Asian Share Market, Asian Stock Market

Buy back methodologies- how a company executes it?
When a company decides to buy back it own shares from the existing shareholders, it can do so by any of the following methods:

1. From existing shareholders on a proportionate basis through a public offer
A company may come out with an open offer to all its existing shareholders to offer their shares to the company for buy back, which will be accepted on a proportionate basis. It means that in case a larger number of shares are offered by shareholders, company will accept a part of shares offered by each of them.

2. From open market through:
a. Book building process
Under this method, the price of buy back is not fixed by the company. Rather, it is determined through a book building process. In this process, shareholders offer their shares at a price acceptable to them.
b. Stock exchanges
Under this method, the company buys back shares from open market through stock exchange transactions at prevailing prices.

Arriving at the buy back price
Buy back price is arrived at depending upon the method employed for buy back process. It may be explained as under:
i. In case of public offer
Buy back price in this case is higher of the following two prices:
a. Weekly average price of the scrip during last 26 weeks just before the date of offer.
b. Daily average price of the scrip prevailing during last 2 weeks just before the date of offer.
ii. Book building process
Shareholders determine the price by offering their shares quoting prices at which they are willing to accept. Thus once the book is built and the offer size is reached at a price, all those who have quoted price at that level or less will get that cut off as buy back price for their shares. If company ABC Limited comes out with a buy back of 10 lakh shares and 2 lakh shares are offered at Rs. 75, 3 lakh at Rs. 80, 5 lakh shares at Rs. 85 and another 5 lakh at Rs. 95. The buy back offer is reached at a cut off of Rs. 85 and all those who quoted this or less than 85 will get Rs. 85 for shares offered by them.
3. Stock Exchange transactions
Under this method, the company simply buys its own shares in stock exchange where it is listed through normal transactions. Hence the prevailing price at which shareholders are willing to sell in the market is price paid by the company for buy back. In this case company is able to buy back its entire offering at various stock price levels.

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