Imperial Brands could sell down Logista stake to fund share buybacks - editorial analysis
This is an excerpt from the Dealreporter Europe Flash.*
- Lock up over Logista shares expires on 11 December
- Relative share prices back Logista share sale to fund IMB buyback
British tobacco company Imperial Brands [LON:IMB] could look to further sell down its 60% stake in Madrid-listed distribution subsidiary Compañía De Distribución Integral Logista Holdings (Logista) [BME:LOG] to buy back more shares and/or reduce its net debt.
The company would have to wait until 11 December before it could sell any shares, according to Acuris’ European Lock-up Expiries offering. Imperial Brands signed up for a 90-day lockup in September 2017 when it sold 13.275m Logista shares, representing approximately 10% of the subsidiary’s share capital. It raised gross proceeds of around GBP 230.8m (EUR 251.3m) in the process and said it would use GBP 160m to buy back 5m Imperial Brands shares.
The move came at a time when Imperial Brands shares were trading at around GBP 33, 17.5% below the GBP 40 level a year ago. The company sold Logista shares at an average price of EUR 18.9 per share, a 7.6% discount to the closing price of EUR 20.48 a day before announcement of the share sale.
The Flash thinks that the decline in Imperial Brands’ share price since then means that it makes even more sense for it to sell down its holding in Logista further and use the proceeds to buy back more shares. Imperial Brands shares have fallen to around GBP 30.49 (closing price, 17 November) despite the buyback and a strong FY 2017 with a 10% increase in dividend. In the meantime, Logista shares trade around EUR 19.80, only about EUR 0.7 below the market price at the time of the last stake sale.
In other words, buying back Imperial shares by selling Logista shares makes even more sense than before. On 14 November, the company reported that it had bought back 3.86m shares with GBP 125.4m and intended to use the remaining GBP 34.6m to buy back more shares by 30 March 2018.
The Flash estimates that if Imperial Brands was to sell down its stake by another 9.9%, while still maintaining a 50.1% majority, it could raise gross proceeds of up to EUR 241m (GBP 215m) at a 7.5% discount to the current share price.
That can potentially be used to buy back another 7m shares, around 0.7% of the total shares outstanding.