Nestle set to share the bounty
NESTLE India's shareholders have a windfall headed their way. The multinational foods major will join a select set of Indian companies who have utilised their net worth to return cash to shareholders. Nestle plans to use part of the general reserves and share premium account of the company for distribution to shareholders. The company on Tuesday announced that its board will meet on January 15 to consider a scheme of arrangement. Its share price closed 4% higher on Wednesday at Rs 1,205. In the past, to return cash to shareholders, the Sections 391-394 (of Companies Act, 1956) route has been used by companies either to issue bonus debentures or to buy shares back. But a Nestle spokesperson said in an emailed response to ET: "There is no compulsion on the company for a buy back or bonus debenture. The details can only be announced after approval by the board of directors." HLL was the first company to issue bonus debentures, and more recently Astra Zeneca Pharma is proposing the same. Nestle plans to use a scheme of arrangement under Sections 391-394 of the Companies Act, with Sections 100-102. Sections 391-394 deal with capital restructuring including mergers, amalgamations or demergers, anything which alters the capital structure of a company. Sections 100-102 deal with reduction of share capital. Companies return cash to shareholders when they have adequate cash on their books to meet their requirements, and don't have any huge investment plans in the foreseeable future. By returning cash, they lower their own capital employed and thus improve their asset utilisation ratios. Funds can be returned to shareholders in many ways. One of them is through paying dividends. Apart from normal dividends, companies pay out special dividends. But paying special dividends does not require the application of these sections except when the retained profits available for distribution are not enough. "Nestle pays out substantial dividends and has very little distributable profits left. So this scheme could be for paying a special dividend too, to be paid out of reserves," said an FMCG analyst with a leading brokerage. RETURN GIFT Dividend Most common form of distributing profits to shareholders Buyback There are two routes—market and tender. In market, shares are sold through the stock exchange. Tender buyback is directly to the company. Tender buyback price is fixed. Market buyback is capped, i.e. company will buy up to a certain price Alteration/reduction of capital Once requisite shareholder/creditor and court approval is received, all shareholders will be compulsorily part of it. Could be done in various forms. Reduction of share capital by buying back a portion is one option. Issuing bonus debentures created out of reserves, and then redeeming them after some time is another. Both have the effect of returning cash to shareholders
NESTLE India's shareholders have a windfall headed their way. The multinational foods major will join a select set of Indian companies who have utilised their net worth to return cash to shareholders. Nestle plans to use part of the general reserves and share premium account of the company for distribution to shareholders. The company on Tuesday announced that its board will meet on January 15 to consider a scheme of arrangement. Its share price closed 4% higher on Wednesday at Rs 1,205. In the past, to return cash to shareholders, the Sections 391-394 (of Companies Act, 1956) route has been used by companies either to issue bonus debentures or to buy shares back. But a Nestle spokesperson said in an emailed response to ET: "There is no compulsion on the company for a buy back or bonus debenture. The details can only be announced after approval by the board of directors." HLL was the first company to issue bonus debentures, and more recently Astra Zeneca Pharma is proposing the same. Nestle plans to use a scheme of arrangement under Sections 391-394 of the Companies Act, with Sections 100-102. Sections 391-394 deal with capital restructuring including mergers, amalgamations or demergers, anything which alters the capital structure of a company. Sections 100-102 deal with reduction of share capital. Companies return cash to shareholders when they have adequate cash on their books to meet their requirements, and don't have any huge investment plans in the foreseeable future. By returning cash, they lower their own capital employed and thus improve their asset utilisation ratios. Funds can be returned to shareholders in many ways. One of them is through paying dividends. Apart from normal dividends, companies pay out special dividends. But paying special dividends does not require the application of these sections except when the retained profits available for distribution are not enough. "Nestle pays out substantial dividends and has very little distributable profits left. So this scheme could be for paying a special dividend too, to be paid out of reserves," said an FMCG analyst with a leading brokerage. RETURN GIFT Dividend Most common form of distributing profits to shareholders Buyback There are two routes—market and tender. In market, shares are sold through the stock exchange. Tender buyback is directly to the company. Tender buyback price is fixed. Market buyback is capped, i.e. company will buy up to a certain price Alteration/reduction of capital Once requisite shareholder/creditor and court approval is received, all shareholders will be compulsorily part of it. Could be done in various forms. Reduction of share capital by buying back a portion is one option. Issuing bonus debentures created out of reserves, and then redeeming them after some time is another. Both have the effect of returning cash to shareholders
No comments:
Post a Comment