The document discusses stock buybacks, also known as share repurchases, by companies. It provides details on the various methods and regulations around companies purchasing their own outstanding shares to reduce the total number of shares available on the market. Key points include that buybacks can increase share value for remaining shareholders and defend against hostile takeovers, but may also imply the company sees its stock as undervalued or lacks growth opportunities.

3. The repurchase of outstanding shares
(repurchase) by a company in order to reduce
the number of shares on the market.
Companies will buy back shares either to
increase the value of shares still available
(reducing supply), or to eliminate any threats
by shareholders who may be looking for a
controlling stake.

4. Sources of Buyback , Section 77A (1)
Buyback can be done either out of :
i . Its free reserves
ii. Security premium account
iii. Proceeds of any shares or other specified
securities
Note: Buyback of shares of any kind is not
allowed
out of fresh issue of shares of the same kind .

5. company is allowed to purchase its own shares or other
specified securities unless
a) The buyback is authorized by its articles
b) A special resolution has been passed in general
meeting of the company authorizing the buyback
c) The buyback is less than twenty-five per cent of the
total paid capital and free reserves of the company
d) The ratio of the debt owed by the company is not
more than twice the capital and its free reserves after
such buyback
e) All the shares or other specified securities for buyback
are
fully paid up
f) The buyback is in accordance with the regulations
made by the SEBI in this behalf

6. Buyback within 1 year U/S 77A (4)
 Every Buyback shall be completed within 12
months
 from the date of passing the special regulation.
Methods of Buyback U/S 77A (5)
The Buyback may be made :
a) From the existing share holders on a
proportionate basis
b) From the open market
c) From odd lots
d) By purchasing the securities issued to the
employees of the company under ESOS

7. Company is required to make Public announcement in
 One NATIONAL English Daily
 One Hindi National Daily
 One Regional Language Daily
Public announcement should specify
 Specified Date i.e. the date of dispatch of the offer letter not
later than 30 days but not later than 42 days
 Company should inform SEBI within 7 days, Offer shall remain
open at least for 15 days
 Company shall complete verification with in 15 days from the
date of closure
 Buyback is permitted through six routes, namely the tender
route, open offer route, reverse book building, odd-lot share
purchase, reverse rights and purchase of employee stock option

8. Objectives of Buy Back: Shares may be bought back by
the company on account of one or more of the
following reasons
i. To increase promoters holding
ii. Increase earning per share
iii. Rationalise the capital structure by writing off
capital not represented by available assets.
iv. Support share value
v. To pay surplus cash not required by business
In fact the best strategy to maintain the share price in
a bear run is to buy back the shares from the open
market at a premium over the prevailing market
price.

9. 
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Helps company in reducing its share capital
Results in lower capital base
Company has advantage of servicing reduced capital
base with higher dividend yield
It is a good check on companies having poor
liquidity position
Provides capital appreciation to investors
Gives signal to market that shares are undervalued
Helps promoters to formulate an effective defence
strategy against hostile takeover bids

10. 
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Buyback implies under valuation of
companies stock
There exists less or no scope for further
expansion
Clever way for managers to invest cheaply in
a company
It does not make difference to shareholders,
whether the company returns cash in the
form of increased dividend or by way of
repurchase

11. 
EXAMPLE: Shares of Zee Entertainment rose over
2% in early trade on Monday after the company
said it may buy-back equity shares of the
company up to a value not exceeding 10 per cent
of the paid up capital and free reserves. In a
filing to the BSE, ZEEL said a meeting of its board
of directors will be held on April 4 to consider
the proposal. Earlier this month, ZEEL had
announced closure of a buy-back programme
that commenced on July 27, 2011. At 11:10 a.m.,
shares of the company were trading 2.5% higher
at Rs 129.70. The stock has hit a high of Rs
135.50 and a low of Rs 128.10.

13. 
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An increase in the number of outstanding shares of
a company's stock, such that proportionate equity of
each shareholder remains the same. This requires approval
from the board of directors and shareholders.
A corporation whose stock is performing well may choose
to split its shares, distributing additional shares to
existing shareholders. The most common stock split is
two-for-one, in which each share becomes two shares.
The price per share immediately adjusts to reflect the
stock split, since buyers and sellers of the stock all know
about the stock split (in this example, the share
price would be cut in half).
Some companies decide to split their stock if the price of
the stock rises significantly and is perceived to be
too expensive for small investors to afford. also called
split.

14. Stock Dividends (expressed as percentage)
• Payment of additional shares to common stockholders. A
10% stock dividend means that shareholders get 1
additional share for every 10 they own.
Stock Splits (expressed as ratio)
• A proportionate increase in the number of common
shares.
A 2:1 stock split means that stockholders will receive one
additional share for every one they own.
• In both cases, share value is diluted but total equity
remains
the same

15. The total number of shares outstanding
increases.
• In a 3-for-2 stock split, 3 new shares are issued
for
every 2 pre-split shares outstanding.
• Thus, there is a 50% increase in the number of
shares outstanding.
• A stock split alters the par value of the shares
But there is no transfer of balances between the
equity accounts(no transfer from reserves to
share capital)

16. 
Some believe that there is an advantage for an
investor when a company decides to split its
stock. This action be a leading indicator that the
company is doing well and expects revenue to
increase in the near future. Although some
disagree with this theory, there are not many
companies who would split their stock if they
were losing money.

17. 
The main advantage of a stock split for a
company is that when a stock is split, it may
lead to a buying frenzy. Many perceive the
stock split as an indication that the company
is doing well, but that is not always the case.
If there is a buying frenzy, the stock will
naturally begin to rise in price.

18. 
Although many see a reverse stock split as a
sign that a company is in some trouble, a
reverse stock split can also provide an
advantage. When a stock price becomes too
low, companies will sometimes do a reverse
split, which will allow the company to remain
listed in their particular exchange when they
would otherwise be delisted.

19. On the downside, stock splits may cause investors
to expect more about how the company
performs. If these expectations are not met
investor confidence may be shaken and the result
could be a drop in share prices.
The bottom line is a stock split does nothing to
affect the worth or performance of a company. It
may be nice to own more shares, but in the end
your 2 five-dollar bills are still worth the same as
your ten-dollar bill.

20. 
Apple split its shares on Feb. 28, 2005, by
two-for-one, and also on June 21, 2000, by
two-for-one. Apple's stock was trading for
about $90 a share on an unadjusted basis
when it split in 2005 and $100 a share when
it split in 2000.

21. After a stock dividend,
• the per-share cash dividend is usually
unchanged.
• After a stock split, the cash dividend is either
unchanged or reduced less than
proportionately.
• In both cases, the cash dividend per original
share increases.

22. Assume the share price is $45 before the stock
distribution.
 After a 3-for-2 stock split, the share price
will be ___________