Buyback of Shares by MNCs in India

The open offer was initially made for 23% of the outstanding shares held by institutional investors, private bodies² and the general public. The offer was made at Rs.105, a premium of 46% over the then prevailing stock market price. With this, Philips became one of the first multinational (MNCs) companies in India to offer buyback option to its shareholders. Soon after, the buyback option was offered by several multinational companies (MNCs) to increase their stake in their Indian ventures. Some of these companies were Cadbury India, Otis Elevators, Carrier Aircon, Reckitt Benkiser etc. Fund managers which held these companies' stocks felt that allowing buyback of shares was one of most favorable developments in the Indian stock markets.

This resulted in an increase in the price, bringing it closer to the intrinsic value and providing investors with a higher price for their investment in the company. However, critics of the buyback option claimed that large multinationals had utilized the buyback option to repurchase the entire floating stock from the market with the objective of delisting³ from the stock exchange and eliminating an investment opportunity for investors. Moreover, most MNCs that offered buyback option reported a steep decline in the trading volumes of the shares of their Indian ventures. The declining liquidity of these shares prompted critics to say that the Government of India's attempt to revive capital markets by allowing buyback of shares had failed.