How does buyback of shares work?

A buyback of shares is an event where the company purchases its own stock. The buyback of shares in India is generally done using the below two modes:

1. Tender Offer
2. Open Market Offer through book building process.

In a tender offer, the company offers to buy the stock at a fixed price from the existing shareholders that are on the company's records as of the record date. The tender offer involves a buyback ratio in which the company can buy back the stock from the existing shareholders. Even the physical shareholders can participate in the Tender offer by tendering their physical share certificates. A tender offer is generally open for five working days.

In an open offer through book building process, the existing shareholders can place their bids in the specified price range during the buyback offer period. A notice through SMS or mail is sent to existing shareholders for the buyback. The buyback offer is kept open for a minimum of 2 working days. In case of oversubscription, the price at which 100% of the buy-back size is reached becomes the buy-back price and bids at or lower the buyback price are accepted. In case of undersubscription, all shares get accepted at the highest bid price received.