Tata Consultancy Services, the largest information technology company in India, announced a massive share buyback after its December 2021 quarter earnings in January 2022. The buyback was completed in March 2022. The company had proposed and later executed a buyback of 4 croreEquity shares for an aggregate amount of Rs. 18,000 crore, being 1.08% of total paid-up Equity share capital.
The TCS share price was repurchased at Rs. 4,500 per Equity share, much higher than the prevailing prices.
What is buyback?
A buyback of TCS share is one of the most efficient ways to reward its shareholders. Usually, the price for the buyback is set higher than the prevailing share price of the stock so that shareholders would have an incentive to sell their shares. Besides getting higher value for shares, those shareholders who do not tender their shares also benefit.
After the buyback, they hold a larger stake in the company as the outstanding number of shares comes down. Another benefit of the buyback is the tax efficiency. Since TCS would pay buyback tax as provided under the Income Tax Act, 1961, any proceeds would be exempted from taxation under the act for the shareholders.
In comparison, if TCS decides to pay dividends by the same amount, it would have been taxable in the hands of shareholders.
TCS buyback timeline
January 12, 2022: Announcement of buyback
February 21, 2022: Last day to buy TCS share price NSEto be eligible for buyback
February 23, 2022: Record date of buyback
March 9, 2022: Buyback opening date
March 23, 2022: Buyback closing date
Other details of the buyback
The registrar to the buyback, Link Intime India Private Limited, considered 11,28,707 valid applications for over 30 crore shares, meaning a subscription of 7.53 times the offer size. Of the total shares bought back by the company, 62.02% of them were from promoters Tata Sons Private Limited. The company bought 2.94% of the total bought shares from Life Insurance Corporation of India.
After the buyback, since 4 crore shares were extinguished, the stake held by promoters in the company increased to 72.30% from 72.19%. The rest of the investors, including foreign investors, Mutual Funds, Insurance companies, and the public, held 27.70% compared to 27.81% before the buyback.
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