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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

Meridian Ltd has 5 crore shares at Rs 200 market price, giving market capitalisation of Rs 1,000 crore. It announces a buyback of 50 lakh shares through the tender offer route at Rs 250 per share. Assuming the market price of non-tendered shares is unaffected and the buyback is fully subscribed, what is the total cash outflow and the resulting number of shares outstanding?

The cash outflow is Rs 125 crore and shares outstanding fall to 4.5 crore. The buyback is priced at Rs 250, so 50 lakh shares cost Rs 125 crore, and those shares are extinguished from the original 5 crore.

  1. ARs 100 crore; 4.5 crore shares
  2. BRs 125 crore; 4.5 crore sharesCorrect
  3. CRs 125 crore; 5 crore shares
  4. DRs 100 crore; 5.5 crore shares

Explanation

Outflow = 50 lakh x Rs 250 = Rs 125 crore. Shares outstanding fall from 5 crore to 4.5 crore. Using the market price of Rs 200 gives Rs 100 crore, which is the mistake in the other first option; the buyback price is Rs 250.

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