Wipro’s share buyback offers an arbitrage opportunity

MUMBAI: Wipro’s share buyback offers an arbitrage opportunity for small shareholders, according to brokerage ICICI Direct. Analysts expect investors to earn about 5%-14% from this trade depending on the extent of the acceptance in the buyback offer.
India’s third largest software exporter Wipro has announced a buyback of 23.8 crore shares from its shareholders on a proportionate basis by way of a tender offer. The buyback price is Rs 400 per share aggregating Rs 9,500 crore which is about 4.4% of its market capitalisation. About 15% or 3.5 crore buyback reserved for retail investors. Wipro shares closed at Rs343.60 on Monday

Assuming the closing value of Wipro on the buyback’s record date at Rs 400, a shareholder with up to 500 shares will be considered a small shareholder.

“At the current price of Rs340, the tender of shares in open offer can fetch a profit of Rs 60 per share on 50% of positions. The break-even price for the residual shares will be Rs 280,” said a note by ICICI Direct.

At a 40% acceptance ratio–the proportion of shares accepted to the total number of shares tendered in the buyback– and a market price of Rs 300 post the pay-out, investors can earn an absolute return of nearly 7% over the next 90 days, according to the brokerage. At 50% acceptance ratio and share price at Rs 280 after the pay-out, investors can make Rs 15,000 over an investment of Rs 1.7 lakh with a return of 8.82%.
In the recent several buy back offers, most small shareholders do not take part. As a result, the acceptance ratio becomes higher than the theoretical ratio.

As per Wipro’s annual report for FY20, there are 8.23 crore shares in more than 5 lakh accounts where number of shares held are in the range of 1 to 5000 shares.

The exact number of eligible shareholders as on the record date will be available in the letter of offer which will be posted within two weeks after the record date.

Credit: Stocks-Markets-Economic Times

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