Tata Consultancy Services announced a plan to buy back up to 5.61 crore equity shares for an aggregate price not exceeding ₹16,000 crore.
This is biggest buyback in the history of India’s capital markets, surpassing Reliance Industries’ share repurchase of ₹10,400 crore in 2012.
TCS’ board of directors has approved a proposal to buy back up to 5.61 crore equity shares of the company for an aggregate amount not exceeding ₹16,000 crore, being 2.85 per cent of the total paid-up equity share capital, at ₹2,850 per equity share.
TCS’ investors clearly liked the buyback plan as the company’s stock soared over 4 per cent to close at ₹2,506.50 on Monday on the BSE.
The buyback will be on a proportionate basis under the tender offer route, using the stock exchange mechanism.
Earlier, on January 31, the board of Mphasis had approved a buyback worth a little over ₹1,100 crore. Nasdaq-listed Cognizant recently announced a share buyback of $3.4 billion.
WHAT IS A SHARE BUYBACK?
It is when a company offers to purchase shares from the shareholders and extinguish those shares. This reduces the equity base of the company.
A buyback, also known as a repurchase, is the purchase by a company of its outstanding shares that reduces the number of its shares on the open market. Companies buy back shares for a number of reasons, such as to increase the value of shares still available by reducing the supply of them or eliminate any threats by shareholders who may be looking for a controlling stake.
WHY DO COMPANIES OPT FOR A BUYBACK?
It can be for a variety of reasons. But usually, companies announce a buyback when they either feel their shares are undervalued or when they have no better investment plan to deploy the cash. A buyback is a way to return cash to shareholders.
WHY A BUYBACK TO RETURN CASH, WHY NOT A DIVIDEND?
A buyback reduces the equity base of the company. This pushes up earnings per share, as the same profits will now be divided by a smaller equity base. (EPS=Net profit/number of outstanding shares)
It helps boost the share price. Because the market values a stock based on its EPS.
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