Case study Analysis
(DEPARTMENT OF BUSINESS ADMINISTRATION)
Group members
1. Asfand yar
(33518)
2. Aliza Nawaz
(33826)
3. Rizwan Hameed
(33718)
4. Syed Faizan Ali
(33759)
5. Muhammad Hamza (33255)
Instructor: Mrs. Rimsha Ejaz
Saint-Gobain Sekurit India
In March 2012, a company called Saint-Gobain Sekurit India, mostly owned by
big companies from France, faced a tricky situation. The owners wanted to
remove the company from the stock market, which is known as de-listing. Two
major owners, Saint-Gobain S.A. and Saint-Gobain Glass India, held a big
chunk, about 85.77%, of the company.
However, things did not go as planned. The owners wanted shareholders to
agree to this de-listing plan. But when the time came, not enough shareholders
were interested. Only 4.9 million shares were offered, and that was far less
than what was needed for a successful de-listing, which was about one-third of
all the shares.
Because of this, the people in charge of the de-listing, called the offer
manager, said it did not work out. They explained that the number of shares
offered by regular people who are not the big owners were too low, and it did
not meet the minimum requirement set by the company. So, the plan to de-list
did not happen, and the company's shares continued to be traded on the stock
market.
This news did not sit well with the stock market. The value of the company's
shares dropped suddenly to INR 45 on the Bombay Stock Exchange (BSE). This
was because some people who buy and sell shares, known as speculators,
were hoping for a higher price if the de-listing went through. Since that didn't
happen, they were disappointed, and the value of the company on the stock
market decreased.
It also became a lesson for investors, teaching them that the stock market can
be unpredictable. The incident led to discussions about how companies and
shareholders need to communicate better and plan carefully for important
decisions.
In short, the attempt to take Saint-Gobain Sekurit India off the stock market
did not succeed because not enough regular shareholders were interested.
This had a big effect on the company's share value, disappointing those who
were expecting a better outcome.
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Reliance Industries
Reliance Industries' (RIL) share buyback program in 2000 was not just a
financial move. instead of just a financial move, it was like building a carefully
planned strategy. This decision was not what people expected, and this
strategic move set the stage for years of continuous growth. RIL felt frustrated
because even though it was doing better than the market benchmark Sensex,
its shares were not getting the right attention. The market did not seem to
understand how well RIL was doing compared to historical data.
Reliance Industries (RIL) decided to buy back its own shares because the value
of its stock was not being recognized properly when compared to the BSE
Sensex. The company thought this was unfair, especially considering its
consistent financial success over the past five years. Despite achieving a 15%
annual growth in Earnings Per Share (EPS), RIL's stock was consistently valued
lower than the BSE Sensex's Price/Earnings ratio. The P/E ratio of RIL compared
to the Sensex ranged from 43% in March 1996 to 85% in March 2000. Even
though RIL outperformed the Sensex still its stock continued to be
undervalued.
The purpose of the buy-back was to address this undervaluation and achieve
several goals. RIL aimed to support its stock price, return money to
shareholders in a tax-efficient and investor-friendly manner, and RIL wanted to
make their company more competitive by managing their money better. This
financial strategy would make it easier for them to invest in the future and get
more in return. The company planned to buy back shares at a price of RS 303,
totalling RS 1100 crore, which was 25% of its free reserves, following to legal
provisions on share buy-backs. RIL believed that this action would optimize its
cost of capital, improve overall global competitiveness, enhance financial
parameters like return on equity, reduce floating stock, and boost long-term
price performance.
This strategic move was not simply a financial move it aimed at optimizing RIL's
weighted average cost of capital, thereby enhancing the company's global
competitiveness. Simultaneously, the buy-back program targeted key financial
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parameters, including improving return on equity, while strategically reducing
the floating stock. Complying with regulations, the repurchased shares were
subjected to compulsory write-downs and immediate cancellation,
contributing to a reduction in available stock in the market.
Beyond immediate financial considerations, RIL predicted the share buy-back
as a chemical agent for important progresses. The company anticipated that
this strategic move would not only boost its valuation significantly but also
position it to leverage its stock as a strong currency for potential mergers and
acquisitions (M&A) in the future.
This decision did not just affect RIL on the inside. It also told the market
something important. RIL wanted to show that they believed in the value of
their company. By setting a minimum price for their shares, they warned
people who wanted to make a quick profit by lowering the share price. This
strong move gave confidence to people who planned to invest in RIL for a long
time, showing that RIL cared about protecting the value of their shares.
This strategic buyback not only corrected the immediate undervaluation issues
but also positioned RIL as a proactive player in the market. It underscored the
company's commitment to reshaping its narrative by emphasizing long-term
value creation. Beyond the numerical aspects, the buyback was a declaration
of RIL's confidence in its path, reinforcing the idea that market perception
could be changed through deliberate, strategic actions. As a result, this wellexecuted plan not only enhanced RIL's financial landscape but also became a
benchmark for companies looking to declare control over their market
narratives and declare their value in the long run.
In short, the share buyback in 2000 was not just a quick reaction to being
undervalued. It was a smart move toward a better future. By fixing the
immediate problem of undervalued shares, RIL set the groundwork for creating
more value in the long run. It made their financial situation better, made them
more competitive, and set them up for ongoing success. The 2000 share
buyback wasn't just about money; it was a clever decision that showed
sometimes the best way to change how people see you is by changing the rules
bit by bit.
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