Tata Consultancy Services, India’s largest information technology services company, is buying back its equity shares at a mouth watering price of Rs 2,850, at a hefty premium of 16% over Wednesday’s closing price. However, consensus seems to be that the investors would do well to sell shares in the open market and cash out before the buyback ends due to probably very low acceptance ratio.
Specially, those planning to buy TCS shares now in the hope of earning quick buck via the buyback should stay away, as the record date was May 8, meaning that only those holding the shares on May 8 in the company records would be eligible to tender their stock. The buyback, which opened today, will close on May 31.
TCS shares today jumped 3% on NSE to trade at Rs 2,529, which an analyst said was for no apparent reason. TCS today opened its buyback offer to 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.
The buyback will comprise just 2.85% of the company’s paid up capital, implying a very low acceptance ratio. Though, in the real-world scenario, the acceptance ratio would be higher, depending on the actual number of shares tendered, as not all the shareholders will tender their entire stake. (Also read: It’s time to sell TCS shares, and buyback is not the only route)
Promoter shares
According to TCS’s filing to the stock exchanges, the promoter group held 73.31% equity stake in the company with 144.45 crore shares as on March 31, 2017, while the public shareholding is at 52.59 crore shares.
Calculations show that the promoters will have to tender at least 87.99 lakh shares to limit their shareholding to 75% of the post-buyback shareholding structure. Capital markets regulator SEBI’s rules mandate that the promoters may hold a maximum of 75% of equity stake in a listed company, with the remaining 25% to be vested with the public.
Public shares
This would leave only 4.73 crore shares to be accepted from the public shareholders, implying 2.4% of the current share capital. Thus, if all the public shareholders were to tender their entire shareholding, with the promoters tendering 87.99 lakh shares, the acceptance would be at a paltry 2.4%, meaning that you would be able to sell only two out of a hundred shares, or seven out of 300 shares offered. The remaining shares would still remain unsold with you, not leaving you richer enough.
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Breaking News: @TCS: Announces Buyback up To 5.61 Cr Shares at Rs 2,850/Share; To Spend up To Rs 16,000 Cr In Share Buyback pic.twitter.com/G0H4oCEMQT
— BTVI Live (@BTVI) February 20, 2017
Further, if the promoters decide to maintain their shareholding at the current levels of 73.31%, they will have to tender about 4.12 crore shares, leaving only 1.5 crore shares to be bought from the public, implying a minuscule 0.76% of the current share capital.
Are your shares worthless then? What should you do?
Experts said that investors should rather sell TCS shares in the open market to book current profits. “It’s a great exit opportunity. My view is that the investors shouldn’t go for offering in the buyback. They should take advantage of this price hike and gradually sell from now till the last day the buyback is available,” capital markets veteran and member of BSE and NSE Dipan Mehta had said earlier in February when the buyback was first announced.
Mehta suggested that investors must look to exit TCS once and for all. “Buybacks are done when companies become extremely mature and growth rates slow down, and they have no actual use for the money,” he said.
Research and brokerage firm HDFC Securities has a ‘Neutral’ rating on TCS shares with a target price of Rs 2,520; another firm, PhillpCapital has rated it at ‘Sell’ with a target price of Rs 2,000.
