OFFER TO BUY (OFB)
- WHAT IS OFB?
- WHY DOES COMPANY BUY BACK?
- HOW IS BUY BACK PRICE DETERMINED?
- HOW DO I OFFER MY SHARES?
- REGULATORY OVERSIGHT
- JUST FOR INFORMATION
WHAT IS OFB?
Offer to buy is an action by the company wherein it requests the shareholders to give back the shares or surrender or sell the shares at a predetermined price.
WHY DOES COMPANY BUY BACK?
Shares are bought back when the company has lot of cash on the balance sheet and no plans to invest the same in new projects or expansion
if the share price is unduly low company may buy the shares so that the value vs price advantage can be taken
Sometimes company may buy its shares in order that the promoter may consolidate their ownership and maintain majority in the company
How is buy back price determined?
In case of liquid or highly traded stocks the price is average price in last 15 days. In less liquid shares the price is 6 months average. There are other formulas also suggested by SEBI to determine the value
SEBI has regulations for government buy back of shares. Not more than 25% of shares can be acquired by the company. Company is expected to put money in escrow account to ensure payment to shareholders who have offered the shares
Shares given in buy back are treated as sale and capital gains tax will be attracted
Just for information
At times companies give very poor price for buy back, you may not wish to sell, but if the company is going to get delisted then it is advisable to exit the company by offering in buy back