The TPG Telecom Ltd (ASX: TPG) share price is under the spotlight after the telco announced major returns for shareholders.
TPG is the parent of a number of telecommunications brands including Vodafone Australia, TPG, iiNet, Lebara and Felix.
TPG reveals big returns
As long as shareholders approve it, TPG will return up to $3 billion to shareholders through a capital reduction of up to $1.61 per share.
This comes after the sale of TPG’s fibre network infrastructure assets and the enterprise, government and wholesale fixed business to Vocus for an enterprise value of $5.25 billion, generating net cash proceeds of approximately $4.7 billion.
The company’s strategic shareholders, CK Hutchison, Vodafone Group Plc, David Teoh and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), currently own 77% of TPG’s shares and have all indicated they intend to vote for this, as well as their support for the reinvestment plan.
Capital reduction reinvestment
TPG will also give minority shareholders the opportunity to increase their ownership in the business by re-investing the proceeds of the capital reduction for new TPG shares, raising up to $688 million for the business.
This will increase the proportion of the business owned by minority shareholders, improve the liquidity of TPG shares on the ASX and maintain its S&P/ASX 200 Index (ASX: XJO) position.
Debt repayment
The company also announced the intention to repay up to $2.4 billion of bank borrowings. That’s a total of $1.7 billion of Vocus transaction proceeds and a targeted $688 million of reinvestment proceeds, assuming the reinvestment plan is fully subscribed by shareholders.
These shareholders can decide to receive cash, new TPG shares or both.
Rising dividends
TPG also announced a new policy that it intends to increase dividends over time as profit and cashflow grows. The FY25 dividend is targeted to be $0.18 per share, which is equal to the FY24 payout.
Final thoughts on the TPG share price
The company intends to send information about a shareholder meeting in September and hold the meeting in early October.
The market liked the news because the TPG share price rose around 4% in early trading.
This seems like a good move for existing shareholders, but the most important question is how effective will the company be at sustainably growing earnings? It needs to grow its number of mobile subscribers and invest significantly in 5G.
