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After months of speculation, Legal & General Group PLC (LSE:LGEN) has confirmed the sale of its housebuilding subsidiary CALA for £1.35 billion, exceeding earlier estimates of £1 billion. However, some market analysts suggest there may be disappointment over the details of the deal. Russ Mould, investment director at AJ Bell, noted that while the overall enterprise value is higher than anticipated, Legal & General will only receive £500 million upfront. The remaining balance will be paid over a five-year period, which may not meet initial market expectations.
Despite this, the sale is expected to bring positive outcomes for the company and its shareholders. Following a weak performance in recent months, particularly after its strategy update in June, Legal & General is under pressure to regain market confidence. Mould indicated that some of the proceeds from the sale might be used for share buybacks, as the company seeks to deliver favorable news and regain the support of the market.
Legal & General's decision to sell CALA comes as part of a broader strategic review aimed at refocusing its core business and bolstering its financial position. The deal provides an opportunity to unlock value from its housebuilding arm, allowing the company to deploy capital in other areas, potentially enhancing its long-term financial stability. The housing sector in the UK has faced challenges recently due to economic uncertainty, inflation, and rising interest rates, which could be factors influencing the timing and rationale behind the sale.
The proposed use of sale proceeds, including potential buybacks, could also signal a move to return value to shareholders, which may help offset any negative reactions regarding the extended payment structure. Legal & General, known for its stable presence in financial services and investments, might benefit from this liquidity boost, strengthening its position in a competitive market.
While the specifics of the deal may have raised some concerns, the sale represents a strategic move to streamline operations and potentially return capital to shareholders. With the housing market facing headwinds, the decision to divest CALA appears to be a calculated effort to navigate current economic conditions while seeking to generate positive outcomes for stakeholders in the long term.
