Infosys share buyback: What you need to know
Infosys CEO Vishal Sikka resigned on 18th Aug, citing slander by the company's founder. The company's board said that Sikka had its support, but resigned due to "misguided" campaign by founder Narayana Murthy. Within a day of Sikka's resignation, the Infosys board approved a share buyback plan of up to Rs. 13,000 crore ($2 billion). Here's all you need to know about the buyback.
A share buyback involves a company buying its shares back from investors who are willing to sell. The move by Infosys is likely to calm some former executives who had been demanding for a buyback ever since the feud between Infosys founders and its corporate management spilled into the public domain. The buyback is worth 4.9% of the company's paid-up equity capital.
For the buyback, Infosys has offered Rs. 1,150 per share - a substantial Rs. 226.90 more than the Rs. 923.10 per share closing price on Friday following Sikka's resignation.
In addition to holding share prices up during a slump in market conditions, a share buyback returns surplus cash to shareholders and is likely to improve earnings per share. The Infosys board's decision marks the company's first ever buyback announcement. It is likely to offer respite to shareholders who saw a near 10% slump in the valuation of their holdings following Sikka's resignation.
While this is Infosys' first share buyback, other big Indian companies have opted for the option before. In February this year, Reliance Industries had announced a Rs. 10,440 crore buyback, but had only achieved 38% of the mark. Tata Consultancy Services opted for a Rs. 16,000 crore buyback in April, while Wipro announced a buyback worth Rs. 11,000 crore in July.