BUYBACK

A share buyback occurs when a company purchases its own shares

and then either cancels them or holds them in treasury for re-issue

at a later date.

WHY DO COMPANIES BUY BACK THEIR SHARES?

Undervalued shares & Market signalling EXAMPLE : RIL announced a buyback of Rs. 3000 Cr. To alter the capital structure (recent survey of finance directors of the top 200 UK Businesses) A recent example Siemens, the large engineering and technology business. In November 2009 , it announced an intention to optimize its capital structure and simultaneously announced a share repurchase of up to 10bn to achieve this.

 Returning surplus funds Eg. More mature, low-growth businesses are likely to find themselves in this position than younger, high-growth businesses. Increasing earnings per share Preventing hostile takeover

Sell off
Here a company agrees to sell one of its divisions, as an individual enterprise, to another company. The shareholders of the selling firm do not get either cash or securities. The selling company usually receives cash for the sale.

Objectives
Divested asset is worth more as a separate entity Focus on core business Under-performing assets Obtain funds Create stability Forced divestiture

Advantages
Better liquidity Concentrating on core business Improving profitability. Increasing efficiency. Reducing business risks.

Example
L&T selling its cement division to Grasim industries of AV Birla group which was named as Ultratech cement later. Unlock value for shareholders and focus on core business. The shareholding pattern of UTCC is 51 per cent with Grasim, 12 per cent with financial institutions, 11.5 per cent with L&T and the remaining with institutional and retail shareholders.

Expansion
ACQUISITION OF NEW ASSETS

INTERNAL

ESTABLISHMENT OF PRODUCT LINES REPLACEMENT OF TECHNOLOGY

EXPANSION MERGERS OR AMALGAMATION EXTERNAL ACQUSITION AND TAKEOVER

HORIZONTAL VERTICAL CONGLOMERATE

External
Merger or amalgamation- combination of two or more companies into 1 company. Through absorption- into an existing company E.g- TFL(tata fertilizer ltd) acquirer and TCL ( tata chemical ltd.) Through consolidation- into a new company E.g- merger of hindustan company ltd. , hindustan instruments ltd., indian software company ltd. And indian reprographics ltd. Into a new company HCL.

TYPES OF MERGER
HORIZONTAL MERGER SAME AREA OF BUSINESS E.G LIPTON INDIAN & BROOKE VERTICAL MERGER - DIFFERENT STAGES E.G RELIANCE AND FLAG TELECOM GROUP

CONGLOMERATE MERGER- UNRELATED E.G L&T AND VOLTAS

REVERSE MERGERS- PRIVATE COMPANY ACQUIRES THE PUBLIC COMPANY(IPO) E.G- GODREJ SOAP LTD. & GUJARAT GODREJ INNOVATIVE CHEMICALS LTD.

ACQUISITION AND TAKEOVERS

ACQUISITION- CONTROL OF A COMPANY E.G AT&T INC. ACQUIRED BELL SOUTH CORP.
TAKEOVER HOSTILE TAKEOVER- ACQUISITION TAKES PLACE UNWILLINGLY E.G- TATA TO HIKE TATA STEEL FRIENDLY TAKEOVER- ACQUISITION TAKES PLACE WILLINGLY