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.
5 thoughts on “DB CORP – Buyback Case Study”
Thanks for all the explanation.
The below calculation should be :
A) Either, their normal entitlement which is (Small shareholders/Total Shareholders * Shares to be bought back) ((0.46/5.89) * 0.92) = 7.18 lakh shares.
It should be:
A) Either, their normal entitlement which is (Small shareholders/Total Shareholders * Shares to be bought back) ((0.46/18.40 * 0.92) = 2.3 lakh shares.
Thanks for reading and pointing to us.
I think the point of confusion is only due to “Total Shareholders”:
You seem to have taken total Shares as:
A) General Promoter
5.55 Crore + 12.84 Crores = 18.4 crore total shares
This is generally true in most cases however, in this particular case we cannot take entire shareholding of promoters. As the Corporate announcement (dated 26/05/2018) mentions:
“Noted that the Promoters and Promoter Group of the Company have expressed their intention to only tender up to a maximum of 34,00,000 Equity Shares (aggregating to 1.85% of the share capital of the Company) out of the 12,84,89,737 Equity Shares held by them (aggregating to 69.82% of the share capital of the Company).”
which means only 34 lakhs shares of promoter category are available for buyback.
So our calculation becomes:
A) General Promoter
5.55 Crore + 0.34 crores = 5.89 Crore shares total shares
I hope this clears the confusion. If you still have any doubt please feel free to comment or reach us.
Link for BSE Announcement:
Thank you for your immediate response.
My calculation is based on what is mentioned in the “Letter of Offer”.
Click to access E0D7E53F_E157_4298_A260_1A5C53E7788F_170734.pdf
Page 35 has the two calculations mentioned above in your writing.
Pasting them here:
“Shareholders, will be 13,80,000 Equity Shares which is higher of:
i. Fifteen percent of the number of Equity Shares which the Company proposes to
Buyback i.e. 15% of 92,00,000 Equity Shares which works out to 13,80,000 Equity
ii. The number of Equity Shares to which the Small Shareholders are entitled, as per
their shareholding as on Record Date i.e. [(46,96,740/ 18,08,46,071) X 92,00,000]
which works out to 2,38,933 Equity Shares”.
Though ‘18,08,46,071’ is the total shareholder count seen in the denominator for item (ii), this is coming from
Total promoters (12,84,89,737) – 30,17,800 – 1,00,001 – 99,795 + Public shareholders (5,55,73,930)
Now we cannot know the list of promoters who are not participating before “Draft Letter of Offer” (DLOF) is filed. Hence, I mentioned 18.40 cr as the total shareholders which is the only data we have before the filing of DLOF.
Please let me know if something is incorrect.
Sorry, the huge empty space is because I pasted the link for the Letter of offer. Not sure why is got replaced with empty space.
Thanks a lot. I have realised my mistake and rectified it.
As the SEBI Law clearly states:
“Provided that fifteen per cent of the number of securities which the company proposes to buy-back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders.”
The important word is entitled to.
The information that the promoter is partially participating should have been used at the TENDERING stage of buyback process.However, I used it in the wrong place.
Thanks for pointing the same.