Capital Markets

Stocks Down, Buybacks Up

Motorola, Rockwell Automation, Tellabs, AmerisourceBergen, and Siemens gobble up shares in a falling market.
Stephen TaubNovember 8, 2007

The frequency of share buybacks by public issuers has been one reason that the stock market has been so strong over the past few years. The currently jittery stock market is only likely to move cash-rich companies to continue that trend. If the market continues to fall, look for more companies to prop up their share prices by repurchasing their stock or boosting existing buyback programs.

A current case in point: Motorola. On Thursday CFO Tom Meredith said the company might speed up plans to buy back more than $4 billion in shares as it becomes more comfortable with the notion that its cash situation will continue to improve, according to Reuters.

Meredith added that the mobile phone maker still had about $4.3 billion left in its two-year-old plan to buy back a total $11.5 billion worth of shares. The finance executive said this plan is slated to be completed by early to mid-2009, according to the wire service. “We could accelerate that,” he said, without giving any timeframe for the buyback program, according to the report.

Buybacks shrink the number of shares outstanding, causing earnings per share to go up. That often leads to a higher stock price, since investors typically value stocks based on the stock price’s relationship to EPS.

Indeed, on Thursday, Rockwell Automation reported that fiscal fourth quarter net income was flat. But EPS surged 15 percent, rallying by more than 6 percent on an overall down day for the markets. The reason? The company noted that during the quarter, it bought 3.7 million shares at a cost of $257.8 million, leaving it with $26.3 million available under its existing $1 billion share repurchase authorization. The company’s board also authorized the company to buy back up to $1billion more worth of shares.

Also on Thursday, Tellabs said it would buy back $600 million worth of stock on top of a remaining $176.1 million committed to a repurchase program authorized in July 2006. Together, the authorizations cover about 22 percent of shares outstanding at Tellabs, which plans to use about half of its nearly $1.4 billion in cash, cash equivalents and marketable securities for the program. (The company also announced that Krish Prabhu will quit as president, chief executive officer, and board member by March 1, 2008.)

Elsewhere, AmerisourceBergen said it would boost buybacks by $500 million, on top of its existing $850 million repurchase program. The drug distributor also said it increased the quarterly dividend rate by 50 percent.

In Germany, Siemens, the well-known conglomerate, said it would buy back up to $15 billion worth of stock.

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