buyback acceptance ratio

How To calculate BuyBack Acceptance Ratio?


Acceptance Ratio

Acceptance ratio is the proportion of shares accepted to the total number of shares tendered in the buyback by investors, including promoters. Acceptance ratio is generally lower if a higher number of eligible investors tender their shares. As we do not know how many investors will participate in the buyback, this makes acceptance ratio calculation impossible. Is it so?

However, there is a way through which you can calculate buyback acceptance ratio. For that you need to know why the company announced the buyback, how is company financial condition, management commentary, company future projection etc.

If above-mentioned points are positive for the company then the long-term investor will not participate in the buyback. Similarly is investors are not much confident then participation will be high.


Must Read: Why Companies Announce Buyback, Bonus, Split, Dividend, Is it Good for Investor?

How to Calculate Acceptance Ratio

Let me explain this with TCS Buyback example. TCS announced buyback 7.6 crore equity shares at ₹2,100 a share aggregating ₹16,000 cr. Out of 7.6cr. Shares 15% is allotted for RII category. Here, we need to assume the number of RII investors (1.5Lakhs) & value of the individual investment (1.5Lakhs).

Check out below table,

a

Total Share

76,000,000

b

RII (15%)

11,400,000

c

Buyback Price, Rs.

2,100

d


Total Amount (b*c), Rs

23,940,000,000

2400 Cr.

*retail investor means
(investment below 2Lakh)

let’s assume
e

no. of RII Participate

150,000

f

Investment value per retail Investor, Rs

150,000

j

RII Participation Amount (e*f), Rs

22,500,000,000

2250 Cr.

Acceptance Ratio (d/j) 106.4

%

From above example, participation is lesser then buyback offer so acceptance ration is above 100%. Means if you participated then the company will take all your shares. so buyback acceptance ratio highly depends on the number of participants, which make this hard to calculate.

As mentioned in the first line – Acceptance ratio is the ratio of shares accepted to the total number of shares tendered by investors.