What is a normal course issuer bid?
A normal course issuer bid is a Canadian term for a company buying back its own shares from the public in order to cancel it. Within the framework of a normal course issuer bid (NCIB), a company is authorized to buy back between 5% and 10% of its shares depending on the way in which the transaction is carried out. The issuer redeems the shares gradually over a period of time, for example a year. This buy-back strategy allows the company to buy only when its shares are cheaper.
Explanation of the normal course issuer bid
Companies must file a notice of intention to make a takeover offer on the stock exchanges on which they are listed and receive stock market approval before proceeding with the takeover. The number of shares that the company can buy back in a single day is limited.
In another type of public buyout offer, a company will buy back a specified number of shares from all of its shareholders on a predetermined date and price. A takeover offer where a company buys back all of its shares in this way is a private transaction.
Ways in which a normal course problem bid is used
With a normal course issuer bid, the company may not buy back the total volume of shares it announced with the offer. When such an offer is in place, it allows a company to take redemption measures as it sees fit during the period indicated in the conditions.
As with other types of share buyback campaigns, a normal course issuer bid is a mechanism that companies could use if they believe their publicly traded stocks are undervalued. By bringing in more shares internally, this reduces the stock available on the market. The decrease in the number of available shares, associated with a higher demand, can lead to an increase in the valuation of the shares.
Once the value of the shares reaches the desired level, the company can sell part of its stake in order to gain liquidity, increase liquidity and broaden its investor base. Through a normal course issuer bid, a company can benefit from discounts on the last share price.
Such a stock buyback could also be made to pause certain hostile buyout attempts. If the company reduces the volume of its shares available on the market and regains more control over its shares, it can change the concentration and composition of the shareholders. For example, the recovery of shares could give a company a majority stake which cannot be challenged by third parties. This may be due to the fact that the pool of shares available on the market is too small to affect the votes of shareholders or the composition of its board of directors.