da ys from the date of dispatch of letter of offer. (4) The offer for buy back shall remain open for a period of ten working days. (5) The company shall accept shares or other specified securities from the secur ity holders on the basis of their entitlement as on record date. (6) The shares proposed to be bought back shall be divided in to two categories; (a) reserved category for small shareholders and (b) the general category for o ther shareholders, and the entitlement of a shareholder in each category shall b e calculated accordingly. (7) After accepting the shares or other specified securities tendered on the bas is of entitlement, shares or other specified securities left to be bought back, if any in one category shall first be accepted, in proportion to the shares or o ther specified securities tendered over and above their entitlement in the offer by security holders in that category and thereafter from security holders who h ave tendered over and above their entitlement in other category. (e) Escrow account (1) The company shall as and by way of security for performance of its obligati ons under the regulations, on or before the opening of the offer deposit in an e scrow account such sum as specified in as under:Consideration Payable Amount to be deposited in Escrow If the consideration payable does not exceed Rs.100 crores 25% of the consi deration payable

If the consideration payable exceeds Rs. 100 crores nd 10% thereafter.

25% uptoRs. 100 crores a

(2) The escrow account shall consist of (a) cash deposited with a scheduled commercial bank or; (b) bank guarantee in favour of the merchant banker; or (c) deposit of acceptable securities with appropriate margin, with the merchant banker, or (d) a combination of (a),(b) and (c) above. Ilustration on Amount to be deposited in Escrow Account:Assume, if a company decides to buy-back its shares and consideration payable is Rs. 300 crores. Then amount to be deposited in Escrow Account would be:For the First 100 Crores:- 25% of 100 Crores i.e. Rs. 25 Crores For the next 200 Crores:- 10% of 200 Crores i.e. 20 Crores Total amount to be deposited in Escrow Account will be Rs. 25 Crores + Rs. 20 Cr ores = Rs. 45 Crores. (f)Payment to security holders (1) The company shall immediately after the date of closure of the offer open a special account with a bankers to an issue registered with the Board and deposi t therein, such sum as would, together with [ninety percent of] the amount lying in the escrow account make-up the entire sum due and payable as consideration f or buy-back in terms of these regulations and for this purpose, may transfer the funds from the escrow account. (2) The company shall complete the verifications of offers received and make pay ment of consideration to those security holders whose offer has been accepted or return the shares or other specified securities to the security holders within seven working days of the closure of the offer. (g) Extinguishment of Certificate (1) The company shall extinguish and physically destroy the security certificat es so bought back in the presence of a Registrar to issue or the Merchant Banker and the Statutory Auditor within fifteen days of the date of acceptance of the shares or other specified securities. Provided that the company shall ensure tha t all the securities bought- back are extinguished within seven days of the last date of completion of buy - back. (2) The shares or other specified securities] offered for buy-back if already de materialized shall be extinguished and destroyed in the manner specified under S ecurities and Exchange Board of India (Depositories and Participants) Regulation s, 1996 and the bye-laws framed there under. (3) (a) The company shall furnish a certificate to the Board certifying complian ce as specified in sub- regulation (1) and duly certified and verified by(i) The registrar and whenever there is no registrar by the merchant banker; (ii) Two Directors of the company one of whom shall be a Managing Director where there is one, (iii) The statutory auditor of the company (b) The certificate required under clause (a) shall be furnished to the Board on a monthly basis by the seventh day of the month succeeding the month in which t he securities certificate are extinguished and destroyed. (4) The company shall furnish, the particulars of the security certificates exti nguished and destroyed under sub- regulation (1), to the stock exchanges where the shares of the company are listed on a monthly basis by the seventh day of th e month succeeding the month in which the securities certificates are extinguish ed and destroyed. (5) The company shall maintain a record of [security certificates], which have b een cancelled and destroyed as prescribed in sub-section (9) of section 77A of t he Companies Act. (B) ODD-LOT BUY-BACK The provisions pertaining to buy back through tender offer as specified above sh all be applicable mutatis mutandis to odd lot [shares or other specified securit

