{"id":10254,"date":"2020-04-29T12:32:00","date_gmt":"2020-04-29T07:02:00","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=10254"},"modified":"2020-04-29T12:32:02","modified_gmt":"2020-04-29T07:02:02","slug":"process-for-the-valuation-of-shares-for-buyback","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/","title":{"rendered":"The Process for the Valuation of Shares for Buyback"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Buyback of shares is opposite and contrary to the issue of shares by a company. The reason behind the same is that in the case of <strong><a href=\"https:\/\/swaritadvisors.com\/buyback-of-shares\">buyback of shares<\/a><\/strong>, instead of giving shares, the concerned company offers to buy back its shares owned by the investors, that too, at a specified price, which is normally at a premium over the prevailing market price. Like everything,even the valuation of shares for Buyback is different and distinct from the valuation of equity shares.<\/p>\n\n\n\n<p>Further, Buyback of Shares is one of the most significant\nprocesses which profits both the company and the owner of the shares, i.e.,\ninvestors. Furthermore, Buyback of shares provides a great and ample opportunity\nfor the shareholder to get premium over the shares owned by them just by\nselling them directly to the company. However, it is crucial for a shareholder\nto do valuation of shares for buyback of a company before going for the buyback\noffer. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a4afc75771bc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a4afc75771bc\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#Things_to_Ponder_before_going_for_the_Buyback_of_Shares\" title=\"Things to Ponder before going for the Buyback of Shares\">Things to Ponder before going for the Buyback of Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#Why_does_a_company_choose_Buyback_of_Shares\" title=\"Why does a company choose Buyback of Shares?\">Why does a company choose Buyback of Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#How_buyback_of_shares_will_benefit_the_investors\" title=\"How buyback of shares will benefit the investors?\">How buyback of shares will benefit the investors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#Modes_of_buyback_of_shares\" title=\"Modes of buyback of shares\">Modes of buyback of shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#How_to_do_Valuation_of_Shares_for_Buyback\" title=\"How to do Valuation of Shares for Buyback?\">How to do Valuation of Shares for Buyback?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/process-for-the-valuation-of-shares-for-buyback\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Things_to_Ponder_before_going_for_the_Buyback_of_Shares\"><\/span>Things to Ponder before going for the Buyback of Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following listed are some of the essential\naspects to ponderbefore going for the buyback of share \u2013<\/p>\n\n\n\n<ul><li><strong>Buyback Price<\/strong> &#8211; Buyback of Shares comes with a price component. The buyback price is one of the most significant factors to check before investing inan offer of buyback. Further, the price of the Buybackis that factor that tells a shareowner about the exact price at which the company will repurchase each share. Furthermore, the buyback price also assists in determining whether the offer of buyback is providing profit or not, andif yes, then what is the profit percentage.<\/li><li><strong>Premium on Buyback of Shares<\/strong>\u2013Premium on Buyback is yet another extremely significant factor to ponder before jumping into the offer of buyback. Further, the premium on buyback is a difference between the price of buyback and the share price of the company\u2019s stock at the date of the Buyback offer.<\/li><\/ul>\n\n\n\n<div class=\"shadow4\"><strong>For Example<\/strong> \u2013 If SJSPvt Limited has\noffered a buyback of shares @ buyback price of Rs100 and the at the date of the\nBuyback offer, the share price of SJSPvt Limited is Rs80 then, in this case,\nthe premium on buyback is (Rs.100 \u2013 Rs.80), i.e., Rs.20 premium and its premium\npercentage is 20 percent.<\/div>\n\n\n\n<p>While getting into a buyback deal,onemust also consider the\npotential of the shares that he or sheis holding of the company.<\/p>\n\n\n\n<p>If in case the market suggests that the Company\u2019s stock will offer\nbetter returns than the premium offered by the concerned company, then in this\ncase, one can reconsider getting into the buyback offer.<\/p>\n\n\n\n<ul><li><strong>Dates\nin Buyback offer<\/strong> &#8211; The offer of the Buyback is\nthe process that consists of multiple dates. Such dates include Announcement\nDate, Buyback Approval Date, Date of Tender Forms verification, Buyback Opening\nDate, Closing Date, Bids Settlement date. Hence, all of these dates have their importanceand\nsignificance.<\/li><li><strong>Size of Buyback<\/strong>\n-The buyback size shows the number of shares that\nthe company is willing to withdraw from the market. Further, this also indicates\nthe amount of money that a company is ready to provide to the shareholders.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_does_a_company_choose_Buyback_of_Shares\"><\/span>Why does a company choose Buyback of Shares?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following listed are the reasons as\nto why does a company chooses the option of buyback &#8211; <\/p>\n\n\n\n<ul><li><strong>Surplus cash-\u00a0<\/strong>Whenever the company concerned has a substantial amount of cash, and there are not many worthwhile projects on its table. Moreover,it is also not interested in disbursing cash to its shareholders in the form of dividends, then the way out for most of the companies is to buy back its shares.<\/li><li><strong>Internal difference\u2013\u00a0<\/strong>At times, shareholders have a contrasting viewpoint from the company\u2019s management. If they are in the majority, they might create an obstacle or hurdle to the company\u2019s growth. Hence, buyback of shares is a way out for boosting the controlling stake for the management within the company. Further, the shares bought under this system does not go back to the promoters, but are held as treasury stock by the company. The reason for storing it as treasury stock is that the same could either be resold or even used for the employees\u2019 stock option schemes.