COMPLIANE WITH THE

BUY BACK OF SHARES

Definition of buy back

• Buyback is reverse of issue of shares by a Buyback is reverse of issue of shares by a company where it offers to take back its company where it offers to take back its shares owned by the investors at a specified shares owned by the investors at a specified price; this offer can be binding or optional to price; this offer can be binding or optional to the investors.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.

METHODSMAIN METHODS OF BUYBACK :1. Tender Offer2. Open Market3. 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 Great Eastern Shipping Company (GESCO)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. 163million 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.