Cash Management

Schwab Proceeds Fund Dividend, Buyback

Using the proceeds from the U.S. Trust sale was an "efficient" means of achieving the right capital mix, says Schwab's CFO.
Stephen TaubJuly 2, 2007

The Charles Schwab Corp. plans to award a $1 per share special dividend as part of an overall plan to return about $3.5 billion to shareholders. The asset manager also said that it will launch a $2.3 billion share buyback on Tuesday.

To fund the special dividend and stock repurchase, the company plans to use the proceeds from the July 1 sale of U.S. Trust Corp.—which generated $2.7 billion of after-tax proceeds—as well as the proceeds of offerings of up to $750 million in senior notes and hybrid capital securities. U.S. Trust Corp. was Schwab’s private banking business.

“The [b]oard of [d]irectors and I believe our plan represents a balanced approach to refining the company’s capital structure on behalf of our stockholders,” said chairman and CEO Charles R. Schwab. “We are focused on sustaining a strong, flexible balance sheet that enables the company to continue funding the growth of its core businesses.”

Schwab’s chief financial officer, Joe Martinetto, noted that the company completed a “thorough review” of alternatives for using the proceeds from the U.S. Trust sell-off, as well as other financial resources, and found that the current plan “is an efficient means of achieving an appropriate level and mix of capital for Schwab. The special cash dividend will return about $1.2 billion to stockholders. It is payable on August 24, 2007, to stockholders of record at the close of business on July 24.

The repurchase will be conducted through a modified “Dutch auction.” Stockholders will be allowed to tender some or all of their shares at a price per share not less than $19.50 or more than $22.50. The tender offer is expected to expire at midnight on July 31.

The modified Dutch auction structure will allow stockholders to indicate how many shares and at what price within the specified range they wish to tender. Based on the number of shares tendered and the prices specified by the tendering stockholders, the company will determine the lowest price per share within the range that will enable it to purchase up to 84 million shares. The company also entered into a separate stock purchase agreement with Charles Schwab—the company’s largest stockholder— to maintain his current level of ownership, which is 18 percent.

The new buyback plan is an addition to Schwab’s existing stock repurchase authorization, which has $446 million remaining. Under the older plan, Schwab officials said the company repurchased 12.7 million shares for $251 million during the second quarter 2007; year-to- date, it has repurchased 33.4 million shares for $642 million.