About Normal-Course Issuer Bid ( NCIB )
A normal-course issuer bid ( NCIB )an Canadian expression for an issuer’s public repurchase of its own shares to be able to terminate it. A company can purchase between 5 and 10 percent of its shares based on the method by which the transaction is carried out.
The issuer buys back the shares over time, like one year. This strategy of repurchasing allows the company to purchase at times when the stock of its company is well priced.
Understanding the NCIB
Public companies that operate in Canada have to file a Notice of Intention to Form an NCIB with the exchanges that they are listed on. They must also get their consent before taking the next step of purchase. There are restrictions on the amount of shares a company can purchase within one day.
In another form of an approved issuer bid, a business will buy back a predetermined amount of shares of shareholders at a set date and at a predetermined price.
If a company purchases all its outstanding shares in this way it is referred to as an becoming private transaction.
Ways an NCIB Can Be Used
After an NCIB is accepted, the company may begin repurchases in the manner it deems appropriate within the time frame that was set. The company may or may not be able to repurchase the entire number of shares it’s allowed to purchase.
Similar to any stock repurchase plan the company is able to participate in an NCIB because its management believes that its publically traded stock shares are undervalued. By repurchasing shares they are decreasing the amount offered on the market. Their buying activities reduce supply , and increases the demand, pushing the price to rise.
If an investment increases to the desired amount The company may decide to decide to sell a part of its stake to increase cash flow, improve liquidity, and expand its pool of investors.
By submitting a normal-course issuer bid, a company could profit from what it perceives to be an opportunity to get a discount off the price of the stock at the moment.
Regaining Control
An NCIB could also be an effective strategy to stave away a hostile takeover. In these instances the company reduces the number of shares available for sale and gaining greater power over their own shares.
If the repurchase is large enough, it could alter the composition and concentration of ownership in stock. The company could have a majority interest that is not contestable by a third party. In this case the company is able to keep its control by not releasing enough new shares that allow a one buyer to accumulate enough shares to influence the votes of shareholders or to force its agenda onto the Board of Directors.
