Reece Ltd, an Australian plumbing and bathroom supplies company, is undertaking an off-market buyback of its shares after a significant sell-off. The company’s share price has fallen to a five-year low, plummeting 60 per cent in the past year. Reece is a distributor of plumbing, waterworks, and HVAC-R products to commercial and residential customers. Reece’s board is controlled by the Wilson family.
The company is inviting shareholders to tender offers to sell their shares in increments from $11 to $13. This approach is unusual, as off-market buybacks utilising franking credits were largely discontinued about two and a half years ago due to changes in tax regulations. The buyback aims to acquire up to $250 million worth of shares, with the potential to increase to $400 million if there is sufficient demand.
Reece’s decision to pursue this method stems from its tightly held stock structure, which limits daily trading volumes. An on-market buyback would take too long to achieve the desired repurchase target. The off-market buyback will also cost Reece franking credits.
Despite the potential risk of dropping out of the S&P/ASX 100 if too many shares are repurchased, the board is proceeding, believing the market has overreacted to recent results and competitive challenges. Barrenjoey and Allens are advising Reece on the buyback. The Wilson family has stated they will not participate in the buyback.
