Infosys Buyback Arbitrage Oppportunity

Hello All

I'm a newbie into equities investing, so please pardon me if my question is too stupid. :)

Infosys board has approved buy back at Rs. 1150 and for small investors (holding shares worth less than 2 lacks on record date) acceptance ratio is 59% and it's trading today (20th Sep) at Rs. 913.

Firstly, Is this not an arbitrage opportunity? Or am I missing the elephant in front of me??

Secondly, can the record date be in the past from the date it's announced?

Thanks in advance
Buyback entitlement for large shareholders is slightly less than 4.92%. So they are looking at the additional profit only for 5% of their shares. If Infy is quoting at 930, that is 220 (1150-930) for the 5%, so that works out to Rs.220*5/100 = Rs.11 per share for their holding. But post buyback, the reserves come down by 13000 Cr, and the company's share price will go down accordingly! If they find the price is going up more, then they would sell it right away! By some estimates, well, it can only be estimated, post buyback price would be around 840.

Only for the retail, 15% is reserved, and gives an entitlement ratio of 59%, that is as per shareholding pattern in the past - info from web. There are more retail participants coming in and buying, and then this entitlement ratio can go down. If it goes down to, say 25%, the profits of 220 is available only for 25%, and balance 75% will have to be sold at estimated price of 840. So the profit would be, 220*0.25 - 90*0.75, works out negative to the tune of Rs.12.5 per share, and that is a loss of Rs.2,500 for 200 shares - even at Rs.930!

All these are assumptions, as we do not know how much will be tendered for buyback, and the extent of retail shareholding on the record date. If the tendered shares is less, then the acceptance ratio increases from the entitlement ratio, and / or Infosys shares get valued higher due to better business prospects(?) the whole game could change to a bit of profit. But since it is clear that the people who do not tender their shares for buyback WILL LOSE, I would imagine everyone would be tendering for buyback.

Hope that explains the high price difference!
The calculation is based on assumptions. Infy price will go down after buyback, as the bookvalue goes down. Assuming the other income is from 50% of the reserves, after buyback, the other income goes down by 1500 crores, or an EPS of Rs.6 per shares. That is a 10% erosion in EPS. These are factors that would make the share price go down after buyback, again assuming no change in operations.

If the acceptance ratio turns out to 100% for retail investors,
Current Price = 930
Buyback Price = 1150
Profit = 220
Profit % = 220/930 = 23.7%.
In this case, since all the shares are accepted, there is no more risk of Infy share price going down after buyback.

If the acceptance ratio turns out to 25% for retail investors,
Current Price = 930
Buyback Price = 1150
Profit = 220 for 25% of the shares held.
Balance cost of share price = 857.
The profit depends on how much Infy will quote after the buyback.
Well media reports say that Infosys plans to buy back shares worth Rs. 13,000 Crores. as on November 1, 2017.
Here is its share holding pattern

The buyback price of Rs 1150 per share is at a significant premium to the market price. But more importantly the SEBI rule mandating 15 percent reservation for investors holding up to Rs 2 lakh worth of shares, makes it an attractive deal for small shareholders.
Infosys plans to buy back 11.3 core shares at Rs 1150 apiece. The allocation for small shareholders works out to 1.7 crore shares.

In this case, there will be 2 scenarios
Scenario 1
we have assumed the acquisition price to be Rs 925. Considering that the cut-off quantity is at 216, it makes some of the shareholders in the 201-500 category eligible. We have added 1/3rd of those shares. Hence, the acceptance ratio works out to 50 percent and break-even price of this trade at Rs 698.

Scenario 2
Fewer investors will qualify as small shareholders. Consequently, the acceptance ratio goes up to 59 percent, but the break-even also rises to Rs 781.

Which means, either way, the share price will drop
The attached shareholding pattern does not give any relevant info about retail shareholding!
The only information on this available, AFAIK, is from Infosys Balance Sheet, as of 31/03/17. And that gives an entitlement ratio of 59%, leaving out the portion of the shareholders holding above 201 shares to qualify for the retail shareholding (<2 lakhs value on record date).
The shares held by the retail investors would have increased with more buying in the recent months, considering the buyback offer coming, resulting in a much lower entitlement ratio.
The accpetance ratio will be known only after knowing how many shares have been tendered for buyback!


Active Member
Market Valuation for Infosys seem to be pretty much higher after buyback! Maybe, correcting the reaction to Shika's exit, due to quarterly results and the dividend!
Any update on Infosys Buyback?
Duplicate Thread - Please refer thread for latest updates....

Infosys announced buyback dates.
Buyback Open date - 30 Nov 2017
Buyback Close date - 14 Dec 2017
Expected date of settlement is 26 Dec 2017

Entitlement Ration -
Small Investor holding Max 215 Shares as of record date - 23 Shares out of every 81 shares.
General Category - Holding more then 215 shares as of record date - 7 shares out of every 163 shares.

Infosys Buyback Offer Aug 2017

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