It has just been announced that Mighty River Power is to stand in the market and buy back up to 2% of its company shares over the next 12 months. Chair Joan Withers says this will happen as part of its capital management plans “reflecting the Board’s view that the purchase of its own shares is in the best interests of the Company and its shareholders”.
The buyback is said to be a “prudent use of capital”, will provide a return above MRP’s cost of capital and will be “value-enhancing” for its shareholders. It is a shame that the Government did not see things this way and hold onto the shares. As has been said many times this would have provided a return above the debt being paid back and would also have been value enhancing for all of us.
The purchase can happen from October 15 until October 14 next year. The shares bought back will not be cancelled.
The current price for MRP shares is $2.20.
The effect will be to at least maintain that price, and quite possibly there will be a surge in the price. As at the time of writing the share price has jumped 5c to $2.25.
This announcement is coincidentally occurring at the same time that retail applications for Meridian shares are being accepted. Retail offers close on October 18, 2013. A deflated MRP share price would dampen the expected price that Meridian shares could demand.
Rod Oram has tweeted
MRP buys back shares – this is classic, desperate strategy of companies with excess profits, no growth opportunities and ailing share price
It also smacks of a desperate strategy to keep the privatisation process on track.
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