Buyback of Shares by MNCs in India

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Case Details:

Case Code : FINC018
Case Length : 12 Pages
Period : 1997 - 2002
Pub. Date : 2002
Teaching Note : Available
Organization : SEBI
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Buyback Offer By MNCs

In the financial year 2001-2002, twenty MNCs made buyback offers. Some of the well-known MNCs which offered to buy back their shares were Philips India Limited (Philips), Cadbury India Limited (Cadbury), Britannia Industries Limited (Britannia), Carrier Aircon (Carrier) and Otis Elevators (Otis).

All these companies made open offers for the non-promoter shareholding in their Indian subsidiaries. To buy back shares, Cadbury paid Rs 9 billion, Philips Rs 2 billion, and Carrier, Otis and Reckitt Benkiser all paid over Rs 1 billion (Refer Table I for MNC buybacks). According to analysts, the increased buyback activity by MNCs was due to three reasons. They felt that the share prices of most MNCs were under priced and did not reflect the true value of the company. Moreover, the buyback of shares allowed MNCs to convert their Indian ventures into wholly owned subsidiaries (WOS). It also allowed them to delist the shares of these ventures from the stock markets and thus protect them from the volatility of the stock markets (caused by scams and other market manipulations)...

Investor Grievances

Analysts felt that the buyback option may be misused by MNCs to increase their equity stakes in their Indian ventures, escape public scrutiny and accountability and prevent them from the Indian regulatory environment.

Moreover, the option to convert their Indian ventures into wholly owned subsidiaries and delist their shares from the stock markets provided MNCs with complete control over their Indian ventures, allowed them to repatriate profits and make more independent investment decisions.

A section of investors felt that government regulations must have provided them with a choice.

However, minority shareholders claimed that they had no option and were forced to sell their shares once MNCs bought back shares from the majority shareholders...

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