Scribd
Upload
2 views

4

Uploaded by

MuhammadNauman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2 views

4

Uploaded by

MuhammadNauman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

Share BUY Back

1) What should be price?


a) Factors need to be considered
i) Available funds
ii) How much share they want to buy back and what price will come after dividing available
funds with number of share to buy back.
iii) Price comes at 2.50 but fair value of share in stock exchange is 2.30. Sellor will gain so they
tend to sale other wise if price is less than fair value, they will not go for it.
iv) But it is also important sellor may be still passive and did not involve in trading in stock
exchange and they really do not want to sell even they getting price above market price.
v) So if we buy at high price, for existing shareholder it will not worth the cost and if we charge
low price, then it will not possible to get buy required shares
vi) Overall price level should be high enough to pursuade shareholder. If they are not willing
objetcive cannot be achieved
vii)
2) What will be benefit?
a) We will use suplus cash available
b) Give opportunity to sellor of share to get investment returned and they can re-invest elsewhere
with low transaction cost
c) For remaing shareholder, EPS will increase as number of share has been reduced and that could
lead to higher share price.
d) Dividend payment per share will increase.
e) Also help company to withdraw share from stock exhange and become private.
f) Again EBITDA per share will increase and help director to get more bonuses
3) What will be risk and assoicated problems?
a) There will be increase in gearing as relative portion of debt to equity will increase. This will
increase risk for shareholder as well as lendors.
b) Very difficult to come conclusion to price offerred which is accpetable to both sellor and other
shareholder who are not selling
c) Repurchase is admission to fact company cannot make use of company funds bettor than
shareholder
d) There will be tax on capital gain and divideded will stop for sellor
e) We may not have significant power in board in order to get approval as per company rules.
f) And share price may fluctuate by the time scheme is approved and implemented.

You might also like