What Westpac (ASX:WBC) shareholders need to know about its $3.5bn buyback

Westpac is about to buy $3.5 billion back from shareholders…

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Key points

  • Westpac is buying back $3.5 billion worth of shares via an off-market buyback
  • The banking giant has settled its market price for the buyback
  • The final discount to this market price will be decided on Monday and depends upon demand

If you're a Westpac Banking Corp (ASX: WBC) shareholder, you may be planning to take part in its enormous $3.5 billion off-market share buyback.

The good news is that the banking giant has now released the market price for the share buyback.

Westpac share buyback price settled

According to the release, the market price for the Westpac share buyback is $22.2387.

The release explains that the market price was determined by the volume-weighted average price (VWAP) of its shares over the five trading days up to and including Friday, 11 February 2022.

However, it is worth noting that the market price is not necessarily the price that it will be buying back shares. Depending on demand, Westpac will be buying back its shares at either no discount or at a discount as great as 10%. The latter would equate to a buyback price of $20.01. This compares to the current Westpac share price of $22.78.

But don't worry if the buyback price is lower than the current Westpac share price. That's because, for Australian tax purposes, the buyback is expected to comprise a capital component of $11.34 per share, with the remainder deemed to be a fully franked dividend. This means that even with a 10% discount, shareholders should still be getting a better deal than if they sold them on-market.

Why is Westpac returning funds in this way?

Westpac has previously explained why it chose to return $3.5 billion to shareholders via an off-market buyback instead of other options.

It explained: "Westpac evaluated several options for returning capital to Shareholders. We believe that this Buy-Back will benefit all Westpac Shareholders. An off-market buy-back is considered an effective method to return capital and franking credits and optimise our capital structure at this time. It enables a higher number of Shares to be bought back in a shorter timeframe and it reduces our Share count faster than an on-market buy-back of Shares. In turn, a lower capital base and Share count supports Westpac's future Return on Equity, Earnings per Share and Dividend per Share, all things being equal."

Westpac expects to reveal the final price of the buyback on Monday. After which, payments to shareholders for the shares bought back will commence on 18 February 2022.

Motley Fool contributor James Mickleboro owns Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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