ies]. (C) BUY-BACK FROM THE OPEN MARKET Buy-back from open market (1) A company intending to buy-back its [shares or other specified securities] f rom the open market shall do so in accordance with the provisions of this Chapte r. (2) The buy-back of [shares or other specified securities] from the open market may be in any one of the following methods: (a) Through stock exchange (b) Through Book Building process. (A) Buy Back through stock exchange A company shall buy-back its [shares or other specified securities] thro ugh the stock exchange as provided hereunder; (a) The special resolution [or the resolution passed by the Board of Directors a t its meeting] shall specify the maximum price at which the buy-back shall be ma de; (b) The buy-back of the [shares or other specified securities] shall not be made from the promoters or persons in control of the company; (c) The company shall appoint a merchant banker and make a public announcement; (d) The public announcement shall be made at least seven days prior to the comme ncement of buy-back; (e) A copy of the public announcement shall be filed with the Board within two d ays of such announcement along with the fees as prescribed. (f) The public announcement shall also contain disclosures regarding details of the brokers and stock exchanges through which the buy-back of [shares or other specified securities] would be made; (g)The buy-back shall be made only on stock exchanges having nationwide trading terminals] (h) The buy-back of [shares or other specified securities] shall be made only th rough the order matching mechanism except all or none order matching system; (i) The company and the merchant banker shall submit the information regarding t he shares or other specified securities bought- back to the stock exchange on a daily basis and publish the said information in a national daily on a fortnightl y basis and every time when an additional five per cent of the buyback has been completed. Provided that where there is no buy back during a particular period the company and the Merchant Banker shall not be required to publish the details in a nation al daily.] (j) The identity of the company as a purchaser shall appear on the electronic sc reen when the order is placed. (b) Extinguishment of certificates (1)The provisions pertaining extinguishment of certificates as prescribed under the buy-back through tender offer shall be applicable mutatis mutandis. 2) The company shall complete the verification of acceptances within fifteen day s of the pay-out. (B) BUY-BACK THROUGH BOOK BUILDING (a) Conditions (1) A company may buy-back its [shares or other specified securities] through th e book-building process as provided hereunder: (a) The special resolution [or the resolution passed by the Board of Directors ] shall specify the maximum price at which the buy-back shall be made. (b) The company shall appoint a merchant banker and make a public announcement/ (c) The public announcement shall be made at least seven days prior to the comme ncement of buy-back. (d) The deposit in the escrow account shall be made before the date of the publi c announcement. The amount to be deposited in the escrow account shall be determ ined with reference to the maximum price as specified in public announcement. (e) A copy of the public announcement shall be filed with the Board within two d ays of such announcement along with the fees as prescribed.

(f) The public announcement shall also contain the detailed methodology of the b ook-building process, the manner of acceptance, the format of acceptance to be s ent by [security holders] pursuant to the public announcement and the details of bidding centres. (g) The book building process shall be made through an electronically linked tra nsparent facility. (h) The number of bidding centres shall not be less than thirty and there shall be at least one electronically linked computer terminal at all the bidding centr es. (i) The offer for buy back shall remain open to the [security holders] for a per iod not less than fifteen days and not exceeding thirty days. (j) The merchant banker and the company shall determine the buy-back price based on the acceptances received. (k) The final buy-back price, which shall be the highest price accepted shall be paid to all holders whose [shares or other specified securities] have been acce pted for buy-back. (2) The provisions pertaining to verification of acceptances and the provisions of pertaining to opening of special account and payment of consideration as pre scribed under the buy-back through tender offer shall be applicable mutatis muta ndis.

(b) Extinguishment of Certificates The provisions pertaining extinguishment of certificates as prescribed under the buy-back through tender offer shall be applicable mutatis mutandis. (c) General Obligations Obligations of the Company (1) The company shall ensure that, (a) the letter of offer, the public announcement of the offer or any other adver tisement, circular, brochure, publicity material shall contain true, factual an d material information and shall not contain any misleading information and must state that the directors of the company accepts the responsibility for the info rmation contained in such documents; (b) the company shall not issue any [shares or other specified securities] inclu ding by way of bonus till the date of closure of the offer made under these regu lations; (c) the company shall pay the consideration only by way of cash; (d) the company shall not withdraw the offer to buy-back after the draft letter of offer is filed with the Board or public announcement of the offer to buy-back is made; (e) the promoter or the person shall not deal in the [shares or other specified securities] of the company in the stock exchange during the period the buy-back offer is open. (2) No public announcement of buy back shall be made during the pendency of any scheme of amalgamation or compromise or arrangement pursuant to the provisions o f the Companies Act. (3) The company shall nominate a compliance officer and investors service centre for compliance with the buy-back regulations and to redress the grievances of t he investors. (4) The particulars of the [security certificates] extinguished and destroyed sh all be furnished by the company to the stock exchanges where the [shares or oth er specified securities] of the company are listed within seven days of extingui shment and destruction of the certificates. (5) The company shall not buy-back the locked-in [shares or other specified sec urities] and non-transferable [shares or other specified securities] till the p endency of the lock-in or till the[shares or other specified securities] become transferable. (6) The company shall within two days of the completion of buy-back issue an pu

