The term “buyback of shares” is per se not defined in Indian laws. Nevertheless, the concept of buyback is dealt with under section 77A of India’s Companies Act, 1956, and is generally used when a company repurchases its own shares which are issued and subsisting.
Buyback has been used as a tool to achieve diverse commercial goals in mergers and acquisitions and private equity (PE) transactions in India. Some of these goals are elaborated below.
Resisting hostile takeover
Listed companies in India can use buyback as a counter-strategy to hostile takeover bids since a buyback effectively decreases the floating shares in the market and can increase the acquisition cost on an immediate basis. These factors can act as a surprise element and cause fluctuations in the pre-determined plan of the party intending to do a hostile takeover.
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Kalpataru Tripathy is a partner and Varun Bajaj is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.
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