Spanish company ACS, the biggest shareholder in CIMIC (CIM), formerly the troubled construction contractor Leighton Holdings, will tighten its already strong grip on the company via a 10% buyback, revealed yesterday in a statement to the ASX.
In its statement, CIMIC justified the buyback, saying it thinks its shares are so “attractive” that they are worth spending a lot of money on over the next year.
At Friday’s closing price of $22.14, the share buyback program will cost about $750 million over the 12 months. The shares rose 0.5% to $22.25 yesterday after the news of the buyback was released.
The move will see the Spanish construction giant increase its hold on Leighton by not participating in the buyback. ACS controls 70% of CIMIC via the German construction group Hochtief.
News of the buyback came 17 days before the company rules off its accounts for the 2015 financial year. Buybacks are also used by big shareholders and management to support a company’s shares through tough times or choppy stockmarket conditions – Kerry Stokes’s Seven West Media is running a $75 million buyback for just that reason at the moment.
The company says the buyback will improve shareholder returns, enhance capital efficiency and maintain balance sheet flexibility to pursue growth and investment opportunities.
“The initiative is reflective of CIMIC’s strong balance sheet position, solid cash flow generation, and disciplined approach to capital management,” the company says. “It signals the company’s belief that the current share price is attractive.”
The buyback will be funded from existing cash balances and working capital facilities.
CIMIC has recently picked up a number of new construction contracts here and offshore, including being selected as the preferred contractor for Sydney’s $5 billion new M5 Motorway.
The company says it’s on track for 2015 profit of between $450 million and $520 million.
