Wednesday, October 29, 1997

There's a buyer in the stock market -- it's corporate America

By ANDREA CHIPMAN and JANE J. KIM / Dow Jones News Service

NEW YORK (Dow Jones News) -- Corporate America believes there is value in the U.S. stock market.

Wall Street traders who specialize in helping companies buy back their own stock reported Tuesday that share repurchase activity has been brisk over the past two days.

And while the companies buying back stock span all industries, no where has it been as active as in the Silicon Valley, where high-tech stocks have taken a beating over the past week, well before the broader market selloff.

"The phones have been ringing off the hook this morning," said Chris Innes, a Salomon Brothers Inc. vice president specializing in advising companies on stock buyback programs.

A lot of companies were buying back stock Monday at a faster rate than they have in the past few months, Innes said. Companies that weren't interested in buying back their stock because they thought the prices were too high are "giving us a fresh look." He declined to name companies in the market.

Some very big companies have jumped into the market or have at least given themselves the opportunity to do so. Tuesday morning, International Business Machines Corp.'s board authorized the repurchase of up to an additional $3.5 billion common shares.

In the current market there will be broader interest in stock buyback programs, experts said, but companies will still have to weigh the value of a stock buyback program with other uses of their cash, such as research and development.

"Not every company is a candidate for a share repurchase," said Tim Kelly, director of corporate client services at PaineWebber Inc. "You might have other uses for your cash."

A large number of companies announced stock buyback programs in the wake of the 1987 market crash, experts said. David Fried, money manager and editor of the Buyback Letter, a newsletter based in Malibu, Calif., estimated that about 700 to 800 companies announced buybacks after the crash, but many of the companies failed to follow through because the prices rebounded so quickly that the stocks weren't bargains anymore.

"You have a corporate mentality that is more geared to price of stock than ever before in history," said Eric Miller, chief investment officer at Donaldson Lufkin & Jenrette Securities Corp.

Indeed, the purpose of an ongoing buyback program is to buy back the stock at what is a good buy, so when the shares rebound, it is no longer the best use of capital, Fried said.

"You can bet that the big companies are in there buying back their stock today" and are taking advantage of people who are selling into this decline, Fried said. He mentioned companies such as as Abbott Laboratories, General Electric Co., and McDonald's Corp. that have been actively buying back their stock. Officials at Abbott Labs and McDonald's weren't immediately available for comment.

GE said it was "in the market every day" buying back about 5 percent to 10 percent of GE's daily volume, according to spokesman Bruce Bunch. And when the prices go down a bit, he said, "we're able to buy back more shares." He said that the market's tumble hasn't changed GE's stock buyback program.

GE has been buying back more than $900 million worth of shares each quarter since the start of its $13 billion share repurchase program announced in December 1994. Through the end of the third quarter, GE had bought back about $9.1 billion worth of stock, or roughly 232 million shares, he said.

Companies, flush with cash and riding a wave of improved earnings, have been fairly active in buying back their stock, experts said. Indeed, several companies with buyback programs in place said they had been actively buying over the past few days.

"We have been active both yesterday and today and would look at market dislocation like this as a good buying opportunity," said Ken Janke, senior vice president of investor relations for Aflac Inc.

Janke said the health insurance company's buyback program, initiated in February 1994, had repurchased 23.6 million shares through the third quarter of this year.

Technology companies have also been big buyers of their shares recently. Earlier Tuesday, Standex International Corp., an industrial graphics firm, said its board authorized the repurchase of an additional 1 million common shares. On Monday, Stac Inc., a developer of networking technology, announced a $10 million share repurchase program while Metatec Corp. and Storage Technology Corp. both announced stock buyback programs last week.

Microsoft Corp. will probably look to fund some of their stock option programs by buying back stock, said Fried. Microsoft officials weren't immediately available to comment.