Mixed views on MRP buyback
Mighty River Power has been accused of buying back shares in an effort to boost confidence in the Meridian partial float but the company, the Government and some market analysts say a buyback at this time is in the company's best interests.
Mighty River Power (MRP) said yesterday it was buying back up to $50 million of shares (or up to 2 per cent of listed shares) to take advantage of its low share price and strong annual profit.
The share price lifted 3c to close trading yesterday at $2.23 per share, but is still trading well below its $2.50 issue price and its $2.72 NZX debut price.
Opposition politicians were united in their condemnation of the buyback saying it was an attempt to prop up the company's share price just ahead of the partial float of state-owned Meridian.
Labour, NZ First and the Greens said it was a desperate attempt to gain confidence in the Meridian share offer that was part of a failing state asset sales programme.
But Prime Minister John Key said the move was a matter for the company.
"The Government was not aware they were doing it. It's highly normal. Air New Zealand did it last year and companies buy back shares all the time. It's a sign of confidence the directors have in the company because they actually think the market is undervaluing it. In the context of things this is a $3.4 billion company and they traded $50m of cash.
"That's the reason for having these independent boards. They can do what they like. In the end they took some money which would have been cash off their balance sheet and decided shares were better value in their own company."
But Green Party co-leader Metiria Turei said five months after the listing of MRP shares, promising a golden opportunity for ‘mum and dad' investors, the company was buying them back at a loss for investors. "This desperate move just proves that no-one is winning from the asset sales."
The taxpayer has forked out more than $124m, and retail investors had lost 12 per cent of their investment, she said.
Key said it didn't mean the asset sales programme wasn't working. "Not in the slightest. The Government took its $1.7 billion from MRP and will get a big chunk of change from Meridian. Once you have a company that is floating like this with independent directors making rational decisions for the company, you get much better management."
Chapman Tripp partner Roger Wallis said companies were compelled to act in their best interests rather than the best interests of another company or a specific shareholder, such as the crown.
MRP chairwoman Joan Withers said the timing of the share buyback announcement was coincidental. MRP was Meridian's competitor and the programme was in the company's best interest given the current share price.
The buyback will start on Tuesday and could continue until October 14 next year.