blic advertisement in a national daily, inter alia, disclosing: (i) number of [shares or other specified securities] bought; (ii) price at which the [shares or other specified securities] bought; (iii) total amount invested in buy-back; (iv) details of the [security holders] from whom [shares or other specified se curities] exceeding one-per cent of total [shares or other specified securities ] bought back; and, (v) the consequent changes in the capital structure and the shareholding pattern after and before the buy-back. (8) The company in addition to these regulations shall comply with the provision s of buy-back as contained in the Companies Act and other applicable laws. Obligations of the Merchant Banker The merchant banker shall ensure that (a) the company is able to implement the offer; (b) the provision relating to escrow account has been made; (c) firm arrangements for monies for payment to fulfill the obligations under th e offer are in place; (d) the public announcement of buy-back is made in terms of the regulations; the letter of offer has been filed in terms of the regulations; (e) the merchant banker shall furnish to the Board a due diligence certificate w hich shall accompany the draft letter of offer; (f) the merchant banker shall ensure that the contents of the public announcemen t of offer as well as the letter of offer are true, fair and adequate and quotin g the source wherever necessary; (g) the merchant banker shall ensure compliance of section 77A and section 77B o f the Companies Act, and any other laws or rules as may be applicable in this re gard; (h) upon fulfillment of all obligations by the company under the regulations , the merchant banker shall inform the bank with whom the escrow or special amou nt has been deposited to release the balance amount to the company; (i) the merchant banker shall send a final report to the Board in the form s pecified within 15 days from the date of closure of the buy-back offer. Action against intermediaries (1) The Board may, on failure of the merchant banker to comply with the obligat ions or failing to observe due diligence initiate action against the merchant banker in terms of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992. (2) The Board may on the failure of a registrar or a broker to comply with t he provisions of these regulations or failing to observe due diligence initiate action against the registrar or the broker in terms of the regulations applicabl e to such intermediaries.

For Un- Listed Companies Under Companies Act, 1956

Note:- The provisions of Companies Act, 1956 as mentioned above for the Listed Companies mutatis-mutandis apply in case of buy-back by unlisted companies.

Private Limited and Unlisted Public Company (Buy-Back of Securities)Regulations, 1999 1. Buying-back :- A company may buy-back its shares by either of the follow ing methods :(a) from the existing shareholders on a proportionate basis through private off ers; (b) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity. 2. Special resolution :- For the purposes of passing a special resolution under subsection (2) of section 77A of the Companies Act, 1956 (1 of 1956) the e xplanatory statement to be annexed to the notice for the general meeting pursuan t to Section 173 of the said Act shall contain disclosures as specified in Sched ule I. 3. Filing of letter of offer, etc. :- (1) The Company which has been author ised by a special resolution shall, before the buy-back of shares, file with the Registrar of Companies a draft letter of offer containing particulars specified in Schedule II. (2) The Company shall file alongwith the letter of offer a declaration of solven cy in Form No. 4A, prescribed under the Companies (Central Governments) General R ules and Forms, 1956 and in accordance with provisions of sub-section (6) of sec tion 77A of the Companies Act, 1956 4. Offer procedure :- (a) The letter of offer shall be dispatched immediate ly after filing with Registrar of Companies but not later than 21 days from its filing with Registrar of Companies. (b) The Offer for buyback shall remain open to the members for a period not less than 15 days and not exceeding 30 days from the date of dispatch of letter of o ffer. (c) In case the number of shares offered by the shareholders is more than the to tal number of shares to be bought back by the company, the acceptance per shareh older shall be on proportionate basis. (d) The company shall complete the verifications of the offers received within 1 5 days from the date of closure of the offer and the shares lodged shall be deem ed to be accepted unless a communication of rejection is made within 21 days fro m the closure of the offer. 5. Payment to the shareholder :- (a) The Company shall immediately after th e date of closure of the offer open a special bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for t he buy-back in terms of these rules. (b) The company shall within 7 days of the closure of offer make payment of cons ideration in cash or bank draft/pay order to those shareholders whose offer has been accepted or return the share certificates to the shareholders forthwith. 6. General obligations of the company: -The company shall ensure that :(a) the letter of offer shall contain true, factual and material information an d shall not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such document;

