Banking & Capital Markets

Mixed Signs for Bond and IPO Market at Year End

GE, still confident, increases dividend and buyback plan
Joseph McCaffertyDecember 17, 2001

While most companies are cutting dividends and are in no position to complete stock buybacks, General Electric Co., is not most companies. Managers at the Fairfield, Conn.-based industrial giant announced on Friday that it is increasing the its quarterly dividend, and adding to its stock buyback plan.

GE boosted it quarterly dividend to 18 cents per share from 16 cents. The company also increased its stock repurchase program to $30 billion from $22 billion. The company said that it has repurchased more than 1 billion shares for a total of $20.6 billion since the buyback program was started seven years ago. GE has paid a dividend every year since 1899, and the increase was the 26 consecutive increase in the annual dividend.

“Today’s increases, in both our dividend and our share repurchase program, signal our confidence in our ability to extend this track record of returning value to shareowners,” Jeff Immelt, chairman and CEO, said in a statement.

This week, Immelt, who took over for the legendary Jack Welch, will meet with Wall Street to give details about GE’s outlook for 2002. He is expected to reassure analysts and investors that the company would meet already lowered expectations in 2001, and generate earnings growth of 10 percent in 2002, despite the fact that Immelt expects it to be a “tough” year.

IPOs: See You in January

After one of the busiest weeks in recent memory, the IPO market is taking a breather until next year.

Last week 10 companies went public, raising $4.84 billion, the fourth- largest amount ever raised in a week, according to Thomson Financial. The brisk pace of the IPO market was capped by Prudential’s $3 billion offering late in the week.

Four companies began trading on Friday, including military contractor United Defense Industries Inc., which rose slightly to $19.27 from $19. The company raised $400.9 million, breaking a long drought for IPOs in the defense industry. The $19 per share offering came in at the middle of the company’s $18 to $20 range. However, the Arlington, Virginia-based company will only see $175.8 million of the proceeds. More than half of the IPO shares were sold by the company’s largest shareholder, private equity firm Carlyle Group.

Three health care companies also began trading on Friday. However, only one of them finished in positive territory–American Pharmaceutical Partners Inc., which closed up 23 percent. The Los Angeles-based pharmaceutical company raised $144 million when it sold 9 million shares at $16 each, at the high end of the expected range.

Still, the busy week was one of a few bright spots for a dismal year for IPOs. Only 98 companies have gone public this year, raising $36.05 billion. If no other companies complete offerings, it will be the first year since 1979 that there were fewer than 100 IPOs, according to Thomson.

What’s more, as of the end of last week, there were only 33 IPO candidates in backlog, compared with 154 at the same time last year, according to published reports. In fact, the only well-know company in the pipeline is Verizon Wireless, which hopes to raise about $5 billion in January.

Meanwhile, PNY Technologies Inc., which makes memory modules for computer, printers and other devices, withdrew plans to go public on Friday. The Parsippany, New Jersey-based company said that it was pulling the offering due to market conditions. It had hoped to sell 8.9 million shares at between $13 and $15 apiece. If it were successful, it would have raised more than $114 million. Lehman Brothers, Robertson Stephens, Needham & Co. and Fidelity Capital Markets was scheduled to underwrite the offering.

Mixed Bond Market at Year End

Bonds will likely beat out stocks for the second year in a row for 2001. However, bond prices ended the week on a sour note falling for two straight sessions on investor fears that the Federal Reserve would not cut rates again after it cut rates on Tuesday for the 11th time this year.

Meanwhile, a record outflow from bond funds was not all that it appeared to be. U.S. taxable bond funds saw a $1.9 billion outflow last week, 10 times more than in any other week this year, according to AMG Data Services, which tracks the funds. It was only the sixth outflow recorded this year.

However, one fund was responsible for most of the outflow. PIMCO Total Return Fund, the largest bond mutual fund was responsible for $1.6 billion of the outflow, because the fund declared a capital gains distribution last week. The seasonal outflow do to distributions are typical in years when bond funds perform well.

Bill Gross, who manages the PIMCO Total Return Fund, says that he expects to see another strong year in 2002. He predicts that bonds will again outperform stocks and said that investors could expect to earn returns in the neighborhood of eight percent for bonds, compared to five percent for equities.

Bond issues were steady last week, as issuers prepared for the year- end slowdown. Investment-grade volume was $5.13 billion last week. High- yield debt volume was $2.26 billion, and convertibles sales totaled about $4.24 billion. For next week, the calendar has thinned out considerably. A $500 million offering by McKesson Corp. is expected in the high-grade sector and a $150 million offering by Ferro Corp. Junk bond sales include a $700 million offering by EchoStar.