The share buyback scheme at IBM is not new. The company has spent US$80 billion buying its own stock since 1995. But in recent months the Big Blue buy-back has accelerated sharply.
According documents lodged with the US Securities and Exchange Commission (SEC), IBM in April authorised US$15 billion be spent on the repurchasing its own stock.
As part of the buyback plan, the company commissioned three banks to spend US$12.5 billion buying its own stock – taking in a staggering eight per cent of outstanding shares. In this part of the program, IBMN stumped up US$1 billion in cash to fund the purchase, but borrowed US$11.5 billion.
The share buyback itself is not unusual. Large companies in recent years have used share buyback schemes to boost earnings per share by reducing the number of shares in the market. This increases share price.
What has investors watching IBM so closely is the extent it has borrowed to fund the scheme. IBM said the company was under-leveraged.
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