1. Infosys’ $2.5 billion share buyback moves closer as company amends association rules

Infosys’ $2.5 billion share buyback moves closer as company amends association rules

Infosys Ltd has amended its Articles of Association adding provisions to enable it to buy back its shares, lending further credence to the news about the company mulling a share buyback worth up to $2.5 billion (Rs 17,000 crore) following TCS and Cognizant.

By: | Published: February 24, 2017 10:44 AM
The amendment to the Articles of Association also include expanding the size of the board to 15 directors. Articles of Association is the set of rules adopted by a company at the time of being set up.

Infosys Ltd has amended its Articles of Association adding provisions to enable it to buy back its shares, lending further credence to the news about the company mulling a share buyback worth up to $2.5 billion (Rs 17,000 crore) following rivals TCS’ and Cognizant’s Rs 16,000 crore and $3.4 billion (Rs 26,660 crore) share repurchase proposals, respectively.

The amendment to the Articles of Association also include expanding the size of the board to 15 directors. Articles of Association is the set of rules adopted by a company at the time of being set up.

The existing Articles of Association are based on the erstwhile Companies Act, 1956, and do not have a provision for the buyback of shares. The amended Articles of Association will be in line with the new Companies Act, 2013. Infosys has already sent a postal ballot notice seeking shareholder approval to amend the Articles of Association.

Infosys, India’s second-largest information technology services company, is reportedly considering coming up with a share buyback worth up to $2.5 billion, representing 25% of the paid up capital, in order to utilise part of its $5.25 billion cash reserves amid persistent calls to return cash to the shareholders in absence of other options.

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Infosys is also learned to have appointed JP Morgan to advise it on capital allocation for the proposed buyback. The buyback announcement is expected in April, according to various news reports.

Earlier this month, India’s largest information technology services provider Tata Consultancy Services said that it will buy back 5.61 crore shares through the tender route at a fixed price of Rs 2,850 per share on a proportionate basis for an aggregate amount of Rs 16,000 crore, comprising 2.85% of the company’s paid up capital. (Don’t cheer TCS buyback offer price yet; you may get nothing out of it)

Shareholders and investors are pressing upon the IT companies to use their huge reserves to distribute cash to them, as opportunities for huge spurts of growth or bulk cash outgo seem unlikely. (Why are investors forcing tech companies’ hand into distributing cash?)

Brokerage and research firm HDFC Securities has also pushed for the buyback. “With maturity in growth of Indian IT, the imperative to return excess cash to shareholders is high. We believe there is scope to optimise capital allocation, especially the buyback route, with valuations also at historical lows,” HDFC Securities analysts Apurva Prasad and Amit Chandra said in a recent note.

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Even while the companies might want to hold on to their cash reserves for funding future growth, especially for making any big-ticket acquisitions if such an opportunity comes along, analysts say they still have room to distribute part of the cash to the shareholders.

“In the last five years we haven’t seen TCS doing any major acquisition and I don’t think that’s the way they want to go,” Bhavin Shah of the investment brokerage firm Sameeksha Capital said in a recent interview to BTVi news channel. “In absence of that, cash could be easily distributed,” he added.

 

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