Lanxess Suspends Share Buyback Scheme

07.04.2020 -

Lanxess’ managing board has decided to indefinitely suspend its planned share buyback program announced on Mar. 10, in view of the coronavirus crisis. The program launched on March 12 with a first tranche of up to €250 million foresaw repurchasing shares up to a volume of €500 million over a 24-month period.

Michael Pontzen, chief financial officer of the Cologne, Germany-based specialty chemical producer, said the challenges resulting from the corona pandemic require the company to conserve its liquidity.

“Lanxess has built up a very solid financial base in recent years. Nevertheless, we want to secure the greatest possible flexibility in the current situation,” Pontzen said,

adding that management will “continuously monitor the challenging situation and decide about a resumption of the share buy-back program in due course.”

The German company had planned to leverage a provision granted by its supervisory board at the May 2019 annual general meeting, buying back outstanding shares equivalent to 10% of equity. In announcing the scheme, CEO Matthias Zachert said it demonstrated management’s confidence in the strategic direction of Lanxess and would create value for shareholders.

Recent financial market reports, however, suggest that amid the economic turmoil that will undoubtedly follow the pandemic, the buybacks would be misplaced. At the beginning of this week, analysts at Goldman Sachs predicted that share repurchases “will slow dramatically, both for political and practical reasons.”

“First, politicians are denouncing repurchases given the impending recession,” the investment bank said. “Second, from a practical perspective, as revenues evaporate, firms will be looking to preserve cash.”

But even before the coronavirus crisis, critics of buybacks argued that these were a poor use of company cash that could instead be invested in long-term growth and workers.