German chemicals distributor Brenntag SE is considering repurchasing at least 5% of its stock as it seeks to boost returns for shareholders, according to people familiar with the matter.
(Bloomberg) — German chemicals distributor Brenntag SE is considering repurchasing at least 5% of its stock as it seeks to boost returns for shareholders, according to people familiar with the matter.
Brenntag may announce a share buyback plan in the next few days alongside the release of its annual report, said the people, asking not to be identified because the information is private. It’s still discussing the exact size of the repurchase, which is likely to be in the high hundreds of millions of euros, the people said.
The Essen-based company is scheduled to unveil its latest financial results on Wednesday. Brenntag has also been informally debating the merits of a breakup following criticism from activist investors, the people said. Executives have discussed the idea of separating the firm’s specialties unit, but Brenntag isn’t yet studying the potential move in a more serious way, according to the people.
The stock jumped as much as 3.6% in early trading on Tuesday. Brenntag shares have gained almost 10% over the past 12 months, giving the company a market value of about €11.2 billion ($12 billion).
The deliberations come after Brenntag dropped plans to bid for US rival Univar Solutions Inc. Activist investor Primestone Capital had criticized the pursuit of Univar and suggested Brenntag instead launch a debt-funded share buyback and analyze a separation of its specialties unit, demands that were echoed by fellow activist Engine Capital.
Discussions on the potential buyback are ongoing, and details of the proposal could change, the people said. A representative for Brenntag declined to comment.
Read more: Activist Investor Engine Capital Calls On Brenntag to Split (2)
Brenntag hinted at a potential share buyback in November, with Chief Financial Officer Kristin Neumann saying at a capital markets day that the firm may consider “additional shareholder returns” beyond its normal dividend payments. It’s targeting a net debt to Ebitda ratio of 2 times, up from its current level of about 1.4 times, according to data compiled by Bloomberg.
Analysts appear to be split over the merits of spinning off Brenntag’s specialties activities. Jefferies Financial Group Inc. recently wrote that Brenntag lags all its peers on major metrics and will find it hard to close the valuation gap on its shares. The company isn’t showing any signs of meaningful strategic change like a breakup, according to Jefferies analyst Chris Counihan.
Meanwhile, Deutsche Bank AG analysts said in February they understand the rationale for a split but now may not be the right time. Brenntag management announced a new strategic plan in November, and the company needs time to strengthen its internal systems and show what more it can do under its current structure, analysts Dominic Edridge and Ben Wild wrote in a research note.
–With assistance from Zoe Schneeweiss.
(Adds share move in fourth paragraph, specifies shareholder criticism in fifth)
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