IBM Plots Another Share Buyback
By William M. Bulkeley
The Wall Street Journal
February 27, 2008
Corp. announced its second $15 billion stock-buyback plan in less than a year, boosting its share
price and igniting a stock-market rally.
The announcement helped convince investors that IBM, which had a strong fourth quarter, is
confident in its strategy and outlook and believes its stock is underpriced. IBM shares rose $4.30,
or 3.9%, to $114.38 in 4 p.m. composite trading on the New York Stock Exchange, leading a rally
that boosted the Dow Jones Industrial Average by nearly 1%.
Few companies have relied on share buybacks as much as IBM. The Armonk, N.Y., company has
spent $46.2 billion the last five years on repurchasing its shares — a sum equal to about 30% of its
current market capitalization, or stock-market value, and more than twice the $20 billion it spent on
acquisitions during that period.
The latest buyback comes as Samuel J. Palmisano enters his sixth year as chief executive officer.
During the early years of his tenure, IBM went through a rocky period of lowered forecasts and
divestitures of businesses including its disk-drive and personal-computer units. Until recently, its
stock was stuck at less than its level when Mr. Palmisano took over, while chief rival HewlettPackard Co. has seen a sharp rise in its share price.
IBM’s growing profits from an expanded line of software, steady services business and sales in
foreign markets have helped the company produce a lot of cash. Last year, it reported free cash
flow of $12.4 billion, and it had $16.1 billion in cash at the end of the year.
IBM said it expects to spend about $12.4 billion of the latest
authorized buyback amount during the current year. Funds will
come from operations. It said the reduction in shares will
increase its per-share earnings by five cents to at least $8.25 for
the current year, up at least 16% from 2007. It has forecast $10
to $11 a share in 2010.
"The willingness to make continued share buybacks speaks to
strong faith in the business model," said Thomas Smith, an
equity analyst with Standard & Poor’s who recommends the
stock. Andrew Neff, an analyst with Bear Stearns Cos., said, "We
like where they’re positioned, in big markets where they have a
compelling advantage." He said that IBM has been successful in
purchasing software companies and increasing their sales by
training its huge sales force to peddle the programs.
Last year, IBM spent $18.8 billion on stock buybacks, including a
$12.5 billion accelerated share repurchase in May for which it
borrowed money through a foreign subsidiary in order to avoid U.S. taxes. The Internal Revenue
Service prohibited further use of that technique, which was known as a "Killer B" because it was
designed to circumvent IRS Section 367 (b) covering U.S. tax on repatriated foreign earnings.
Despite the big gain in IBM shares yesterday, buybacks don’t have a very good recent record of
providing superior returns to shareholders and are sometimes criticized as poor uses of corporate
cash. S&P said that 423 members of the S&P 500-stock index did buybacks in the 18-month
period ended June 30, 2007, but only one-quarter of them, including IBM, outperformed the S&P
index through Sept. 30. Buybacks reached record-setting levels in the first half of last year.
Ed Barbini, an IBM spokesman, said the company isn’t stinting on investment in its operations and
has increased spending on research and development in all but one of the past five years. He
noted IBM also has been aggressively purchasing small companies, especially software makers.
The company raised its dividend 33% last year.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Quality Essay Help has stood as the world’s leading custom essay writing services providers. Once you enter all the details in the order form under the place order button, the rest is up to us.
At Quality Essay Help, we prioritize on all aspects that bring about a good grade such as impeccable grammar, proper structure, zero-plagiarism and conformance to guidelines. Our experienced team of writers will help you completed your essays and other assignments.
Admission and Business Papers
Be assured that you’ll definitely get accepted to the Master’s level program at any university once you enter all the details in the order form. We won’t leave you here; we will also help you secure a good position in your aspired workplace by creating an outstanding resume or portfolio once you place an order.
Editing and Proofreading
Our skilled editing and writing team will help you restructure you paper, paraphrase, correct grammar and replace plagiarized sections on your paper just on time. The service is geared toward eliminating any mistakes and rather enhancing better quality.
We have writers in almost all fields including the most technical fields. You don’t have to worry about the complexity of your paper. Simply enter as much details as possible in the place order section.