The term literally refers to a company’s move to repurchase its own shares. By doing so, the company reduces the number of its shares available in the open market.
This will lead to the rise of earnings per share (EPS) and the return on assets of the company, indicators on the balance sheet of an improvement in the performance of the company. As an investor, it will mean an increase in his/her stake in the company. The companies generally indulge in a buyback when they feel that their share price in the market has fallen drastically. At other times, it may simply be a way of using excess cash. However, there are also cases when this may be an attempt at preventing a takeover of the company.
But the question is how a company repurchases its own shares??A company can buy back shares either using tender offer or in an open market buyback . Under the first method, the company issues a tender offer with details regarding the number of shares that the company plans to repurchase and indicates their price range. An investor keen on accepting the offer needs to fill the form & send it back to the company.
But the most common share repurchase method is the open-market stock repurchase,(especially in US) representing almost 95% of all repurchases. According to SEBI guidelines, if the company has decided to accept your shares, then it needs to intimate you in 15 days after the closure of the offer.
Any details regarding buybacks are available from the stock exchange as it is mandatory for the companies to intimate them of such resolutions or on the SEBI website.
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