How is Buyback Done?
A share buybacks can be executed using different methods depending upon the company’s goals, financial situation, and the regulatory environment. Here are some common methods,
1. Open Market Purchases: Under this, the company buys shares directly from the open market through a broker. It is executed gradually over a longer period to minimizes market impact. This method is cost-effective as shares are generally bought back at market price.
2. Tender Offers: Here the company makes a public announcement about the buyback specifying the number of shares it intends to repurchase at the specific price. The interested shareholders may tender their shares at that price. This method promotes transparency and helps the company to control the quantity of shares to be repurchased.
3. Dutch Auction: The company announces a price range within which it is willing to repurchase its shares. The interested shareholders submit offers specifing the quantity of shares and the price. Then the company determines the lowest price at which it can repurchase the desired quantity of shares and implement a buyback program.
4. Private Negotiation: In this method, the company privately negotiates with an individual or group of shareholders or institutional investors to repurchase shares at a negotiated price. It is a cost-effective method but requires a long time and attention.