TCS came up with a buy back of INR 16000 cr. At Rs. 2850 apiece, the number of shares that are to be bought back are 5.61 Cr shares. Out of these, 15% i.e. INR 2400 Cr or 84.21 Lac shares are reserved for retail category. As per the last annual report published by the company(2015-16), 1.96 cr shares are held under 1-100 category which makes an acceptance ratio (AR) of 42.9% however investors holding up to 80 shares would fall under retail category which will be below 1.96 cr figure so this will push AR in positive territory.
The above table is self-explanatory.
Shareholders holders holding upto 70-80 shares (depending on price on RD) would be eligible under retail category.
Buy back price - 2850 x 70 = 1,99,500
Factor negatively affecting Acceptance Ratio
- Number of incremental investors taking position under retail category to take advantage of this special situation.
Factors positively affecting Acceptance Ratio
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Not all 1.96 Cr shares as mentioned above are eligible as shareholders having shares up to 70 would fall under retail category.
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Not every investor who is falling under retail category would tender his shares. Possible scenarios are as under –
a. People not tendering their shares - Some are long term investors and intend to keep it for their coming generations and won’t consider tendering their shares in buy back. Another category of investors who are EITHER ignorant/not updated OR even if they are aware of it, they avoid going through complicated process of buy back (As it seems from outside).
b. People Tendering their shares –
i. Investors tendering 100% shares – Total shares will be in lock-in till the buy-back process is complete. In this case, shares which are not accepted by the company will be exposed to the risk of volatility in market price.
ii. Investors tendering as per acceptance ratio – In this case, tendered shares would be accepted by the company. Investor has the discretion to hold or sell the remaining shares in market at the prevailing price at that time. If they decide to hold the remaining shares, their cost of holding would come down substantially.
Also there would be separate category of investors who load the shares to the maximum as per their appetite (even more than 70 shares). The intent of such investors is not to tender their shares to company’s buy-back but to profit from the price differential when it’s converging with the buy-back price.
Disclaimer – This is not a recommendation to buy to sell. This is for educational purpose only. I am not a SEBI registered investment advisor.
Mukesh Verma