Re: One more BuyBack Scheme
cemcompusoft said:
Hello Ashish,
I am confused due to my lack of experience (& bad experiene as well)of this market.....buyback of Arcelor is a battle of two giants (Mittal Vs Arcelor)..
K.S. Bhai,
What you are referring in the paragraph is not buyback but a takeover or merger bid by Mittal Steel. To counter this, Arcelor brought Severstal as a
White Knight and a part of proposed Arcelor-Severstal deal was buyback of shares by Arcelor so that the Severstal Chief can have the required percentage of ownership.
Is buyback not a price manipulation? ..............Let a Co. whose share price is 150...they announce buyback at 250....before announcing they buy 100K shares by family & friends.....after buyback announcement there definetely be 'upper circuit'.......now they sell 100K between 190-220......If now they buyback 1K at 250 (whether they keep it or cancel like Infomedia).....what happens.....they still make money (abt 5000K)....
Regards,
K.S.Kachhwaha
Buyback in itself is not a price manipulation tool. Buyback is a way to reduce the number of outstanding shares of a company. The reasons for buyback may be several including thwart a hostile takeover bid, increasing promoters' holding, financial gains for the promoters, etc.
However, the example you have given is not an inherent weakness of buyback. A good thing may have bad use as well and the case falls into such a category only. Whatever you have pointed out is acting on Inside Information,i.e., insider trading which is a punishable offence worldwide. So, if promoters or their associates are found guilty of insider trading, they will certainly be punished by the regulatory authorities. And remember that such kind of Insider Trading may take place in a lot of other cases also like strategic tie-ups, mergers, announcement of acquisitions and on the negative side before announcement of the bad financial health of companies.
A trader need not be worried about in such cases. Any action of insiders is properly reclected on the Chart and you just have to trade accordingly. You are paid for being on the Right side and don't forget that Insiders' side is always the right side.
The company can not keep the shares it bought from the market. It gets cancelled. So the total outstanding shares decrese and financial parameters per shares like PE,eps improve thereby increasing the price unless it is so much iondebt that inevitably become bankrupt after some time or cease to exist.
Pankaj
Pankaj Bhai,
Will like to disagree a bit over here. After buyback, no doubt the no. of outstanding shares will decrease thereby pushing up the EPS but share prices won't move up due to this reason.
Afterall, apples are compared with apples and not oranges. Any analyst worth his salt will first make the base equal before calculating EPS and change in the value of EPS. If the earnings as compared to earnings for the previous period are the same, though on paper EPS would increase, for an analyst EPS would be the same thereby prices will be the same if EPS/PE is used as a valuation tool.
Shares prices will increase immediately after buyback but that happens for another fundamental reason. After buyback as the no. of shares do decrease, the same amount of Assets are represented by lesser number of outstanding shares thereby increasing the intrinsic value of each share and as a result the share prices will increase.
Best Regards,
-Ashish