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Dow Jones Newswires

Oct. 27, 1998

IBM Extends Massive Buyback Program, Authorizes Up to $3.5 Billion

By Christopher Grimes


NEW YORK (Dow Jones)--International Business Machines Corp. (IBM) is continuing its massive share repurchase program, authorizing an additional $3.5 billion buyback Tuesday.

The computer giant has authorized $27.5 billion to repurchase 330 million shares since 1995. A spokesman said it had $900 million left in its last $3.5 billion authorization, announced April 28, creating a need for the new program.

When a company buys its own stock on the open market, it helps to boost corporate earnings, which are calculated by dividing net profit by the number of shares outstanding.

But some investors have wondered whether this is a good use of IBM's vast cash holdings, which totaled almost $6 billion at the end of September. Some say IBM should use the cash to buy other companies or reduce its debt.

IBM defends the practice, as do many analysts on Wall Street.

"They generate a substantial amount of cash flow, and earning interest (on the cash) just isn't a good solution," said Gruntal & Co. analyst David Takata. "Buying back stock is just one weapon they use to enhance shareholder value."

Takata added that IBM is actively acquiring smaller software and services companies.

Indeed, IBM has bought some 45 companies in the last few years, most of them pretty small. Last spring, IBM Chief Executive Louis V. Gerstner said he didn't want to make a large acquisition and dilute shareholder value.

Bob Djurdjevic, publisher of the Annex Bulletin in Phoenix and frequent critic of IBM's buybacks, said the program "demonstrates a lack of creativity."

"They're saying they can't think of a better way to invest in the (technology) industry," Djurdjevic said, adding that he is opposed to stock buybacks in general. "Instead they are paying off Wall Street (in exchange for) good opinions of IBM's stock."

In a separate announcement, IBM named Kenneth Chenault a member of its board, expanding the board of directors to 12 from 11. Chenault is chief operating officer of American Express Co. (AXP), where Gerstner was once an executive.

Further, IBM declared a regular quarterly dividend of 22 cents a common share.

IBM stock closed up Tuesday, rising 1 3/8, or 1%, to 144 7/16, after going as high as 146 13/16 a 52-week high.


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