Buyback of Shares by MNCs in India

Moreover, in this case, investors felt that the premium offered by Cadbury Schweppes, the UK based parent company of Cadbury, was low. The offer was priced at Rs 500, which represented a premium of 24% on the average high and low prices over the past 26 weeks prior to the offer. However, Cadbury's stock had been trading at prices in excess of Rs 500 in 1999 and 2000 (Refer Table IV), with an average P/E multiple of 60 in 1999 and 54 in March 2000. Moreover, Cadbury's third quarter (October to December 2001) sales had increased by 11.2% compared to the same period in 2000, while its profits had increased by 5.2%. Hence, investors felt that the price offered for the buyback had not taken into consideration the future potential profits of the company and was not attractive to shareholders who had been holding their shares for a longer term.

As a result of depressed stock market conditions, investors (in most cases) received a low buyback price. The price at which the open offers were made by MNCs caused great concern to both investors and regulators (Refer Exhibit III for details of pricing parameters of open offers).