Utilities giant Pennon Group Plc has begun a £400m share buy-back programme after banking a £1.7bn profit from the sale of waste management arm Viridor.
The Exeter-headquartered business, named by the Western Morning News as the biggest firm in the South West, has initiated the first phase of a share repurchase scheme, of up to £400m, by entering into a non-discretionary agreement with Morgan Stanley & Co International Plc.
Under the agreement the bank can purchase ordinary Pennon shares at 61.05p each for an aggregate purchase price no greater than £60m, in this phase, and simultaneously sell them to the company. This share buying will continue until no later than September 30 2021. All shares repurchased will be cancelled.
In June, Pennon, parent firm of South West Water, announced its plan to return capital to shareholders by way of a £1.5bn special dividend, paid on July 16, and a potential £400m on-market share buy-back programme in respect of its ordinary shares. The purpose of the programme is to reduce Pennon’s share capital.
Share buy-back schemes reduce the number of shares and inflate dividends. They can also hike share prices and show to investors a firm has plenty of cash.
Pennon’s sale of Viridor netted it a profit of £1.7bn. It splashed £814m on buying Bristol Water, though due to taking on debt the equity value of the sale was £425m, and repaid £1.1bn of its debts.
It then embarked on the share repurchase but said the programme will be subject to review should further opportunities to buy another UK water company arise.
Announcing the company’s annual results in June, Pennon said that whilst the share buy-back would provide it with “ongoing financial flexibility” it could be halted.
A statement said: “In the event that compelling growth opportunities arise in the UK water sector, the board may decide not to initiate or to halt any share buy-back and use the remaining proceeds to pursue those opportunities in order to drive further shareholder value.”
The maximum number of shares that can be repurchased in connection with the share buy-back programme is 42,183,689, being the maximum authority granted by Pennon's shareholders at Pennon's annual meeting on July 22. There are 421million Pennon shares in issues giving it a market capitalization of more than £5bn.
A statement to investors said further execution phases of the share buy-back programme will be announced “in due course”. Any purchase of shares will be carried out on the London Stock Exchange and Multilateral Trading Facilities.
Pennon will announce any market repurchase of shares no later than 7.30am on the business day following the calendar day on which the repurchase occurred.
