The board of Pohang Iron and Steel Company (Posco) has approved a share buyback equivalent to 3% of the company's issued share capital. The shares will be bought from the Korea Development Bank (KDB) at the same time as KDB sells its remaining 6.8% stake to foreign shareholders in a secondary placement of ADRs.
Posco launched the roadshow with two teams. The first is in Singapore today before moving on to the US for the rest of the week. The second team is in Tokyo today before going to Hong Kong tomorrow (13 June) and then on to Europe for the rest of the week. The deal will be priced in New York on 20 June.
News of the buyback has boosted the underlying local share price of Posco, with investors applauding the use of the company's excess cashflow to increase its earnings per share. What makes the deal interesting is that the buyback is being done at the same time as a significant third-party sale of stock. Such a sale would usually depress the price of the underlying stock as arbitragers get their teeth into the deal. In this case, however, the stock has rocketed. On Thursday night, before rumours of the buyback emerged, the stock closed at W93,000 ($82). By today's close it had risen almost 25% to W116,000. After the buyback, Posco will own 13.3% of its own stock. It plans to cancel the 3% it will buy from KDB, but it has not decided whether to cancel the remaining 10.3% stake.
Proceeds from the sale of KDB's remaining 6.8% stake will go towards the cost of the government's bail-out of the crippled financial system in Korea. The sale, which is being managed by Salomon Smith Barney and Merrill Lynch, is expected to raise in excess of $550 million.
