Tata Consultancy Services (TCS), which is the country’s largest listed company in terms of market capitalisation, has announced India’s biggest buyback offer till now.
The software major plans to buy back up to 5.61 crore equity shares at INR2,850 per share.
Assuming that 5.61 crore shares - equivalent to 2.85% of the company’s equity - are bought back, the offer size would be pegged at INR 16,000 crore, surpassing Reliance Industries Ltd.’s 2012 share buyback offer of INR 10,400 crore.
The buyback is being made through the tender offer route.
This means the existing shareholders can tender their shares through the stock exchange.
The buyback offer price of INR 2,850 represents a 13.7% premium to INR 2,506.50, the closing price on February 20 when the announcement was made.
Since the buyback announcement, the stock has lost nearly 1% to close at INR 2,481.65 on Thursday (the stock market was shut on Friday on account of Mahasivaratri).
The buyback offer price is at a premium of almost 15% over the current market price.
TCS has a cash pile of more than INR 38,000 crore as on December 31, 2016.
Given the tax rules of India, a buy back is a comparatively better way of rewarding shareholders than doling out hefty dividends.
While there is no additional tax in buyback, dividends come at a cost to the company and the shareholders.
There is a dividend distribution tax of more than 20% on the companies while individuals have to pay 10% tax if dividend received is more than INR 10 lakh.
Buy Backs in IT Space: Know More- The mega buyback offer and the response to it could lead to more such offers, mostly from the IT space.
- Infosys is seeking shareholder approval for amending its Articles of Association to include the provision of buybacks - as mandated by the new Companies Act.
- Wipro, Tech Mahindra and HCL Technologies might be still some time away from such offers because of the lower levels of cash and a historical trend of inorganic growth.
- The board of NASDAQ-listed Cognizant has also approved a plan to return $3.4 billion to its shareholders over two years through buybacks and dividend.
- The NYSE-listed Accenture Plc has a history of returning all its profits to its shareholders in the form of buybacks and dividend payouts.
