What is Open Market Share Buyback Offer?

Infosys has announced Buyback of shares via Open Market Purchase at its Board Meeting held on 14^th April 2021. The announcement of this buyback via this mode has raised many questions and has also created confusion among the investors. So in this blog, we will discuss in detail what is this Open Market Share Buyback Offer.

Introduction:

One of the leading IT companies in India, Infosys has announced its Quarterly Results for Q4FY21 on 14^th April 2021. In the same board meeting, Company announced the buyback of shares worth Rs. 9,200 Cr. Infosys had set an upper cap for the buyback of shares of Rs. 1,750 per share. Also. The company further stated that this buyback of shares will be conducted via Open Market Purchase and hence this buyback is not the traditional Tender Buyback.

What is Open Market Offer?

• Under this mode of buyback, the Company purchase the shares directly by reaching out to Stock Exchanges.
• These transactions of buyback are handled by the official brokers appointed by the Company.
• This buyback process of the company is a long-term process and companies are not time-bounded.
• Open Market Offer is different from other methods of Buyback like Tender Offer. Here, the company does not acquire shares from investors but purchases them from Open Market.

Flexibility:

“Stock buys via Open Market does not impose any legal obligation on the company”.

• It simply means that the company can close down its buyback offer in the open market whenever it wishes to.
• Also, this will not impose any legal obligations on the company.
• Open Market Offer of Buyback of shares offers the flexibility to the company to cancel the buyback offer at any point in time.

Prime Advantage of Open Market Offer?

Cost-Effectiveness:

• In the case of Tender Offer, where a fixed price is set at which the company will purchase those shares from the investors who will tender their shares.
• But in the case of Open Market, Company will purchase the shares from the market at the current market price of the stock. Here, the company just put its maximum ceiling price of the buyback. For Instance, Infosys has set a maximum cap of Rs. 1,750 per share for the buyback. The company can also buy the shares much below the current market price as well if the share price dips.

Why Company brings Buyback Offer?

• Normally, Company comes up with the Tender Offer kind of Buyback when it feels that the share price of the company is trading much below its intrinsic value.
• But, Company chooses an Open Market Offer for Buyback of shares to reward existing shareholders. Generally, in this mode of buyback valuations are not major concerns.
• In addition to this, the company might have a cash surplus, enough liquidity, and not many plans to deploy the capital, and hence company comes up with this open market offer buyback to reward shareholders, ultimately which leads to an increase in shareholding of the existing shareholders.