Your company has recently implemented a share buy-back program which allows for

Question

Your company has recently implemented a share buy-back program which allows for the repurchase of three million shares over the next two years. Your CEO has indicated that the decision is a good one because the shares repurchased would be a quality asset providing additional earnings from future dividends received on the shares and the potential gains from the resale of shares in the market. As an additional benefit, the company would be able to maintain control of their destiny by voting the shares at the annual shareholders' meeting.

1. 'Respond to the CEO with a concise statement that addresses the CEO's misperceptions.

Explanation / Answer

Advantages of Buy Back: 1. It is an alternative mode of reduction in capital without requiring approval of the Court/CLB(NCLT), 2. to improve the earnings per share; 3. to improve return on capital, return on net worth and to enhance the long-term shareholders value; 4. to provide an additional exit route to shareholders when shares are undervalued or thinly traded; 5. to enhance consolidation of stake in the company; 6. to prevent unwelcome takeover bids; 7. to return surplus cash to shareholders; 8. to achieve optimum capital structure; 9. to support share price during periods of sluggish market condition; 10. to serve the equity more efficiently.

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