Siemens AG (SIE), Europe’s largest engineering company, will repurchase as much as 3 billion euros ($3.65 billion) in stock by year-end as the company seeks to boost returns for investors stung by deteriorating earnings.
The buybacks will be used to reduce capital stock, to issue shares to employees and board members and to back convertible bonds and warrants, the Munich-based company said in a statement late yesterday. The manufacturer will also cancel 33 million shares held in treasury.
Siemens, which had cash of 8.96 billion euros at the end of June, will finance the purchase with long-term debt that it said offers a “unique opportunity” at current rates. The German manufacturer probably wouldn’t have taken this step had there been targets for acquisitions, said Martin Prozesky, a London- based analyst at Sanford Bernstein.
“We’re ambivalent on the share buy back,” said Wolfgang Donie, an analyst at Norddeutsche Landesbank Girozentrale, who rates the stock hold. “In the short term the announcement is candy for the shareholders.” However, “the buyback program distracts from the development of the operating business.”
The stock gained as much as 5.2 percent, the most in 10 months, and was trading 4.8 percent higher at 71.62 euros as of 3:28 p.m. in Frankfurt, valuing the company at about 65 billion euros. The shares had lost 7.6 percent this year through yesterday, making it the fifth-worst performer on Germany’s benchmark DAX index of 30 members.
Siemens Chief Executive Officer Peter Loescher had shareholders approve a stock repurchase program at the annual meeting in January. The move may increase earnings per share by 2.5 percent, Bernstein’s Prozesky said.
The rationale behind the buyback program goes beyond simply absorbing excess cash, Chief Financial Office Joe Kaeser said in an interview with Bloomberg today.
Siemens intends to maintain financial flexibility in order to have the funds available, whether it’s for acquisitions, ensuring strategic targets are met or investment in organic growth, the CFO said.
Siemens has so-far opted for bolt-on acquisitions, spending about 1.45 billion euros on purchases in the past 12 months, according to data compiled by Bloomberg. That contrasts with ABB Ltd. (ABBN), a competitor in power gear, which has spent almost $4 billion this year alone on takeovers.
Siemens said it will reduce its capital stock to 881 million shares from 914 million euros via the buybacks, it said today. With the repurchase amount, the company would be able to buy back 43.9 million shares, or 4.8 percent of outstanding shares, at yesterday’s closing price.
“The current debt markets environment for Siemens in combination with its current valuation of its shares offers a unique opportunity for value creation in the long-term,” the company said.
Siemens said last month that its target of 5.2 billion euros to 5.4 billion euros in annual net income from continuing operations had become “clearly more ambitious.” Siemens reported profit of 1.23 billion euros in the three months ended June 30, trailing an average estimate of 1.4 billion euros, according to data compiled by Bloomberg.
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