What Is a Normal-Course Issuer Bid?
A normal-course issuer bid is a Canadian term for a company repurchasing its own stock from the public in order to cancel it. In a normal-course issuer bid (NCIB), a company is allowed to repurchase between 5% and 10% of its shares depending on how the transaction is conducted. The issuer repurchases the shares gradually over a period of time, such as one year. This repurchasing strategy allows the company to buy only when its stock is favorably priced.
Normal-Course Issuer Bid Explained
Companies must file a Notice of Intention to Make an NCIB with the stock exchanges they are listed on and receive approval from the exchange before proceeding with the repurchase. There are limits on the number of shares the company can repurchase in a single day.
In another type of issuer bid, a company will repurchase a set number of shares from all of its shareholders at a predetermined date and price. An issuer bid where a company repurchases all of its shares in this manner is a going private transaction.
Ways a Normal-Course Issue Bid Is Used
With a normal-course issuer bid, it is possible that the company might not repurchase the full volume of shares it announced with the bid. When such a bid is in place, it does let a company take action on repurchases as it sees fit during the period outlined in the terms.
As per other types of stock repurchase campaigns, a normal-course issuer bid is a mechanic that companies might use if they believe their publicly traded stock is undervalued. By bringing more shares back in-house, it reduces the stock that is available on the market. Fewer available shares, coupled with higher demand, may lead to the stock valuation increasing.
Once the value of shares rises to a desired level, the company might sell off part of its stake in order to gain cash assets, increase liquidity, and widen its base of investors. Through a normal-course issuer bid, a company can take advantage of discounts on the stock’s latest price.
Such a repurchase of stock could also be done to give pause to certain hostile takeover attempts. If the company reduces the volume of its shares available on the market, and regains more control over its stock, it can change the concentration and makeup of stock ownership. For example, reclaiming shares could give a company controlling interest that cannot be challenged by third parties. This can be the result of making the pool of shares available on the market too small to affect shareholder votes or the makeup of its board of directors.