The board of Nation Media Group (NMG) on Friday, February 25 proposed to shareholders the purchase of up to 10 per cent of the company’s issued and paid up share capital in a buyback programme. Share buybacks refer to the repurchasing of shares by the company that issued them. They were considered a foreign concept in Kenya until the Companies Act, 2015 took effect.
The buyback programme is subject to regulatory and shareholder approvals. “Further information regarding the proposal will be provided when appropriate. “In view of the above, shareholders and investors are advised to exercise caution when dealing in the company’s securities,” the cautionary notice seen by Business Today read in part.
Share buybacks usually leave remaining shareholders with greater stake in a company; as a company typically buys back its shares and cancels them and the amount of the company’s issued share capital is diminished by the nominal value of the cancelled shares.
Companies usually undertake share buybacks for different reasons. A common reason why organizations buy their own shares is to to spend surplus funds. Another reason companies do share buybacks, and one analysts suspect might be at play in the Nation programme, is to take advantage of devaluation.
From highs of Ksh307.27 in April 2013, Nation has seen its share price fall to Ksh13.40 as of Wednesday, February 24. The firm’s earnings have declined 27.8% per year over the past five years.
The company has been seen to respond with an aggressive digitization push as it looked to reduce reliance on advertiser revenue and shift towards reader revenues. It recently rebranded the main digital platform for its flagship Daily Nation brand, and earlier this year introduced a paywall whose impact remains to be seen.
Kenyan publishers have stayed away from paywalls in recent years despite the global shift in media trends towards subscription models. This has been due to the perceived reluctance of many Kenyans to pay for journalistic content.