Following months of speculation, Legal & General Group PLC (LSE:LGEN) has announced the sale of its housebuilding subsidiary CALA.
The £1.35 billion enterprise value was higher than the previously rumoured £1 billion, but “investors might be disappointed” with the specifics of the disposal, suggested Russ Mould, investment director at AJ Bell.
L&G receive £1.16 billion in cash, said investment bank Jefferies, but will only receive £500 million up-front once the deal closes, with the remainder paid out over a five-year period.
Jefferies analysts noted that disposal proceeds will primarily be used to reinvest in the group, with some proceeds to be considered to increase ongoing buybacks.
“Legal & General’s shares have been weak since its strategy update in June,” noted Mould.
“Therefore, it’s not a surprise to see the company imply it might use some of the sale proceeds to fund share buybacks as it needs to deliver some more positive news to win back the market’s favour.”
The Jefferies team noted that the sale of CALA will reduce L&G's Solvency II coverage requirement by circa £100 million, which they calculated will lift the Solvency II ratio by three percentage points. The ratio was 223% at the last results.
They agreed that the deferred nature of the proceeds would present "limited near-term upside to special capital returns".