EXPLAINED - Share Buyback: What does it mean and why do companies do it? What are the types of buyback?

Share Buyback: A share buyback is a corporate action wherein the company buys its own shares back from its investors. A company buys its shares at a higher price than the current market price. This premium is the profit that a shareholder gets.

Share Buyback: Why do companies do it?

Companies may repurchase or buy back shares for a number of reasons. A few are: 

-The company aims to reduce the total outstanding shares in the market.

-Buyback increases the value of remaining shares by reducing the supply.

-Buyback prevents shareholders from taking a controlling stake.

-A share buyback programme indicates that a company has sufficient cash set aside for emergencies.

Share buyback Types

There can be two types of Share buyback. These are tender offers and open market offers. 

Tender offer- A tender offer is an offer to purchase some or all of the shareholders' shares. Here, shareholders will have the option to submit or tender a portion or all of their shares within a certain time frame and at a pre-announced price. The buyback period and amount are announced by the company.

Open market offer- Under the Open Market route, the company purchases its shares directly from the market. In another word, a company buys back its shares from sellers on the exchanges. Here as well, the company decides the buyback time frame and amount. Since a large number of shares are purchased back, the buyback of shares continues for a long period so that there is no impact on the stock's price due to the buying activity.

For instance, Orbit Exports Limited announced a share buyback and serves the record date today, November 18.

Buy Back up to 4,08,163 fully paid-up equity shares of the company of face value of Rs.10 per share each at a price of Rs. 245 per share was announced earlier by the company in an exchange filing on NSE. 

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