Elliott urges Germany's RWE to 'significantly' hike share buyback

By Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUESSELDORF (Reuters) -Activist investor Elliott disclosed a stake of close to 5% in Germany's biggest utility RWE on Monday and urged it to significantly increase its 1.5 billion euro ($1.6 billion) share buyback programme.

It is the first time that Elliott - known for high-profile campaigns at some of the world's biggest groups including BP - has confirmed that it holds a position in RWE.

Elliott, which manages around $72.7 billion in assets globally, has held stakes in other German companies including Thyssenkrupp, Uniper, Bayer and SAP.

RWE shares rose 1.3%, among the biggest gains on Germany's blue-chip index, valuing a 5% stake at around 1.2 billion euros.

The company last week cut its investment programme by 10 billion euros, or more than a fifth, by 2030, and set more ambitious return targets for its projects, a move Elliott welcomed.

"These measures represent an important first step towards more disciplined capital allocation. However, we share the market's disappointment with the lack of clarity regarding the company's commitment to enhance shareholder returns," the investor said in a statement.

"Given the announced capex reduction and RWE's persistent undervaluation, we believe there is a compelling opportunity to significantly increase and accelerate the ongoing share buyback programme," it added.

MOUNTING PRESSURE

RWE's decision to cut investment, but not increase its buyback, has already drawn criticism including from Morningstar, as well as investor Enkraft Capital, a long-time critic of the company.

Like others in the sector, RWE is under pressure from lower returns and a less certain outlook for renewables under U.S. President Donald Trump, raising concerns over the company's 'going green' strategy.

"The reluctance of RWE management to frame and execute on a value enhancing strategy comes to haunt the company now. The pressure on management will continue to mount from here on," said Benedikt Kormaier, managing director of Enkraft.

He said the company lacked a clear strategy that was focused on value and its core strength in European power generation.

Karim Moussalem, chief investment officer for equities at RWE investor Selwood Asset Management, also said the market was left uncertain about RWE's commitment to the buyback programme, citing a recent slowdown.

"The management has one year remaining on its contract and must execute a turnaround," he said.

RWE said it was in continuous talks with its investors, including Elliott, adding it would provide more details on its capital allocation early next year when it has clarity on investments in Germany and the United States.

Chief Executive Markus Krebber, when pressed on the issue during an earnings call last week, said the group would go for an additional share buyback if it needed to take a capital allocation decision now.

($1 = 0.9219 euros)

(Reporting by Christoph Steitz and Tom Kaeckenhoff. Editing by David Evans, Kirsten Donovan and Mark Potter)