Cash Management

Bargain-hunting CSX, Baxter Buy Own Shares

Bucking a trend, they see repurchases as a classic response to bear markets.
Stephen TaubMarch 18, 2008

CSX and Baxter International think the best cash management strategy in a bear market is to plow money into their undervalued stock. Both announced major stock buybacks, bucking a recent decline in repurchases industry-wide.

Railroad giant CSX announced that its board authorized additional share repurchases of about $2.4 billion, or 11 percent of total market capitalization. Combined with its nearly $600 million of authorization remaining, the new buyback plan represents a total of $3 billion, or approximately 15 percent.

At CSX, another $3 billion in shares have been repurchased already since 2006.

In a further attempt to reward shareholders, CSX also increased its quarterly dividend by 20 percent, to 18 cents a share — an increase that follows a 50-percent hike in 2007, representing a near tripling of the quarterly dividend over the last two years.

“We remain committed to maximizing value for all shareholders through strategic investment, share repurchases and dividends while maintaining our investment grade credit profile,” said Oscar Munoz, executive vice president and CFO. “Our approach strikes the right balance between shareholders who want substantial value in both the short- and long-term, and customers who depend on our transportation network to deliver reliable service now and in the future.”

Health-care concern Baxter said that its board approved the repurchase of an additional $2 billion of stock, to be executed upon completion of the company’s existing share repurchase authorization. This represents nearly 6 percent of its market cap.

It has less than $700 million remaining under its previous $2 billion share repurchase program, which was authorized in March 2007.

Elsewhere, NYSE Euronext said it will repurchase up to $1 billion of its shares. Its board also approved a 20-percent increase in the annual dividend, to $1.20 a share, as part of a new dividend policy to increase the payout over time, and targeting a ratio of 35 percent to 45 percent of net income, while maintaining high investment grade credit ratings.

These buybacks are more of an exception among large companies these days, however. We pointed out last week that the Minneapolis Star Tribune last month reported that new stock-repurchase activity among Standard & Poor’s 500 companies is expected to fall by 40 percent in the fourth quarter of 2007 when S&P reports these figures. Buybacks hit a record high of $172 billion in the third quarter.