(b)the company shall not issue any shares including by way of bonus till the dat e of the closure of the offer under these rules; (c) the company shall confirm in its offer the opening of separate bank account testifying the availability of funds earmarked for this purpose and pay the co nsideration only by way of cash or Bank draft/pay order; (d)the company shall not withdraw the offer once the draft letter of offer has b een filed with the Registrar of Companies; and (e)the company shall not utilize any money borrowed from Banks/Financial Instit utions for the purpose of buying back its shares. 7. Return to be filed with Registrar: - A company, after the completion of the b uy-back under these rules, shall file with the Registrar a return in the Form sp ecified i.e. 4C. 8. Extinguishment of Certificate :- (a) The company shall extinguish and physica lly destroy the share certificates so bought back in the presence of the Company Secretary in whole time practice within 7 days from the date of acceptance of t he shares. (b) The company shall furnish a certificate to the Registrar of Companies duly v erified by two whole-time directors including the Managing Director and Company Secretary in whole time practice, certifying compliance of these rules including those specified in sub- rule (1) above within 7 days of the extinguishment and destruction of the certificates. (d) The company shall maintain a record of share certificates which have bee n cancelled and destroyed within 7 days of buy-back of shares. 9.Register of shares: - The Company shall maintain a Register of shares bought b ack by the Company in the Form specified i.e.4B. A BUY-BACK PRICING MODEL

We have already seen that the pricing of the buyback is crucial for the success and the failure. The objective of the pricing model is to determine what the pre mium is over the current market price that companies can payback of shares, so t hat there is no price drop post buy-back. There are two sets of factors acting a gainst each other in influencing the post buy-back price: Factors that increase the price:Due to reduction in the number of outstanding shares, the EPS should go up, the other factors remaining the same. Increase in the P/E ratio if any, since EPS would normally go up after buy-back. Factors that decrease the price:Reduction, in the overall earnings of the company owing to deployment of funds f or buy-back. Thus, for a given percentage of outstanding shares to be bought back, the buy-ba ck price should be such that: [Post buy-back price] > [Current price] Therefore, [Revised EPS] X [Post buyback P/E] > [Current price] [Revised EPS] = [Normal Earnings] [Loss of earnings due to funds mobilized for

buyback][Reduced number of shares]

CASE STUDY 1. Indian Rayon and Industries Limited

Indian Rayon and Industries Limited were in the process of restructuring by hivi ng off some of its units and also undergoing a share buy-back programme. This is one of the successful buybacks in India. Details of the offer:Number of shares offered for the buyback: 1,68,70,760 (face value = Rs. 10 each) [This represents up to 25% of the total paid-up equity share capital of the comp any] Mode of offer: Open market through the book building process in accordance with the SEBI Regulations 1998 Price range: Rs. 85 per equity share [The amount is to be payable in cash aggregating to Rs.143.41 crores and represe nting 0.45% and 11.84% of the paid-up capital and free reserves of the company a s on March 31, 1999] Date of announcement: 16thAugust 1999. Opening date of the offer: 29thSeptember 1999. Closing date: 14thOctober 1999. Merchant Banker: DSP Merrill Lynch Limited. Objectives of the buyback:The main reasons why IRL wanted to go for a buy back are as follows: The company had a cash surplus of over Rs.200 Crores, which were deployed in mar ketable and liquid financial instruments earning low returns. It was thought that the company would continue to enjoy healthy cash flow from i ts present businesses and therefore it was felt feasible to return surplus cash to its shareholders through the buyback process. The buyback is an excellent mechanism for providing an exit opportunity to those shareholders who so desire, in a manner that does not substantially imp act the market price of the Companys share or adversely affect the interests of t he ongoing shareholders. The buyback is likely to also enhance the Earning Per Share of the Company in th e future, and create long term Shareholder Value. Analysis:The summarized balance sheet of the company as on 31st . Summary Balance Sheet on 31/03/1999 Equity Capital 67.48 Free Reserves 1143.91 Other Reserves 152.02 Debt 776.4 May 1999 is given below

Total 2139.81 Investments (at market value) 238.67 Excess Cash 7.75 Advance & Deposits 498.06 Other Net Assets 1395.33 Total 2139.81

The maximum amount of buyback offer that the company could have made was 25 perc ent of the paid-up share capital and free reserves. That comes to 25 percent of (Rs 67.48 + Rs 1143.91) = 25 percent of Rs 1211.39 = Rs 302.85 crores. The buyba ck offer was for Rs 143.4 crores which is below the maximum permissible limit.

