Capital Markets

Cisco Boosts Buyback Program

Since 2001, the company has repurchased about $37 billion worth of stock, or 23 percent of its current market cap.
Stephen TaubNovember 16, 2006

Cisco Systems Inc. has stepped up its already aggressive buyback program. The networking products company said its board authorized up to $7 billion in additional repurchases of its common stock. This is in addition to the remaining authorized amount of $3.1 billion.

Cisco pointed out that its board had previously authorized up to $40 billion in repurchases. In fact, since the company launched its repurchase program in September 2001, on the heels of the tech-Internet bubble bursting, the company has repurchased and retired approximately 2 billion shares of common stock at an average price of $18.51 per share. This works out to nearly $37 billion worth of stock. As a result, today the company has 6 billion shares outstanding and a market capitalization of roughly $163 billion. Its stock trades for around $26.

“We continue to believe in our repurchase program as a way to optimize the value to our shareholders,” said Dennis Powell, chief financial officer, in a statement. “Today, our share repurchase program allows us to return cash to our shareholders, while at the same time provides the flexibility to aggressively invest in the business for additional growth and differentiation.”

Companies typically repurchase their shares for one of two reasons—to prop up a sagging stock or to avoid dilution from options exercises. However, as reported earlier this week, recent studies have illustrated that some stock repurchases don’t benefit the companies as much as previously thought.

For example, The Center for Financial Research and Analysis and The Corporate Library released a study
that concludes that some stock repurchase initiatives mask slumping financial performance and boost executive pay. Meanwhile, a client advisory issued by Lehman Brothers’ Bob Willens warned that some repurchase programs could threaten the tax-free status of a spinoff.