Wipro buyback - The odds are in my favor.
I have been doing Special situations for some time and of the recent ones I would like to say that Wipro has a good chance of some decent gains in 3-4 Months.
Let's see how the Wipro Buy back is :
Wipro buying back value - 11000 Cr
Buyback price - 320
The retail category is entitled for a 15 % reservations in buybacks persons holding shares below 200000.
So if I hold < 625 shares I would be classified as a Retail participant.
Total shares reserved for Retail share holders - 515625000
As per Wipro Annual report Share holders pattern the share holders holding shares below 625 are not exactly provided. As per the latest Shareholding pattern the NO of shareholders having shares upto 2 lakhs is 246584
We have to guesstimate here on the persons holding shares below 625 near acceptance date. Which is tough in this case there can be share holders buying after announcement so I'm taking it as 260000
( Assumptions only)
So acceptance ratio would be Total no of shares held by Retail share holders under 200000
No shares under 2 lakh of capital = 101911873 (As per June 2017 Share holding pattern ) / shares accepted in retail category 51526500
= 51526500/101911873 = 50.6%
Which ideally means out of the 10.19 Cr shares you can offer the company can accept only 5.15 Cr shares so ratio being 50.6 %
Let's see the Math here :
Case 1 : 100 % acceptance ratio
Buy price - Cmp 290
Max shares can be tendered 625
Total shares tendered value = 625 * 290 = 181250
That would be the invested amount.
Acceptance - 100 % at 320
Time frame - 4 months max
Profit on deal = 320 - 290 = 30 per share
Total profit = 18750
% terms - 10.34 % in 4 months or 31% Pa
Case 2 Acceptance ratio 50 %
Invested capital - 625* 290 = 181250
50 % or 312.5 shares bought at 320 = 100000
50 % or 312.5 shares sold on offer date at let's assume same Purchase price of 290 = 90625
Total profit on deal = 9375
% terms - 5.1 % or 15.3 Pa
The lower the stock bought from CMP the more adjustment towards total returns. Here When prices go lower odds are in your favor and when acceptance ratio is Lower than it is even. If prices go lower and Acceptance is higher higher odds than expected you could make more money than my calculation.
Expecting the acceptance ratio to be 100 % as per previous deals MPHASIS , TCS which had a 100 % acceptance as Tendered % were lower than the tender offered . Thus if Wipro being a 100 % acceptance ratio it could be a good bet for medium term. Assuming that it works out as per the above.
Note : This is for a informative purpose only, I am buying Wipro for Buy back only, more retail participants can bring down the Acceptance ratio which will in turn give lower returns.
I'm not recommending this, all views own.