We now compare the above balance sheet with the post-buyback balance sheet which is as shown below.

Post Buyback Balance Sheet Equity Capital ( 67.48 - 16.87 ) 50.61 1000.51 Free Reserves ( 1143.91-143.4 ) Share Buyback Reserves 16.87 Other Reserves 152.02 776.4 Debt Total 2103 Investments (at market value) 238.67 7.75 Excess Cash Advance & Deposits 498.06 Other Net Assets 1251.93 Total 2103

The debt/net worth ratio before and after the buyback are shown in the following table. Effect of the Buyback on the Debt/Net Worth Ratio Equity before buyback 67.48 Net worth before buyback ( 67.48 + 1143.91 + 152.02 ) 1363.41 Debt before buyback 776.4 Debt/Net Worth ratio before buyback 0.569 Equity after buyback 50.61 Net worth after buyback ( 50.61 + 1000.51+ 16.87 + 152.02 ) 1220.01 Debt after buyback 776.4 Debt/Net Worth ratio after buyback 0.636

The debt to net worth ratio after the buyback was 0.636 which was within what SE BI guidelines permit. The market price of the share on the day the buyback was announced was Rs. 72 an d by 18th May 2000 the prices had increased to Rs. 82, implying that there was a n increase of 11.11% in the prices of shares. This indicated that the market has confidence over the future of the company and therefore it has reacted positive ly to the news of buyback. This was also a time when the sensex was raising terr itory at 4558 level (which is unusual); but the fact was that the sensex was in a declining phase having achieved a high of 6000+ during the bull rally in Feb 2 000. Variation of the Stock Price Before and After Buyback Stock the of 250 200 150

Price 100 Market 50 Weekly 0 26/03/1999 99 26/08/1999 99 26/01/2000

26/04/1999 26/09/1999 26/02/2000

26/05/1999 26/10/1999 26/03/2000

26/06/1999 26/11/1999 Week

26/07/19 26/12/19

Buyback Offer Period As we see in the above graph, the market price of the stock rose slightly, that too much after the offer had closed, and then went downhill again. The next table shows the shareholding pattern before and after buyback. It can b e seen from the table that the promoters stake has increased from 21.45% to 28.69 %. Pre-buyback Particulars No. of shares% of share capital Promoters, concert, 21.54% company 14521442 28.69% Public Fis, nationalised banks and mutual funds 25.99% 36,090,839 71.31% Shares underlying GDRs FIIs Non resident shareholding 5,414,505 3,113,703 14,521,442 No. of shares Post-buyback % to share capital

Persons acting in Directors of

the

17,535,209 8.02% 4.61% 1,093,158

1.62% DMAT shares CSDL and NSDL Public Total 50,612,281 100% in transit with 2,567,045 23,237,979 67,483,041 34.44% 100% 3.80%

2.

Great Eastern Shipping Company Limited

Details of the offer:Maximum Maximum Date of Mode of nge. worth of the offer: Rs. 150 crores offer price: Rs 42 per share announcement: 31stOctober 2000 offer: the buyback was offered in an open market through the stock excha

Opening date of the offer: 26thDecember 2000 Closing date: 17thApril 2001 Merchant banker: Kotak Mahindra Capital Services Objectives of the buyback:Explaining the rationale for the buyback, GE Shippings Managing Director Mr. V. K Sheth said that it was a very good way to deploy the companys funds since the va lue of the stock was significantly better than its market value. Thus the buybac k was offered because the management felt that the stocks were undervalued and b uyback would lead to an increase in the share prices. Analysis:We now briefly analyze the pre-buyback and post-buyback position of GE Shipping. We try to study the Balance Sheet before and after the buyback, and also try to understand the market response to the offer (in terms of the change in market p rice of GESCOs shares). GE Shippings balance sheet at the end of the FY 1999-2000 showed free reserves of Rs 453 crores and excess cash of 85 crores. The PAT figure was Rs 49 in the fir st quarter that ended on 30th June 2000, and the projected value of PAT for the second quarter ending on 30th September 2000 was at Rs 70 crores. Hence, the summary balance sheet as on 30/09/2000 would be Summary Balance Sheet on 31/09/2000 Equity Capital 259 Free Reserves (453 + 49 + 70) Other Reserves 395 Debt 1027 Total 2253 572

