Capital Markets

Viacom, IBM Launch Whopping Buybacks

MetLife, Northrop Grumman, and NCR join the fray. While sometimes the reason for a repurchase is to boost undervalued share prices, sometimes it's ...
Stephen TaubOctober 29, 2004

With apparently varying motivations, a number of very large, well-known companies have announced major stock buybacks in the past few days.

For example, on Thursday, media giant Viacom Inc. said it would repurchase as much as $8 billion of its Class A and non-voting Class B shares and hike its dividend 17 percent. That works out to as much as 13 percent of the market cap of its B shares.

The program, which will begin immediately, replaces the company’s $3 billion stock purchase program announced in 2002, under which 40.7 million shares have been purchased for $1.7 billion.

The company is apparently trying to supply quick support for its stock, which is down more than 20 percent from its 52-week high. “We intend to very aggressive” in buying back stock, Sumner Redstone, Viacom’s chairman and chief executive officer, said in a conference call, according to Bloomberg.

“The $8 billion is at the high end of expectations, so I think investors will be delighted with that,” Angela Kohler, a media analyst with Federated Investors Inc., told the wire service.

Companies often buy back their stock when they think it is undervalued. When they repurchase their equities, they shrink the number of shares outstanding. That, in turn, boosts earnings per share, making the stock’s price-to-earnings ratio lower. The result: The stock becomes more attractive to investors.

IBM’s board members might have had such thoughts on their minds when they authorized up to $4 billion in new funds for use in its repurchase program. With its stock down 10 percent from its 52-week high of about $100 a share, IBM reported that it would buy back stock on the open market or in private transactions from time to time.

Interestingly, however, the stocks of other companies that announced buybacks this week’s aren’t likely to appear undervalued, since they’re currently trading just off their 52-week highs.

Earlier this week, for instance, MetLife, Inc. said its board authorized an additional $1 billion common-stock repurchase program, which will begin after an earlier $1 billion buyback announced on February 19, 2002 is finished. MetLife’s stock, however, has been trading just 6 percent below its 52-week high.

What motivations other than undervalued shares do companies have for launching a buyback? Northrop Grumman Corp., whose stock is just a few dollars off its high, stated that its board authorized the repurchase of another $1 billion of its common stock. “This new, larger share buyback program, combined with a competitive dividend payout ratio, are major components of our strategy to deliver value to shareholders, while strengthening our credit profile and maintaining financial flexibility,” said Ronald Sugar, Northrop Grumman chairman, chief executive officer and president. On Oct. 5, the company had completed a previous $700 million share repurchase program.

Similarly, NCR Corp., whose stock is just a dollar or so below its high, said its board boosted its existing stock-repurchase program, authorized in 1999, by $250 million. The new authorization, coupled with the prior board actions, results in a total remaining buyback authorization of $285 million, the company added.

The company has a program to use the proceeds from employee stock plans to repurchase NCR common shares. “This expansion of the company’s stock-repurchase program reflects our increasing confidence in NCR’s ability to drive further profitability improvement,” said Mark Hurd, the company’s president and chief executive officer.