Stelco moves to buy back $1 billion of its shares from investors
Sell and take the money, or stay and take a proportionate increased ownership stake in a steelmaker?
That's the question facing every investor who owns Stelco stock, after the company announced plans this week to buy back $1 billion of its shares.
The announcement that the Hamilton steelmaker is offering to purchase up to 30 million shares - at $35 per share - was made Tuesday, July 26.
It's a prudent and appropriate way to continue our commitment to return capital and generate value for our shareholders," Stelco spokesperson Trevor Harris told the Spectator in an email.
Those who continue to hold on to their shares will realize a relative increase in ownership in the company, suggested Peter Warrian, a steel industry researcher and economist.
If revenues and profit margins stay steady, the earnings per share for those shareholders who stay in, will increase," Warrian told the Spectator. Not a bad move when we are facing a recession."
Once purchased back, the shares will be retired" and no longer available for trading.
The company is the entity buying the shares; the deal will not result in any one investor - including Stelco CEO Alan Kestenbaum, the company's second largest shareholder - in realizing controlling ownership.
In the announcement, the company said it has 68,520,824 shares issued; if all 30 million shares are purchased in the buyback, 38,520,824 shares will remain.
Given the Canadian Steel Producers Association goal of achieving net zero" carbon emissions by 2050, Warrian said steel companies need to find ways to make themselves attractive to shareholders.
Who wants to invest in a steel company in a period of transformative change?" he asked. One way is to make the shares more appealing."
The share buyback announcement Tuesday came one day after Stelco released a report forecasting that its bottom line would be weaker this summer than last spring.
On Monday, the company said it expected adjusted earnings in the third quarter (July 1-Sept. 30) will be materially below" the showing from the second quarter (April 1-June 30).
Stelco added that it will release its second quarter financial results Aug. 10, and said it was expecting adjusted earnings for that period to be $460-$470 million.
Jon Wells is a feature writer at The Spectator. jwells@thespec.com