British American Tobacco Plc. (BAT) has initiated a significant buyback program totaling £1.6 billion ($2 billion) following the sale of a portion of its stake in India’s ITC Ltd.
The renowned manufacturer of cigarette brands such as Lucky Strike, as well as vaping products like Vuse and nicotine pouches like Velo, announced on Monday that it had realized net proceeds of £1.57 billion from the sale of its ITC stake. As a result, BAT intends to utilize these funds to repurchase its own shares, with the buyback program spanning over the current year and the next.
BAT plans to allocate £700 million towards share repurchases in 2024, followed by an additional £900 million by the conclusion of 2025. Despite divesting part of its ownership in ITC, BAT still retains a substantial 25% stake in the Indian conglomerate, which is renowned as the leading cigarette manufacturer in the country and operates various other businesses including food products and packaging.
The decision to undertake this buyback initiative comes amidst mounting pressure on BAT to enhance returns for its shareholders. Recently, the company faced a significant writedown exceeding £27 billion on the valuation of its US cigarette brands. This decline in value is attributed to an increasing number of smokers abandoning traditional cigarettes, opting instead for alternative products such as vapes, nicotine pouches, and heated tobacco sticks.
Bloomberg Intelligence provides further insight into BAT’s strategic move, emphasizing that the ongoing share buyback program funded by the proceeds from the ITC stake sale reflects the company’s confidence in its robust cash flow. This initiative is expected to facilitate a reduction in net debt, aligning with management’s target of achieving a net debt-to-Ebitda ratio between 2 to 2.5 times. Additionally, BAT continues to invest in next-generation products, aiming for these products to contribute 50% of its revenue by 2035, compared to the current figure of 16.5%.
Following pressure from an activist shareholder to depart from its London listing, British American Tobacco Plc. (BAT) has dismissed the notion of transitioning to a US listing. Chief Executive Officer Tadeu Marroco emphasized in an interview with the Financial Times that such a move would entail significant internal distractions for the company.
The decision to rule out a US listing comes amidst ongoing discussions and deliberations prompted by calls from an activist shareholder advocating for BAT to exit its London listing. While exploring various options to address shareholder concerns and optimize the company’s structure, BAT has determined that a shift to a US listing would not be conducive to its strategic objectives.
Marroco’s remarks underscore BAT’s commitment to avoiding unnecessary disruptions to its operations and maintaining focus on core business activities. As the company navigates through challenges and seeks to enhance shareholder value, it aims to pursue avenues that align with its long-term vision and goals.