Ibm Buyback

SEMINAR FOR THE FINAL PROJECT FOR FINANCIAL MANAGEMENT

STOCK REPURCHASE

PRESENTED BY:

ABHIMANYU SINGH ASTHA CHATURVEDI AMAL MOHAN DEEPTODIP SEN SHUDHANSU KUMAR

"These stock repurchases are enabled by IBM’s strong, consistent cash flow and are an important way of returning value to IBM shareholders. They are an element of our long-term roadmap for earnings per share growth through 2010 and also represent a good value at today's prices.” ----Samuel J Palmisano, chairman, president and chief executive officer, IBM

Overview of the project v Objective To find the impact of repurchase of stocks by a company. v Company chosen -IBM v Event referred - repurchased $12.5 billion of its common stock in Feb 2008 . v Methodology followed/ Area of study • Reasons of repurchase • Need of repurchase • Study of financial condition of the company before and after the repurchase • Implication

INTRODUCTION • STOCK REPURCHASE A program by which a company buys back its own shares from the market place, reducing the number of outstanding shares. • Reasons for repurchase • To increase the market price of the share • To improve financial ratios of the company i.e. EPS, ROA, ROE etc • Availability of cash in excess • To avoid dilution • To acquire share for management and employee incentive plan • To generate currency for merger and acquisition

IBM- At a Glance • NY based company started in 1896. • Big Blue-listed in 1916 for the first time in NYSE • Repurchase- A persistent phylosopy to retain the market value of its share. • Repurchase history • 1998 negative buy back . • 2007 positive buy back.

Study on 2007 buy back…. vRepurchase 12.5 billion of its common stock.(8% of the common stocks outstanding). vRepurchased through accelerated share repurchase agreements with three banks. vInitial price offered- $105.18 per share; volume weighted average price at that time.

Need for repurchase vTo spend excess cash available. vIBM expected the EPS to grow to1314%. vTo increases market price of their shares. vTo give good returns to the investors.

Pre purchase and post purchase financial analysis

Trend analysis v Dividend increases after a repurchase. v Dividend also distribute the value to the share holders , since it increases the market price.

Period of buybacks— Stock prices shooting up

Implications…. Dividend distribution: “Expected regular dividends” v Expectation for higher dividends on regular basis. v Fall in dividends: negative sign. v Its burden on company Stocks re purchase: “ One time distribution” v Generally not expected by the investors. v Considered as a positive sign.

Conclusions: There is a sign of improvement of ratios which helps build investors confidence. The company has been able to keep its growth rate in double digits (12% in economic downturn of 2008). Even though the company has a history of negative buybacks also; buybacks has worked well for the company and the stockholders as a whole.

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