Capital Markets

Buyback Time? MS, H-P, and Nike Say Yes

Microsoft's is the biggest, adding $40b to its former repurchase plan. It hikes the div, too, and sets debt-financing measures in bid for confidence.
Stephen TaubSeptember 22, 2008

Microsoft, Hewlett-Packard, and Nike stepped up to support their stocks — and send a vote of confidence to the financial markets. And others likely will follow.

Microsoft Corp.’s moves were the biggest, with its board approving a new $40 billion share repurchase program, with an expiration of Sept. 30, 2013, affecting more than 17 percent of the company’s market capitalization. The company said it had completed its previous $40-billion repurchase program.

The Microsoft board also authorized debt financings from time to time of up to $6 billion. Under the authorization, the company established a $2 billion commercial paper program. The world’s largest software maker said it plans to use the proceeds from any debt financings for general corporate purposes, which may include funding for working capital and repurchases of stock. Further, the company hiked its dividend by 18 percent, to 13 cebts a share.

Microsoft pointed out it had returned over $115 billion to shareholders through a combination of share repurchases and dividends over the last five years.

“These announcements illustrate our confidence in the long-term growth of the company and our commitment to returning capital to our shareholders,” said Microsoft CFO Chris Liddell.

The company received corporate credit ratings of AAA and Aaa by Standard & Poor’s Rating Services and Moody’s Investors Service, respectively. The commercial paper is rated A-1+ by Standard & Poor’s and P-1 by Moody’s, the highest ratings available from both agencies.

“The company’s strong credit quality coupled with investors’ current appetite for high quality paper provides a unique opportunity for the company to establish its first-ever commercial paper program and enhance its capital structure,” said Microsoft treasurer George Zinn.

H-P’s board approved the authorization of an additional $8 billion for share repurchases, translates to a little less than 7 percent of its market cap. The maker of computers and printers said that it intends to use the additional authorization as part of its ongoing program to manage the dilution created by shares issued under employee stock plans and to repurchase shares opportunistically.

H-P bought about $1.6-billion worth of its shares in the third quarter and, as of July 31, had about $3 billion of repurchase authorization remaining under the $8 billion repurchase authorization approved by the board in November 2007.

Of course, Hewlett-Packard has been active in other ways in recent days, saying last week that it was eliminating 24,600 jobs, 7.5 percent of its work force, as its way of digesting the $13.9-billion August acquisition of Electronic Data Systems.

As for Nike, its board approved a new four-year, $5-billion share-repurchase program, representing 16 percent of its current market cap. It said the program would begin after it completes its current $3 billion share repurchase program. Over 10 years Nike has returned $5.5 billion to shareholders through the repurchase of more than 157 million shares, the footwear company pointed out.

Several smaller companies also announced share buybacks on Monday, including Sysco, RF Industries and SPX Corp., marking a clear boost for this tactic as a positive signal to shareholders.

Although 2007 set a record with $589 billion worth of stock repurchases, the first quarter of 2008 saw a 3.2 percent decline over the $117.7 billion spent during the first quarter of 2007, according to Standard & Poor’s.

Meanwhile, S&P recently noted that 97 companies decreased their dividends during the second quarter, compared with 18 companies that cut payouts during the second quarter of 2007. Reported dividend hikes fell by 16.1 percent, to 455 in the period.

The 97 cuts during the second quarter were the most since 1990, when 108 issues decreased their dividend payments, pointed out Howard Silverblatt, Senior Index Analyst at Standard & Poor’s.