Rising tide of takeovers in India does not raise all boats equally










Last week, Tata Consultancy Services (TCS) – India’s largest software company by revenue and second largest by market capitalization – completed its Rs 18,000 crore share buyback (2, $4 billion). It received a roaring, rockstar-like reception and was 8.5X oversubscribed. With reason. The offer price of Rs 4,500 ($60) per share was at a net premium of around 20% to the current market price.

TCS may have caught the eye in India for its high-profile share buyback, the country’s largest to date. But globally too, a massive wave of buybacks is heading towards the stock markets. Many companies, overflowing with cash, seem to be taking advantage of the volatility and weakness in stock markets over the past few months to buy back their shares. Amazon, Alibaba and a host of others have planned big buyouts in 2022. They could even set a new all-time high, with analysts and investment banks such as

Goldman Sachs


Goldman Sachs

The Wall Street Journal
Share buybacks on track for another record
Read more


providing for 1,000 billion dollars of buybacks by

S&P500


S&P500

S&P500
The Standard and Poor’s 500, or simply the S&P 500, is a stock market index that tracks the performance of 500 major publicly traded companies in the United States. It is one of the most followed stock market indices.


companies this year. Buyouts, after all, help them kill several birds with one stone.

Executives often use buybacks to signal their confidence in the company’s prospects and its stock price. They are also convenient tools for distributing excess cash to shareholders in a tax-efficient manner. And with the repurchased shares set to be extinguished, the repurchases improve financial metrics such as

earnings per share (EPS)


earnings per share (EPS)

earnings per share (EPS)
Earnings per share (EPS) is a company’s net profit divided by the number of shares.


and

return on equity (ROE)


return on equity (ROE)

return on equity (ROE)
Return on equity (ROE), a measure of profitability, is a company’s net income divided by its total equity, including reserves and surplus. The higher the ROE, the more profitable the business


on the remaining shares. This, in turn, helps their valuation multiples and share price.


However, all is not rosy. Buyouts are also criticized for not putting money back into the company for future growth and for being a tool to manipulate stock prices and financial measures related to executive compensation.

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