Home » Share Market » Different buyback methods: comparison

Different buyback methods: comparison

Did you ever wonder how a company managed to finance its firm and boost its shareholder value? This is where the idea of buyback of shares BSE came into existence. Companies utilise their excess funds for purchasing buy back their outstanding share from the shareholders. This reduces the availability of a number of shares in the market in this fascinating financial manoeuvre. So, in this post, you can learn about the reasons why companies buy back shares and the different methods of buyback of shares

What is buyback?

You may want to know what is share buyback. When a corporation has excess money and is having trouble finding the right investment opportunity, it may decide to purchase a portion of its shares from the current owners. Repurchase is the procedure by which a company buys back its shares. A corporation will announce a buyback of shares NSE in which it will purchase shares from present shareholders at a price higher than the market price within a specific time period.

A corporation may declare a repurchase for a number of reasons. A few of them are listed below:

  1. Excess cash is present, but there are limited opportunities for investment.
  2. Regarded as a tax-efficient alternative.
  3. Enhances Return on Equity (ROE) and Earnings Per Share (EPS) by reducing the number of shares.
  4. Indicates that the stock is undervalued.

Types of buybacks of shares

The most popular methods of buyback of shares in India for a company to buy back shares in India are listed below.

Tender offer

By using this method, the business buys back its shares from current owners proportionately within a predetermined window of time. The corporation extends an offer to its shareholders to tender or sell their shares for a specific price (the offer price). The primary bank account of the shareholder receives the payment. 

Customers may apply for more shares than they are eligible for or entitled to. The acceptance of these extra shares for repurchase, however, is contingent upon the acceptance ratio set by the business in the event that more shares are tendered than are entitled. The RTA will refund any shares that are not accepted to the demat account.

Open market (Stock Exchange Mechanism)

The corporation purchases back its shares from the market directly in the Open Market Offer. This repurchase procedure, which is carried out over time through the company’s brokers, entails the buyback of shares BSE

By aggressively purchasing shares from exchange sellers, the corporation is able to repurchase its shares. The buyback duration, which may extend for many months, is specified in the buyback offer. The shareholder’s trading account gets credited with the amount. You may verify the buyback period by going to the SEBI (WEB) website.

Dutch auction tender offer

A corporation tenders its shares to the shareholders in a Dutch auction, offering a range of potential values, with the minimum price of the range being set above the going market rate. Next, the shareholders submit their offers, indicating how many shares they are ready to sell for and the lowest price they will accept. After evaluating the shareholder offers, the corporation decides on a fair price that falls within a specific range to finish the repurchase programme.

One benefit of the Dutch auction method is that it lets a business find out the repurchase price straight from the shareholders. Furthermore, the stock repurchase programme may be finished in a reasonable amount of time by employing such a strategy.

Direct negotiation

A corporation makes direct approaches to one or more significant owners in an attempt to repurchase their shares. In this case, there is a premium included in the share purchase price. Keep in mind that the main advantage of this approach is that a business may bargain directly with a shareholder for the repurchase price. This is why, in some circumstances, this approach may out to be quite economical. Direct talks with shareholders, meanwhile, can sometimes take a lot of time.

Reasons for a stock buyback

A firm may choose buyback of shares NSE for the following reasons, among others:

To signal that a stock is undervalued

A company’s management may choose to repurchase some of its shares from the market in order to raise the price of the remaining shares if they feel that the company’s stock is undervalued.

To distribute capital to shareholders with a high degree of flexibility in the amount and time

Since dividend payments are due on specific dates to all common shareholders, the management of the firm is not given much leeway in how they are paid. Conversely, stock buybacks often offer a great deal of freedom because they don’t set deadlines for transactions or minimum payment amounts.

To take advantage of tax benefits

In nations where the capital gain tax on buyback of shares (the amount shareholders get from stock buybacks is taxed as capital gains) is lower than the dividend tax rate, stock buybacks can be an excellent substitute for dividend cash payments.

To absorb the increased number of shares outstanding due to the exercise of stock options

Stock buybacks are frequently started by businesses that provide stock options to their workers as a component of their pay packages. The practice is justified by the fact that more shares are outstanding when staff members of the firm execute their stock options. A corporation buys back certain shares from the market to maintain ideal levels of outstanding shares.

To use as a hostile takeover defence

A target company’s management may repurchase shares from the market as a defensive tactic in the event of a hostile takeover threat. Reducing the acquirer’s prospects of gaining a controlling stake in the target firm is the aim of the defence strategy.

How is a buyback done?

A business may offer its shareholders a tender offer, which entails a premium over the going rate for the shares and gives them the choice to surrender all or some of them within a certain period of time. As an alternative, a business can have a defined share buyback programme in place that buys shares on the open market during specific periods or on a regular basis for a considerable amount of time. A corporation may use debt, cash on hand, or operating cash flow to finance its repurchase.


Buyback of shares NSE refers to the practice of repurchasing one’s shares from shareholders, either directly or through the market. If a business decides to repurchase shares, it may gain a number of advantages of buyback of shares, including a rise in share price, an improvement in the company’s critical financial ratios, the best possible use of its excess capital, and more.

As an investor, you must resist being seduced by the company’s high offer price, though. Before applying for a repurchase, you should, as a responsible investor, take into account other factors, such as the company’s reasons for announcing the buyback, its growth prospects, and your objectives and risk tolerance.


What is a share buyback?

A share buyback, also known as a share repurchase, is a corporate manoeuvre wherein a company utilizes its cash reserves to acquire its shares from existing shareholders.

Why do companies engage in share buybacks?

Companies may opt for share buybacks to achieve objectives such as returning value to shareholders, boosting earnings per share, managing surplus cash, adjusting their capital structure, defending against hostile takeovers, or indicating confidence in the company’s future prospects.

How does a share buyback affect shareholders?

Share buybacks influence shareholders by diminishing the total number of outstanding shares, potentially increasing the value of the remaining shares, elevating earnings per share, and improving the percentage of their ownership stake.

Are share buybacks always beneficial?

While share buybacks can generate value, their overall benefit depends on various factors, including the share buyback price, the company’s financial standing, prevailing market conditions, and the company’s long-term growth prospects.

Enjoyed reading this? Share it with your friends.

Post navigation

Leave a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *