British American Tobacco (BAT) announced a significant move on Tuesday that positively impacted its stock prices.
The company revealed plans to initiate a share buyback program valued at 700 million pounds ($895 million) for the year, following the divestiture of its stake in India’s ITC (ITC.NS).
This decision comes after BAT faced criticism for halting its share buyback program last year, citing a shift in focus towards debt reduction and investment in new product development.
The pause in buybacks had led to a downturn in BAT’s stock performance, lagging behind its competitors.
Shareholders have been vocal in urging BAT to diminish its investment in the Indian conglomerate ITC to alleviate its debt burden and to recommence share buybacks sooner.
The news of BAT’s impending sale of its ITC stake prompted a 3.5% increase in its shares, with a subsequent 3.1% rise noted at 1232 GMT.
BAT intends to sell up to 437 million ordinary shares in ITC to institutional investors through an accelerated book build process.
This sale will decrease BAT’s ownership in ITC to approximately 25.5% from about 29%, with the shares being priced between 384-400.25 rupees each, making the transaction worth around $2 billion.
CEO Tadeu Marroco expressed optimism about the move, stating, “With this transaction, BAT can accelerate the start of a sustainable buyback,” and emphasized the continued value generation for shareholders from its remaining stake in ITC.
The company has set a timeline for its buyback initiative, planning to repurchase shares until December 2025, starting with around 700 million pounds worth of shares in 2024.
Moreover, BAT has integrated “sustainable share buybacks” into its capital allocation strategy, which now includes four key elements.
This strategy aims to reduce the company’s net debt to a revised target range of 2-2.5 times adjusted EBITDA, an adjustment from the previous range of 2-3 times.
This approach reflects BAT’s commitment to balancing shareholder returns with financial health and investment in growth opportunities.