Investments (at market Excess Cash (85 + 49 + Advance & Deposits Other Net Assets Total 2253

value) 70) 204 1760

85 204

As per SEBI regulations, the maximum amount of buyback possible in this case was : 25 % of (Equity Capital + Free Reserves) = 25 % of (259 + 572) = Rs 208 Crores . The company had planned to go for a buyback of Rs 150 Crores, and the offer ende d at Rs 149.88 Crores. The company went for Rs 150 Crores when they could have g one up to Rs 208 Crores probably because some amount of money was kept to repay and service the huge debt that they had taken. The balance sheet post-buyback would look as shown below: Post Buyback Balance Sheet Equity Capital (259 - 43) Free Reserves (572 150) Share Buyback Reserves 43 Other Reserves 395 Debt 1027 Total 2103 Investments (at market value) Excess Cash (204 - 150) 54 Advance & Deposits 204 Other Net Assets 1760 Total 2103 216 422

85

This table shows the changes in the balance sheet due to the buyback. The effect of the buyback on the D/E ratio of the company is as shown below. Effect of the Buyback on the Debt/Net Worth Ratio Equity before buyback 259 Net worth before buyback (259 + 572 + 395) Debt before buyback 1027 Debt/Net Worth ratio before buyback 0.838 Equity after buyback 216 Net worth after buyback (1226 150) 1076 Debt after buyback 1027 Debt/Net Worth ratio after buyback 0.954 1226

As per SEBI regulations, the post-buyback D/E ratio of a company cannot be great er than 2:1. In this case, the D/E ratio of .838:1 changed to .954:1 after the buyback. This is well below the stipulated maximum of 2:1. Prior to the buyback, public held 48 percent stakes of the company, Internationa l Finance Corporation 7 percent, FIIs 11 percent, FIs 13 percent and GDR holders

6 percent and the promoters owned 14.5 percent. After the buyback, the promoter s stake went up to 17.23 percent. The share prices of GE Shipping went up by over 23 percent on the bourses after the buyback. The share price went up from Rs 28 on April 27, 2001 to Rs 34.55 on May 10, 2001. This increase of 23 percent is far greater 4.25 percent by which the Sensex rose during this period. The increase in share prices is largely due to the fact that the maximum buyback price was fixed above the market price of t he share. The maximum buyback price of Rs 42 had been fixed above its 52-week hi gh of Rs 36.80. On the day the offer opened, the share was trading at Rs 34.05, and was trading at Rs 24.70 on the day the offer closed. The price of GE Shippings share today stands at Rs 27.55 which only shows that th e interest in the scrip has gone down again barely three months after the buybac k offer closed. This actually indicates that the objective with which the manage ment had issued the buyback was no fulfilled. The stock prices till date remain undervalued. The initial increase in prices after the announcement of the buybac k was because the people wanted to make profit by selling the shares back to the company. It had acquired 4.29 crores shares at Rs 149.88 crores (average price of around Rs 35) which was the permitted outlay. The company was to buy back sha res at a price not exceeding Rs 42 per share and managed to do so at a lower pri ce.

Variation of the Stock Price Before and After Buyback 40 35 30 25 20 15 the Weekly of 5 0 08/05/2000 08/03/2001 Offer Period The main reason for the failure of the buyback could be attributed to wrong pric ing of the share, which was too high. In comparison Indian Rayon fixed its price very near the currently prevailing market price. Therefore, after buyback also the shares continue to trade at below buyback price. The company has indicated t hat it wishes to go for a second round of buyback. 3. Motor Industries Company Limited 08/09/1999 08/07/2000 08/05/2001 08/11/1999 08/09/2000 08/07/2001 08/01/2000 08/11/2000 Week Buyback 08/03/2000 08/01/2001 10

