What Is a Normal-Course Issuer Bid (NCIB)?
Let me explain what a Normal-Course Issuer Bid, or NCIB, really is—it's the Canadian term for when a public company buys back its own stock to cancel it. You see, a company can repurchase anywhere from 5% to 10% of its shares, depending on how they handle the transaction.
Key Takeaways
An NCIB serves as a stock buyback program for companies listed in Canada. Companies use it to raise cash, push the share price higher, fend off a takeover, or combine these goals. Remember, the NCIB needs advance approval from the exchanges. The issuer buys back shares gradually over time, say a year, so they can pick moments when the stock price looks favorable.
Understanding the NCIB
If you're a public company in Canada, you have to file a Notice of Intention to Make an NCIB with the stock exchanges you're listed on and get their approval before you start repurchasing. There are strict limits on how many shares you can buy back in a single day.
There's also another kind of approved issuer bid where a company repurchases a fixed number of shares from shareholders at a set date and price. If they buy back all outstanding shares this way, it's known as a going private transaction.
Ways an NCIB Can Be Used
Once approved, the company can go ahead with repurchases as they choose during the set period. They might not even buy the full amount they're allowed to.
Here's something important: executives launch an NCIB when they think the stock is undervalued in the market. Just like any stock repurchase, they do this because they see the publicly traded shares as underpriced. By buying them back, they cut down the number available, which reduces supply, increases demand, and drives the price up.
When the share value hits the level they want, the company could sell off some of its stake to raise cash, boost liquidity, and expand the investor base. Essentially, through an NCIB, they're capitalizing on what they view as a discount on the current stock price.
Regaining Control
An NCIB can also be a strategy to block a hostile takeover. In these situations, the company reduces the shares available on the market and takes back more control over its stock.
If the repurchase is large enough, it can shift the concentration and makeup of stock ownership. The company might end up with a controlling interest that no third party can challenge. At that point, they can keep control by issuing too few new shares for any one buyer to gain enough to influence votes or push their agenda on the board.
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