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_buyback_of_shares_will_benefit_the_investors\"><\/span>How buyback of shares will benefit the investors?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following listed are the reasons as\nto how buyback of shares will benefit the investors \u2013<\/p>\n\n\n\n<ul><li><strong>High share value if onedoes not sell back-\u00a0<\/strong>One of the most common ways out of computing the company\u2019s performance is through EPS (Earnings Per Share). A higher EPS means that theshares \u201cIntrinsic Value&#8221;is also high; this, in return, increases the value of shares held by the investor. Further, by means of the repurchasing route, the outstanding number of shares reduces and, thus,results in boosting the EPS.<\/li><li><strong>Tax shield\u2013\u00a0<\/strong>The offer of buyback provides a tax shield for the investors. This is because if in case the company were to declare dividends, the investors concerned would have to pay a tax on that.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Modes_of_buyback_of_shares\"><\/span>Modes of buyback of shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>There are primarily two modes of buyback \u2013<\/em><\/p>\n\n\n\n<ol><li>Fixed\nPrice Tender Offer, and <\/li><li>Open Market\nBuyback. <\/li><\/ol>\n\n\n\n<p>In the fixed price tender offer, the company concerned may\npresent its shareholders with a formal tender offer, in which they have the offer\nto submit a part of their shares that too, within a certain period, and at a\ncertain price, which is usually at a 15 to 20 percent premium over the prevailing\nmarket price. <\/p>\n\n\n\n<p>Whereas in the latter case, the company declares a band price for the buyback and purchases the shares from the market at the market price, subject to the specified rules. Further, in India, the former is mostly preferred due to the high amount of cash engaged in <a href=\"https:\/\/swaritadvisors.com\/learning\/checklist-for-buyback-of-shares-under-companies-act-2013\/\"><strong>buyback transactions<\/strong><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_do_Valuation_of_Shares_for_Buyback\"><\/span>How to do Valuation of Shares for Buyback?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although\nbuyback of shares can be a fantastic chance to sell one\u2019s shares at a premium\nand also to get good returns but on the other hand, it is noteworthy to note\nthat one could even stand to lose out on the company\u2019s future growth. Hence, it\nis essential for an investor to do valuation of shares for buyback before going\nin the offer of buyback. The following listed are the significant aspects to\nponder for the valuation of shares for buyback \u2013<\/p>\n\n\n\n<ul><li><strong>Offer price<\/strong>&#8211; One of the most crucial factors in the valuation of shares for buyback is the offer price. Is the offer price of the buyback significantly higher than the prevailing market price of the stock? If the said answer is no, then one may not benefit a great deal from the buyback. However, one should also remember that if in case onehas held the shares for a period less than a year, then one would also be required to pay a short-term capital gains tax of 15 percent.<\/li><li><strong>Use of excess money for buyback<\/strong>\u2013Another factor to consider for the valuation of shares for buyback is whether a company using excess money for buyback or not. Further, surplus cash on the company\u2019s balance sheet does not look good as it depicts that the concerned company is inefficient in utilizing its assets. Moreover, if a company does not have many worthwhile projects for the near future, it may consider or ponderfor utilizing the cash to buy back its shares from shareholders. Hence, if in case a company does not have any future growth potential, it will be better to participate in the process of buyback and sell your shares.<\/li><li><strong>Future potential growth<\/strong>\u2013Last but not least significant factor for the valuation of shares forbuyback is to see the company\u2019s future potential growth. If in case the company has solid fundamentals and the concerned shareholderis looking for long-term growth, it may be best to hold onto the stock and ignore the offer of buyback. Asin this case, the future growth potential will be better than the returns earned by the shareholder in the short term.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>\n\nBuyback of shares provides a great and ample opportunity for the\nshareholder to get premium over the shares owned by them just by selling them directly\nto the company. However, it is crucial for a shareholder to do valuation of\nshares for buyback of a company before going for the buyback offer. The factors\nto take into consideration for the valuation of shares for buyback include\noffer price, use of excess money for buyback, and company\u2019s future potential\ngrowth. \n\n\n\n<\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/buyback-of-shares-a-detailed-analysis\/\" target=\"_blank\" rel=\"noopener noreferrer\">Buyback of Shares: A Detailed Analysis<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Buyback of shares is opposite and contrary to the issue of shares by a company. The reason behind the same is that in the case of buyback of shares, instead of giving shares, the concerned company offers to buy back its shares owned by the investors, that too, at a specified price, which is normally [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":10257,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[546],"tags":[609],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10254"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=10254"}],"version-history":[{"count":7,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10254\/revisions"}],"predecessor-version":[{"id":10263,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10254\/revisions\/10263"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/10257"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=10254"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=10254"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=10254"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}