On 7th July,2018 the company announced 18 July,2018 as the record date for buyback. (Meaning: The shareholders holding shares on 18/07/2020 will be eligible to be considered for buyback)
The share price reacted and reached 280 within next 2 days. Now one has to take very important decision whether to participate in buyback or Sell?
Let us re-evaluate the position thinking we were deciding to enter today.
If we will use the previous mentioned model, we will realise that @ price of Rs 270-280, Acceptance ratio of 50% is already priced in the market. Now for us to make any significant return, Acceptance ratio should reach around 60-70%, which will in itself be an extreme case (based on our limited experience or past odds).
Additionally, There is no evidence in this situation to merit that lot of minority shareholders won’t participate increasing our acceptance ratio. In some particular situation it may be.
Today, the risk/reward ratio does not seem to be in our favour. We may be putting more money risk vs small additional reward. Hence, we think it may be better to sell the position now. However, you may think the opposite of what we think and we would love to hear why you may have done so?
We hope cases like these help you and us learn.May we all learn together.