Price Share Market

Details of the offer:Size of the offer: 2,00,000 shares [This was the first buyback offer from MICO]. This amount is equivalent to 5.55% of the total paid-up capital of the company Buyback price: Rs. 4200 per share [This would mean utilizing the reserves to the extent of Rs. 84 crores.] Mode of offer: It was a tender offer. The buyback was offered to existing sha reholders on a proportionate basis. Date of opening: 13thApril 2000 Date of closing: 4thMay 2000 Merchant banker: DSP Merrill Lynch Limited Analysis:We now briefly analyze the pre-buyback and post-buyback position of MICO . We try to study their Balance Sheet before and after the buyback, and also try to understand the market response to the offer (in terms of the change in marke t price of their shares). Hence, the summary balance sheet as on 31/12/1999 would be Summary Balance Sheet on 31/12/1999 Equity Capital 38 Free Reserves 448 Other Reserves 20 Debt 356 Total 862 Investments 93 Excess Cash 58 Advance & Deposits Other Net Assets Total 862

263 448

As per SEBI regulations, the maximum amount of buyback possible in this case was 25 % of (Equity Capital + Free Reserves) = 25 % of (38 + 448) = Rs 121 crores. The balance sheet post-buyback would look as shown below: Post Buyback Balance Sheet Equity Capital (38 2) 36 Free Reserves (448 84) Share Buyback Reserves 2 Other Reserves 20 Debt 356 Total 778 Investments (at market value) Excess Cash (58 46) 12 Advance & Deposits 225 Other Net Assets 448 Total 778 364

93

Since the company had only 58 crores of liquid cash at that point in time, they funded a part of the buyback by liquidating some of the advances and deposits. T he change in the ratio of Debt to Net Worth as a result of the buyback can be se en in the table below. Effect of the buyback on the Debt/Net Worth Ratio Equity before buyback 38 Net worth before buyback (38 + 448 + 20) Debt before buyback 356 Debt/Net Worth ratio before buyback 0.704 Equity after buyback 36 Net worth after buyback (506 84) 422 Debt after buyback 356 Debt/Net Worth ratio after buyback 0.844 506

The D/E ratio of 0.844:1 obtained after the buyback is well below the stipulated maximum of 2:1. The promoters of the company, German-based Robert Bosch GmBH, did not make any a dditional investment in the company. Before the buyback, Robert Boschs holding in the company was 19.40 Lakhs equity shares of Rs 100 each in the company, i.e., 51 per cent of total paid-up capital which was 38.05 crores. The public held the balance 49 percent shares. After the buy back, the paid-up capital came down to Rs 36.05 crores. Since Robert Bosch's absolute holding in the equity share capi tal of MICO remained unchanged at 19.40 lakh equity share of Rs 100 each, in per centage terms, their holding in the total equity share capital of the company in creased to about 54 per cent. There was no considerable movement in the share prices of MICO after the buyback . One possible reason for this lack of investors interest in the scrip could be t he pricing of the buyback. The offer was priced at Rs 4200 per share, which was lower than its 52-week high of Rs 6355 (in fact, it was lower than its 52-week a verage which was around Rs 4700). Variation of the Stock Price Before and After Buyback 6000 Price Share Market 3000 the Weekly of 2000 1000 0 08/10/1999 08/03/2000 08/08/2000 08/11/1999 08/04/2000 08/09/2000 08/12/1999 08/05/2000 08/10/2000 08/01/2000 08/06/2000 08/11/2000 Week 5000 4000

08/02/2000 08/07/2000

Buyback Offer Period:The scrip was trading at Rs 3800 on the day the offer opened, and at Rs 3736 on the day the offer closed. The price of the share increased very marginally but c ame back to Rs 3736 at the end of two weeks of closing of the offer. Just for ac ademic interest, the share was trading at a price of Rs 2277 as per the latest r eports from BSE. The buyback offer was oversubscribed indicating that the shareholders do not hav e much faith in the future of the company. MICO is the first company to have suc cessfully accomplished two buybacks in quick succession. The second was in Janua ry 2001 at Rs 3,800 a share after which the scrip went up over 1% to Rs 3,475. The objective of this buyback was to return some of the surplus cash available w ith the company providing liquidity and an attractive premium to prevailing pric es for its current shareholders. There has been severe criticism about MICOs deci sion to buy back shares, as the already illiquid share would become all the more illiquid. Secondly, the shareholders only gain from the whole exercise has been selling off some of the stock at a premium price.