HOUSTON, Feb. 8�Ultramar Diamond Shamrock Corp. plans to repurchase $750 million, or 27%, of its common stock in a series of transactions expected to be completed within 3 months. Thereafter, it plans to buy back $100 million worth of stock a year.
Jean Gaulin, chairman and CEO of UDS, said, "Our stock�even after all the success we've had in growing earnings and returns and strengthening our balance sheet�remains significantly undervalued today. By capitalizing on the strength of our balance sheet and the sustainability of our cash flows, we are making a long-term investment in UDS and improving shareholders returns. This is a smart and highly accretive financial restructuring."
UDS expects the first buyback to be immediately 28% accretive in earnings per share. It expects its rating to remain stable at Baa2/BBB.
The refining and marketing company will fund the $750 million buyback from borrowings from credit facilities and cash from operations. It will reduce dividends to 50� from $1.10/year to service its debt. The annual buyback program will be funded from expected cash flow.
As part of the program, it will buy 8% of its shares from TotalFinaElf SA at $32.85/share, somewhat higher than the closing price of $32.29 on Feb. 7. The TotalFinaElf price is based on market price at time of purchase. That part of the buy back is estimated at $230 million.
TotalFinaElf acquired the UDS holding in 1997 as part of a transaction that merged Total's North American refining and marketing subsidiary into UDS.
TotalFinaElf said the stock sale was part of a streamlining exercise for its US downstream portfolio.
According to TotalFinaElf, "UDS�s recent decision to proceed with a major share repurchase created an opportunity to accomplish this sale. The company said it "intended to pursue (its) cooperation with UDS on technology exchanges and other mutually beneficial activities, (and would) now concentrate downstream operations in the US at the Port Arthur refinery in Texas."
