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BUYBACK of Shares: Optimal for all?
M & A Critique
|August 2023
BUYBACK OF SHARES
Pursuant to the changes in direct tax rates, buyback of shares by the companies gained a momentum to return money to shareholders. In the last couple of years, lot of listed companies opted for Buyback of its equity shares.
Generally, Buyback is opted by the Company when they feel intrinsic value of the company is above the trading price of its equity shares and hence, it will be accretive for the shareholders of the Company to reduce the paid-up number of equity shares. In this article, we will discuss two buybacks; one which is successfully over and other one which is proposed [re-proposed) after denial by the Securities Exchange Board of India (SEBI) in 2019.
Larsen & Toubro Limited (L&T)
On 25th July 2023, Board of Directors of India's one of the Infrastructure to Information Technology conglomerate, Larsen & Toubro Limited ("L&T") proposed a buyback of 3,33,33,333 equity shares of INR 2 each (representing 2.4% of the total paid-up capital) at a maximum price of up to INR 3000 per equity share via tender offer route through stock exchange mechanism. This entails cumulative outflow of INR 10,000 crore. If successful, this will be its first maiden Buyback by L&T. The current market price of L&T stands in the range of INR 25002600 per share.
Interestingly, in 2018, L&T attempted its first buyback which was rejected by SEBI on account of consolidated debt to paid up capital & free reserve ratio exceeding two times. The buyback offers that time was for 6,10,16,949 (representing 4.29% of that time paid-up equity shares) equity shares at price of INR 1475 per equity share aggregating to INR 9000 crore.
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