CRISIS IN THE PERSIAN GULF : Market’s Tailspin Prompts Firms to Repurchase Stock : Investments: Companies say their shares have reached attractive levels. Still, the announcements may not provide much of a lift to Wall Street.
In actions reminiscent of developments after the October, 1987, market crash, many companies this week have announced plans to buy back shares of their stock to take advantage of falling prices.
The spate of buyback announcements, including those Thursday from the Federal National Mortgage Assn. (Fannie Mae) and Santa Clara-based chip maker Intel, reflected the market’s retreat in the face of jitters over the Persian Gulf crisis.
The buybacks may boost the market psychologically, said analyst Laszlo Birinyi of Birinyi Associates. But the 1987 buyback announcements did not help that market much, he said. “I don’t hold out any wondrous hopes for it this time,” he added.
Many of the announced buybacks in 1987 were never actually carried out, but companies making announcements this week said they were motivated by reasons more specific to their individual companies--not to trying to help the overall market rebound.
Fannie Mae’s decision to repurchase $500 million in common stock and stock warrants will offset $500 million in additional equity that is expected to be injected when holders exercise outstanding warrants for purchase of stock. The company’s stock has fallen considerably the past month, and “that certainly was a consideration,” said Chief Financial Officer Timothy Howard. “It is trading at a very low multiple to expected 1991 earnings,” he said. Trading at $40 a month ago, the stock closed Thursday at $26.625, down 12.5 cents.
David O. Maxwell, chairman of the congressionally chartered, shareholder-owned home mortgage investment concern, said the repurchase “reflects Fannie Mae’s confidence in the company’s strong financial position and future earnings power.” In a statement, he reaffirmed the company’s previously stated intent to add an additional $1.5 billion to $2 billion in capital through retained earnings by the end of 1991.
Fannie Mae is under congressional pressure to increase its capital to more closely match its huge asset base. The company last repurchased shares after the 1987 crash, when its stock traded as low as $8.
Intel Corp.’s share price edged up Thursday after the company said its board authorized the repurchase of up to 20 million, or 10%, of its common stock. The stock closed at $33.25, up $1.125. It was trading at $44.50 on Aug. 1.
“We think the market’s retreat in the past few weeks presents us with an opportunity to buy back our shares at attractive levels,” Intel Chairman Gordon Moore said in a statement.
Falling prices spurred Cypress-based PacifiCare Health Systems to consider repurchasing up to 500,000 of its shares. “We feel that, with the recent significant decline in the market in general and PacifiCare’s stock price in particular, there may be attractive opportunities available to us to acquire shares,” said Terry Hartshorn, president and chief executive. “Our share repurchases will be made when market and business conditions are favorable.”
Market conditions may also allow the health maintenance organization’s majority shareholder to increase its stake. Burbank-based UniHealth America, which controls 56% of PacifiCare, said it may buy up to 500,000 additional shares, boosting its stake to 62%. Its control would increase proportionately should PacifiCare retire 500,000 shares through a buyback.
UniHealth, a nonprofit health-care concern, said it would coordinate its purchase with a PacifiCare purchase. In composite trading on the New York Stock Exchange, PacifiCare closed at $13.75, down 50 cents.
STOCK BUYBACKS
Thu. 52-wk. *Am Cyanamid 47 1/2 -1 1/2 61 1/2-47 NYSE *Fannie Mae 26 5/8 - 1/8 46 3/8-26 3/4 NYSE *Intel 33 1/4 +1 1/8 52-28 3/8 OTC *Newport* 8 3/4 Unch. 11 3/4-8 3/4 OTC *PacifiCare 13 3/4 - 1/2 30 3/8-12 OTC *Whlsle Club 13 7/8 - 7/8 25 3/8-11 3/4 OTC
* Extended a previously announced buyback last Friday
