Insurance Australia : IAG announces $300 million off-market share buy-back

'The $300 million Buy-Back reflects IAG's active capital management approach, which seeks to maximise total shareholder returns by returning surplus capital through an effective means,' said IAG Chief Financial Officer Nick Hawkins.

The Buy-Back will be funded from existing cash and investments and IAG will maintain a strong balance sheet and regulatory capital position following the Buy-Back.

The Buy-Back will be conducted by way of an off-market tender process which will open on Friday, 9 September 2016 and close at 7.00pm (Sydney time) on Friday, 7 October 2016.

An information flyer will be dispatched to all eligible shareholders from 19 August 2016 detailing how eligible shareholders can obtain a copy of the Buy-Back booklet. This Buy-Back booklet contains the Buy-Back terms and conditions (including eligibility and details of the tender process) and is expected to be available on IAG's website (www.iag.com.au), or dispatched in hardcopy if requested, from 26 August 2016.

Participation in the Buy-Back is optional. Shareholders who choose not to participate and retain their IAG shares are expected to benefit from an improvement in earnings per share because the number of shares on issue will be reduced as a result of the Buy-Back.

IAG may, at its absolute discretion, vary the size of the off-market Buy-Back, including not buying back any Shares at all depending on several factors including shareholder demand, market conditions and forecast future capital requirements.

Details of the Buy-Back

• If the Buy-Back Discount is equal to or less than the Tender Discount selected by a shareholder, or if a Final Price Tender is lodged, the Shares will be bought back, subject to any scale back and, if applicable, any nominated Minimum Price condition; and
• If the Buy-Back Discount is greater than the Tender Discount selected by a shareholder, the Tender will be unsuccessful and no Shares will be bought back.

A shareholder who has their Tender accepted will be paid the Buy-Back Price (the VWAP Market Price less the Buy Back Discount) for each Share that is bought back even if they tendered Shares at a Tender Discount greater than the final Buy-Back Discount. Shareholders should also not have to pay any brokerage to sell their Shares into the Buy-Back.

Successful Tenders may be scaled back if the number of Shares tendered at Tender Discounts greater than or equal to the Buy-Back Discount and as Final Price Tenders exceeds the total value of Shares that IAG determines to buy back. The scale back has been structured to minimise the impact on shareholders who have, or would otherwise be left with, a small holding. IAG will first buy back a Priority Allocation of 850 Shares from each shareholder that successfully participates in the Buy-Back.

Additionally, shareholders who tender all of their Shares at one or more Tender Discounts equal to or greater than the Buy-Back Discount and/or as a Final Price Tender, and who would otherwise be left with a Small Residual shareholding of 340 Shares3 or less as a result of IAG's acquisition of the Priority Allocation and any Shares subject to the scale back, will have their Tender(s) accepted in full without any scale back.

Tax considerations

The Buy-Back is considered an off-market buy-back for the purposes of the Income Tax Assessment Act 1936 (Cth). IAG expects that the Buy-Back Price will consist of a Capital Component of $2.99 and the balance of the Buy-Back Price will be treated as a fully-franked dividend.

It is likely that the IAG share price on-market will be higher than the Buy-Back Price as shareholders are being invited to tender Shares into the Buy-Back at discounts to the VWAP Market Price. However, for some IAG shareholders, depending on their individual circumstances, the Buy-Back may provide a greater after-tax return than selling Shares on market. The Buy-Back will have different tax consequences for different shareholders. As such, IAG strongly recommends shareholders seek their own professional advice (including tax advice) about the implications of participation in the Buy-Back in respect of their own individual circumstances.

Dividend considerations

All shareholders with an entitled registered holding on 7 September 2016 will receive the fully franked Final Dividend for the financial year ended 30 June 2016 whether or not they participate in the Buy-Back. Submitting a Tender prior to the Closing Date will not affect a shareholder's right to receive the Final Dividend.

Shares allocated under the Dividend Reinvestment Plan ('DRP') with respect to the Final Dividend for the financial year ended 30 June 2016 cannot be tendered in the Buy-Back. Allocation of Shares under the DRP will also result in a Tender not being considered a Small Residual Tender and may cause a Tender to be subject to any scale back. Shareholders who wish to tender all their Shares into the Buy-Back may consider withdrawing from the DRP by amending their DRP instructions through the Registry's (Computershare) Investor Centre website or by completing a DRP form. Computershare must receive these updated DRP instructions by 5.00pm Sydney time on Thursday, 8 September 2016.

Buy-Back timetable

August 2016
Friday, 19 August 2016 - announcement of FY16 results and Buy-Back; Dispatch of information flyer
Tuesday, 23 August 2016 - last day that Shares can be acquired on market to be eligible to participate in the Buy-Back and to qualify for franking credit entitlements in respect of the Buy-Back consideration
Wednesday, 24 August 2016 - Buy-Back Ex-Entitlement Date: The date that Shares commence trading on an ex-Buy-Back basis. Shares acquired on market on or after this date will generally not confer an entitlement to participate in the Buy-Back.
Thursday, 25 August 2016 - Buy-Back Record Date: Determination of shareholders entitled to participate in the Buy-Back at 7.00pm (Sydney time)
Friday, 26 August 2016 0 Buy-Back booklet expected to be available to shareholders on IAG website

September 2016
Wednesday, 7 September 2016 - record date for determination of shareholders entitled to receive the Final Dividend at 7.00pm (Sydney time)
Thursday, 8 September 2016 - IAG must receive your DRP form to join, withdraw or vary your participation in the DRP by 5.00pm (Sydney time)
Friday, 9 September 2016 - Tender Period opens

October 2016
Wednesday, 5 October 2016 - final dividend payment date
Friday, 7 October 2016 - closing Date: Tenders must be received by the Registry no later than 7.00pm (Sydney time)
Monday, 10 October 2016 - Buy-Back Date: Announcement of Buy-Back Price and scale back (if any) to ASX and entry into Buy-Back Contracts
Monday, 17 October 2016 - dispatch/crediting of Buy-Back proceeds to participating shareholders completed

While IAG does not anticipate any changes to these dates and times, it reserves the right to vary them by ASX announcement. Such an announcement will be taken to amend the Buy-Back booklet (and the other Buy-Back Documents) accordingly. IAG may, at its absolute discretion, also decide not to proceed with the Buy-Back.