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Should Infosys Go Ahead With Share Buyback?
Abstract
In July 2014, former top executives of Infosys, T V Mohandas Pai, V Balakrishnan, and D N Prahlad, demanded an immediate buyback of the company’s shares to the tune of US$1.83 billion. They also suggested that Infosys should announce an ongoing buyback program to the extent of 40% of the previous year’s net profit on a consistent basis. In a letter to the board dated July 29, they said that Infosys shares were undervalued and an immediate buyback would correct the situation by improving investors’ confidence and reducing idle cash. They claimed to have the investors’ support for a buyback. The demand came at a time when the company was going through a major leadership transition. On August 1, Dr Vishal Sikka (Sikka), former executive board member of SAP AG, was formally appointed as the first non-founder CEO of the company. |
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Issues
The case is structured to achieve the following teaching objectives:
- To understand the concept of buyback of shares.
- To discuss the factors that need to be considered before going in for a buyback.
- To learn the implications of a share buyback both in the short term and the long term.
- To explore and evaluate company strategies for the effective use of cash.
- To understand the buyback developments in India.
- To discuss the present buyback scenario in India and abroad.
| Contents |
| INTRODUCTION |
| BACKGROUND |
| THE BUYBACK DEMAND |
| THE BUYBACK DEBATE |
| COMPANY’S RESPONSE |
| EXHIBIT |
Keywords
Share Buyback, Infosys, Software Industry, Cash Strategy, Shareholder wealth, Merger and Acquisition, Leadership Transition, Share price, Capital restructuring, Dividend, EPS, ROE, ROA, Section68(1),companies Act,2013
