Infosys buyback: What is a share repurchase and how does it impact investors?

An employee walks past a signage board in the Infosys campus at the Electronics City IT district in Bangalore.

The Infosys board on Saturday approved the share buyback plan of up to Rs 13,000 crore to reward shareholders, a day after CEO Vishal Sikka resigned citing slander by company founders.

Infosys had said on Friday that Sikka — the first non- founder CEO of the company — had the support of the board but was forced to leave following what the board called the “misguided” campaign by founder NR Narayana Murthy.

Here’s all you need to know about the buyback:

What is a share buyback

Share buyback is initiated when a company decides to buy its own shares from investors who are willing to sell. The Infosys buyback size is 4.9% of paid-up equity capital of the company.

How does it impact investors

Share buybacks typically improve earnings per share and return surplus cash to shareholders, while also supporting share price during a period of sluggish market condition.

The announcement of the company’s first-ever buyback will offer some respite to Infosys shareholders, who saw a near 10% fall in the value of their holdings on Friday after Sikka’s surprise exit. The offer price, at Rs 1,150 per share, is Rs 226.90 more than Rs 923.10/ share closing price on Friday.

Why the buyback

The move is also likely to calm some former executives who had been clamouring for a buyback as a row between the founders and the current management of Infosys over alleged corporate governance lapses at the company spilled into the public domain.

Previous share buybacks

Infosys’ first buyback is second only to the Rs 16,000 crore share repurchase by its bigger rival Tata Consultancy Services (TCS) announced in April this year.

Before TCS, Reliance Industries had come out with biggest share buyback of Rs 10,440 crore between February 1, 2012 and January 19, 2013. However, it bought back shares worth only over Rs 3,900 crore through open market purchases, achieving about 38% of the target. The stock had gained 8% during the buyback period.

In July, Wipro announced its decision to buyback 34.3 crore equity shares of Rs 2 each for Rs 11,000 crore, at Rs 320 per share.

What next

The timeline and other details of the Infosys repurchase will be announced in due course and buyback is subject to approval of the shareholders by way of a special resolution.