British American Tobacco PLC (LSE:BATS) shares skipped higher after the cigarette maker said it would launch a £700 million share buyback this year after a block sale of part of its long-held investment in Indian consumer goods conglomerate ITC.
ITC was originally called Imperial Tobacco India and BAT's investment dates back to around the time of its founding in 1910.
The FTSE 100-listed group said its wholly-owned subsidiary Tobacco Manufacturers India (TMI) arm is completing a block trade sale of shares in ITC but will still retain a large stake.
BAT said it intends to use the net proceeds on a buyback between now and December 2025, "starting with £700 million in 2024".
"We will continue to allocate operating cashflow to fund investment in our transformation and to further deleverage," the tobacco group said, adding that its capital allocation policy will focus investments in its transformation, progressive dividends, cutting debt and sustainable share buybacks.
The block trade will see up to 436.85 million shares in ITC sold to institutional investors, representing up to roughly 3.5% of ITC's total share capital. Following this, BAT will still own a 25.5% stake.
"ITC is a valued associate of BAT in an attractive market with long-term growth potential where BAT benefits from exposure to the world's most populous market," BAT said, adding that the two companies have "a longstanding, mutually beneficial relationship".
BAT boss Tadeu Marroco said: "We look forward to remaining important shareholders in ITC as it continues its journey of growth.
"With this transaction BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage towards a new target range of 2-2.5x adjusted net debt / adjusted EBITDA."
BAT shares rose 2.8% to 2383.5p after the announcement late on Tuesday morning.