Risk & Compliance

Wal-Mart Rolls Back Its Share Repurchase

Suspension reflects credit market instability — and the need for cash.
Stephen TaubDecember 10, 2008

Talk about a rollback. Wal-Mart Stores said that it has temporarily suspended its stock repurchase program, citing the “current economic environment and instability in the credit market.”

The world’s largest retailer is the latest among a growing number of cash-conscious companies to stop buying back their shares despite the overall stock market’s nearly 50 percent decline this year. In addition, the pace of buybacks has drastically slowed down this year from the torrid pace earlier in the decade.

Indeed, Standard & Poor’s reported today that stock buybacks had fallen 48 percent during the third quarter — to $89.7 billion overall. That was down from the record $171.95 billion in buybacks during the same quarter in 2007.

Wal-Mart had been buying shares under a $15 billion share repurchase program authorized by its directors in May 2007. On Oct. 31, 2008, about $5 billion remained of the authorization.

Under the repurchase program, there is no expiration date or other restriction limiting the period over which it can make the repurchases. It explained in a regulatory filing that it considers several factors in determining when to execute the share repurchases, including among other things, its current cash needs, its capacity for leverage, the cost of borrowings and the market price of its stock.

Wal-Mart, which employs more than 1.45 million in the U.S., is one of the few large companies to be faring fairly well through the global economic meltdown. Same-store sales are up and its stock is not far off its 52-week high.

But not everything is going smoothly. On Tuesday, the company also announced that it had agreed to pay up to $54.25 million, including a substantial payment to the State of Minnesota, to settle a class action lawsuit over its pay policies.

The class includes about 100,000 current and former hourly associates who worked at Wal-Mart Stores and Sam’s Clubs locations in Minnesota from Sept. 11, 1998, through Nov. 14, 2008.

As part of the settlement, Wal-Mart agreed to maintain various electronic systems, surveys, and notices that will further compliance with wage and hour policies and Minnesota laws. The lawsuit alleged the company cut workers’ break time and didn’t prevent employees from working off the clock in Minnesota, according to the Associated Press.

“We are satisfied with this settlement, gratified that these hourly workers will now be paid after seven years of litigation, and happy that the State of Minnesota will receive the largest wage and hour civil penalty in its history,” said Justin Perl, of the Minneapolis law firm of Maslon Edelman Borman & Brand, co-lead counsel for the class.

“Wal-Mart is pleased that the court in Minnesota ruled in its favor on many claims,” added Wal-Mart spokesperson David Tovar. “Our policies are to pay every associate for every hour worked and to make rest and meal breaks available for associates. Any manager who violates these policies is subject to discipline, up to and including termination.”

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