Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 435

Should you bank on the Westpac buy-back?

Here's an example of reader feedback

"Graham – I wonder whether you might do something about the benefits of off-market buybacks. For small retail investors, especially those of us who can’t afford financial advice, it’s a bit of a mystery.

For example, Westpac is offering to buy back shares at between 8-14% (discount) to their value. I mean, why is this so? I’m sure I could read the hundreds of pages accompanying it, but I’m told to get financial advice. Well, if you’ve only got a few hundred shares…

So I wonder whether you might be able to explain in retail investor language what this is all about – at least in principle."

Firstlinks does not offer personal financial advice but here are the general principles.


Westpac has announced an off-market buy-back, with the size at $3.5 billion.

Off-market buy-backs are a tax-effective mechanism for returning franking credits to shareholders who most value them. The buy-back will have a $11.34 capital component, with the balance being a fully franked dividend.

The buy-back will be based on a tender, with investors tendering to sell shares at a discount of between 10% to 14% below market price. Shareholders who don’t participate will still benefit from the buy-back, to the extent that shares are effectively bought back at a cash discount to market price. This compares with on-market buybacks, where companies buy-back stock at market price.

For tax-exempt investors such as pension phase super

We have analysed the value of the buy-back for tax-exempt investors such as charities, foundations, pension phase superannuation and individuals below the income tax threshold using the market price of Westpac on 22 November of $21.79, as shown in Chart 1 below. 

Using $21.79 as a guide (the actual price used for the buy-back will be the volume weighted average price (VWAP) of Westpac shares in the five trading days up to and including 17 December 2021) the maximum 14% discount would equate to a $18.74 buy-back price. With the capital component being $11.34, the other $7.40 would represent a fully franked dividend, which would have a $3.17 franking credit attached.

For a tax-exempt Australian investor, we estimate the buy-back at a 14% discount would be worth approximately $21.91 (disregarding the time value of money), representing an after-tax profit of just $0.12 or 0.6% compared to the market price of Westpac.

Please note that the buy-back is expected to be completed on 20 December 2021 based on volume weighted prices from the previous week.

Chart 1. Estimated value of the Westpac buyback for tax exempt investors

Source: Plato, Westpac buy-back announcement 1 November 2021.

The value of the buy-back for other investors will depend on the tax situation of each investor. At current prices, we would expect the buy-back to be of marginal if not negative value for 15% tax rate Australian investors.

The precise value will be determined by investor circumstances, the deemed capital value that the ATO will issue after the close of the buyback and the final buy-back price relative to the closing market price.

Potential for price set at lower discount

Given that we estimate the buy-back is only just valuable for tax-exempt Australian investors at the maximum discount rate, we expect the final buy-back price could be possibly set at below the maximum 14% discount to market price. This price will not be known until after investors make a commitment to sell.

For example if the buyback went off at an 11% discount, then the after-tax value for tax-exempt Australian investors would rise to 4.8% for every share successfully tendered. The scale-back may also be not as high as it has been for other recent buy-backs.

So whilst we expect the buy-back to not be as valuable for tax-exempt Australian investors as previous buy-backs (which have often been worth 20% for every share successfully tendered), a lower scale-back will potentially increase the overall value of the buy-back at the portfolio level.

We believe opportunities such as this Westpac buy-back highlight the importance of tax-exempt investors like pension phase superannuants having their investments managed from their tax perspective.


Dr Peter Gardner is a Senior Portfolio Manager at Plato Investment Management. Plato is an affiliate of Pinnacle Investment Management, a sponsor of Firstlinks. Please note that this analysis depends very much on the particular tax status of the investor. We would suggest individual investors should seek professional tax advice based on their individual tax circumstances.

For more articles and papers from Pinnacle and its affiliates, click here.


December 22, 2021

Is there a reliable online calculator available for these buyback offers?

December 20, 2021

Westpac seems to be running down the value of its company so they can buy the shares at an even cheaper price.
If I can sell the shares at $22 or whatever the market price is, why would I then sell the shares to Westpac at an even cheaper price! Lots of mumbo-jumbo legal docs $$$ and forgetting that the company should be working for shareholders and not against them.

Graham Hand
December 15, 2021

Please note Westpac has amended the terms of its off-market buyback, remaining committed to buying back up to $3.5bn in shares. The buy-back tender discount range has been changed to 0-10% from 8-14%. The closing date for the tender period has been extended to 19:00 (Sydney time) on 11 February 2022. 

December 15, 2021

Any update now that the maximum discount rate has been revised?

November 30, 2021

Thank you for this helpful explanation. Ben

Michael Ellis
November 27, 2021

John is correct. This buyback is not that attractive due to the relative size of the capital component at $11.34 to the likley final price of say $22.00 ...hence the franked dividend amount is only $10.66 with a franking credit of $4.56.

Nothing like the ratios in the recent CBA and WOW buybacks. I don't expect it to be oversubscribed

November 26, 2021

This is the least attractive buyback I've seen in the last decade. BHP, TLS, IAG, WOW, CBA and seemingly all others have been a "no brainer" for pension phase investors and consequently grossly over subscribed. e.g. CBA's recent buyback was worth $117, with CBA now over 20% below that. The only way WBC's buyback much sense is if the shares collapse in 2022, creating a buy-in opportunity. Of course, that's quite possible, as the regulator seems to think big banks are a good source of fines income.

November 26, 2021

This is the least attractive buyback I've seen in many years. BHP, TLS, IAG, WOW, CBA and seemingly all others have been a "no brainer" for pension phase investors and consequently grossly over subscribed. e.g. CBA's recent buyback was worth $117, with CBA 20% lower now. The only way WBC's buyback makes sense is if the shares collapse in 2022. Of course, that's possible, as the regulator seems to think big banks are a convenient target for massive fines.

Bob Holland
November 25, 2021

Thank you for articulating the above into easy to understand terms.
It will interesting to see if the buyback has much success as it appears of very little value to the majority of shareholders.


Leave a Comment:



An easy fix for Dick Smith’s franking problem

Why Australians love dividends and franking

Longest positive run for Australian shares since WWII


Most viewed in recent weeks

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Latest Updates

SMSF strategies

30 years on, five charts show SMSF progress

On 1 July 1992, the Superannuation Guarantee created mandatory 3% contributions into super for employees. SMSFs were an after-thought but they are now the second-largest segment. How have they changed?

Investment strategies

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.


Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and there are choices available to ensure you pay the right amount of tax. Watch for some pandemic-related changes worth understanding.

Financial planning

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.


Listed infrastructure: finding a port in a storm of rising prices

Given the current environment it’s easy to wonder if there are any safe ports in the investment storm. Investments in infrastructure assets show their worth in such times.

Financial planning

Power of attorney: six things you need to know

Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.

Interest rates

Rising interest rates and the impact on banks

One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.