Share buyback plan and additional borrowings
The proposed stock buyback plan was primarily motivated by a desire to return the proceeds from the IFCO sale to shareholders. The executive team also expected that the buyback would serve as a positive signal to the market that Brambles operated transparently, and excess cash was returned to shareholders. An alternative to the share buyback was to invest the US$2 billion in a short-term marketable securities yielding 1.25% per annum as the company assessed future investment opportunities.
Shares could be bought back by the company through on-market transactions or off-market transactions. When the company sought to buy back less than 10% of the total share outstanding within a 12-month period, known as the 10/12 limit, the requirements were less onerous than those over that limit. The most common type of off-market buyback was equal access buyback where all ordinary shareholders had an opportunity to consider the offer to buy back an equal percentage of their shares. Brambles’ executive team was considering an on-market buyback as this method of buyback was the most straight forward and required minimum compliance. The plan was to undertake the buyback in early July 2019 and the executive team aimed to buy back the shares at an average price which was equal to 10% discount of the 30-day volume weighted average price ending 28 June 2019. Information regarding Brambles’ share price and trading volume is provided in Exhibit 5. Figure 2 showed Brambles’ share price movement between January and June 2019.
Figure 2: Share Price 2 January 2019 to 28 June 2019
Data source: Yahoo!Finance
Parallel to the on-market stock buyback, Brambles also planned to increase its medium term borrowing through a 15-year note issue to take advantage of low interest rates and create tax shields for shareholders. The note would have an average interest rate of 3.3% per annum on a face value of US$500 million. The proceed from the medium-term note issue, assuming negligible transaction costs, would be used to buy back stock bringing the total size of the stock buyback to $US2.5 billion.
