The New York Times
October 28, 1998
IBM Sets Yet Another Big Buyback of Its Shares
By Lawrence M. Fisher
FOR PERSONAL USE ONLY.
IBM Corp. said Tuesday that its board had authorized
the repurchase of an additional $3.5 billion
worth of common shares.
Shares of IBM gained 62.5 cents, to $143.6875, on the announcement.
Like other companies, IBM regularly repurchases shares as a way to increase per-share
earnings by reducing the number of shares outstanding. Although popular with selling
shareholders -- typically large institutions that receive cash -- the practice is also
controversial, particularly for technology companies and other so-called growth sectors.
Such companies are expected to create new products and services that should generate
earnings growth, rather than buying growth by share repurchases.
IBM, which last week reported stronger-than-expected third-quarter earnings, said it
planned to buy shares on the open market from time to time, depending on market
conditions. The company has about
922.9 million shares outstanding. IBM announced a $3.5 billion buyback in April as well,
and has authorized eight repurchases totaling $23 billion since the program started in
1994.
"This was pretty much expected because they had run down much of the last
repurchase," said Steven Milunovich, an analyst with Merrill Lynch & Co. "I
think it's a reasonable use of cash. How many
investment opportunities do they have that can return cost of capital? They should be
investing up to that point, and beyond that they should return cash to the
shareholders."
But Bob Djurdjevic, president of Annex Research, called
the repurchase a "Wall Street perversion," that benefits selling institutions to
society's detriment and artificially inflates current earnings and growth.
"IBM has already spent several small countries' GDPs on share repurchases -- $23
billion and counting -- without creating a single product or a single job," he said.
"It's a signal they don't have the imagination or creativity to employ the capital
more productively."
Last week IBM reported a quarterly profit of $1.49 billion, or $1.56 a diluted share,
compared with $1.36 billion, or $1.35 a share, in the 1997 quarter. Revenue for the period
increased 8 percent, to $20.1
billion. The results were slightly above analysts' expectations of $1.53 a share,
according to First Call.