Mumbai, July 20: Unilever Plc, the parent of Hindustan Unilever, is set to raise its stake in the FMCG giant through a share buyback programme. The buyback comes amid recent speculation that Colgate-Palmolive may be preparing to acquire the Anglo-Dutch parent.
Hindustan Unilever today informed the bourses that its board would meet on July 29 to buy back its own shares though it did not say when the programme would begin or spell out its size. The directors will also discuss the company’s second quarter results for the period ended June 30. They will decide on the interim dividend for the year ending December 31, 2007.
This is the first time in the history of Hindustan Unilever (earlier known as Hindustan Lever) that the company is considering a buyback. The promoters now hold a little over 51 per cent in Hindustan Unilever. A part of this is held directly by Unilever Plc and the rest through other group entities. According to market circles, the buyback announcements usually lead to a rise in the particular company’s share price as it is considered to be a shareholder-friendly move.
Companies which go in for share buyback will have to extinguish the equity capital to that extent. This leads to a higher book value and earning per share. They added that though share prices usually tend to rise after the announcement of a buyback, much would depend on the price the company announces.
The buyback plan is good news for shareholders as they have not seen a surge in the company’s share price at a time when the sensex has been hovering around the 15600 mark. The share today closed at Rs 194.25, a drop of Rs 3.60, or 1.82 per cent, on the BSE.
Several companies have used buybacks to reward their shareholders. However, the instrument has been losing its favour with India Inc, which has resorted to other measures like creeping acquisition of shares, bonus issues and higher dividends to compensate shareholders at a time when the economy is growing at 9 per cent.
In 2001, HLL announced a scheme for the issue of bonus debentures by drawing on the general reserves of the company which was created through retained earnings/ undistributed profits.
Meanwhile, Unilever Plc has been carrying on a robust share buyback programme for over a year. On Friday, the company announced in a filing with the SEC that it had bought 460,045 shares at prices between 23.65 euros and 23.94 euros per share.
Unilever Plc has unfurled its Global Share Incentive Plan 2007 to be placed before shareholders at the next AGM.