Buyback:
A corporate move known as a buyback or share repurchase involves a company buying back its shares from its shareholders. Usually, firms repurchase their stock at a premium to the going market rate. Tender offers and open market offers are the two different kinds of buybacks.
Companies repurchase shares for a variety of purposes, including to increase the value of the available shares by reducing supply or prevent other shareholders from gaining control.
Why Buyback?
1. To decrease the quantity of shares on the market, a corporation may choose to conduct a buyback. This eventually raises the stock’s demand in the market, benefiting those who bought it.
2. Any time you buy a share in a firm, you also become a partial owner of the business with certain privileges. Due to the sheer volume of participants, it is frequently exceedingly challenging to reach a unanimous consensus throughout the voting or decision-making process. A decrease in the number of shares also helps to consolidate ownership and makes it easier for the company to reach decisions. Additionally, it ensures that the promoters do not lose out on a significant portion of their assets.
3. The company’s EPS (Earnings Per Share) rises when the number of shares is reduced. This also enhances the company’s other fundamental ratios as well. The company’s fundamental health can therefore be enhanced by the share buyback programme.
4. A shareholder makes investments with the hope of making money in the future. Giving the money back to the shareholders as compensation for their confidence and investment is accomplished through buyback. Buybacks are not subject to a three-level tax like dividends are. Therefore, it is a more advantageous and tax-effective option for the business to reward its shareholders.