Reliance Industries - Stock buyback

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Case Details:

Case Code : FINA002
Case Length : 08 Pages
Period : 2004
Pub. Date : 2005
Teaching Note :Not Available
Organization : Reliance Industries
Industry : Petrochemical
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction

When Reliance Industries Ltd (RIL) decided to call a meeting of its board of directors on 27th December, 2004 to discuss among other things a stock buyback, it received a lot of coverage in the media.

The buyback proposal seemed to be in response to the fall in the RIL share price ever since the differences between the Ambani brothers became public. The RIL stock had fallen 12% from Rs 544 on 17th November, the day Chairman Mukesh Ambani (Mukesh) hinted in a television interview that all was not well within the family, to Rs 480.65 at close of trading on 20th December.

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A company spokesman mentioned¹ :

"The company strongly believes that its shares are significantly undervalued. ... A share buyback is a strong signal of confidence in the share price and company performance and seems, at present, to be the best option to counter speculative activities that could be detrimental to the interests of RIL shareholders."

Company sources added that the depressed share price was totally inexplicable because nothing had fundamentally changed in terms of business strategy, operational efficiency or future outlook...

Excerpts >>

1] Nina Mehta, "Derivatives En Route to India," Derivatives Strategy, May 1999.

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