Sir,
Management of any company has duty to allocate capital prudently, we can all agree on it.
Lets take a hypothetical case of TCS buying Infy. Today Infy is trading at Rs. 1500 (approx.). Lets suppose we are TCS Management now should we buy at Rs.1500/ Rs. 1300 / Rs. 1600. The answer is quiet simple buying low will help TCS share holders. I hope no confusion there.
The same logic applies to TCS as well even if we buy our own stock we should buy it as cheaply as possible. Then a question on why TCS and Infy Mgmt are buying at a premium. This has 2 benefits 1. Posturing that we can easily earn our cash back 2. Institutional investors are required to show returns every year. If the share has performed badly in the market, they want the management to distribute cash to show superior returns for the time being, if not they will simply put pressure or get a new CEO.
With regard to Tender route, all Investors will place shares to get maximum offered price.
@Nishant_Sah Large shareholders(Read Tata’s or Murthy’s) are positively effected, as their share holding % remains the same but in addition they also get much needed cash for karcha pani.
@thakurvi If you are still not convinced, I have a mathematical model(Link). Please observe that lower the buyback price higher the EPS. So if same PE is maintained, higher the value to investors.
All the Best.
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