Investing.com -- Shares of Royalty Pharma plc (NASDAQ:RPRX) climbed 8.4% as the company announced the acquisition of its external manager, RP Management, and a $3 billion share buyback program. The move is seen as a significant step toward simplifying the company's corporate structure, which is expected to generate substantial cost savings and enhance shareholder value.
The acquisition of RP Management is anticipated to result in annual cash savings of more than $100 million by 2026, increasing to over $175 million by 2030, with cumulative savings surpassing $1.6 billion over the next decade. Royalty Pharma's Board of Directors believes this internalization will strengthen shareholder alignment, improve governance, and increase the economic return on investments. Additionally, the Board has authorized a substantial share repurchase program, with plans to buy back $2 billion worth of shares in 2025, depending on market conditions.
Henry Fernandez, lead independent director of Royalty Pharma’s Board of Directors and Chairman and CEO of MSCI Inc (NYSE:MSCI)., expressed confidence in the transaction, emphasizing the expected creation of long-term shareholder value. Pablo Legorreta, founder and CEO of Royalty Pharma, highlighted the strategic and financial benefits to shareholders, citing the strong balance sheet and cash flow that will support the implementation of the plan while continuing to add new royalties to the portfolio.
The transaction terms include acquiring the Manager for approximately 24.5 million shares of Royalty Pharma equity, vesting over 5 to 9 years, around $100 million in cash, and the assumption of $380 million of existing Manager debt. The total transaction value of approximately $1.1 billion is expected to be more than offset by the projected savings. The deal, which is subject to shareholder approval, is anticipated to close during the second quarter of 2025.
Royalty Pharma will maintain its guidance for average annual capital deployment between $2.0 and $2.5 billion per year, with a continued commitment to mid-single digit percentage annual dividend growth and an investment grade credit rating.
The internalization is seen as a positive change by investors, as it could potentially expand Royalty Pharma’s shareholder base and enhance the company's valuation over time by removing the impediment of an externally managed structure.
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