General Dynamics Plans Stock Buyback : Wall Street: The company, which has cash after selling several units, may purchase up to 30% of the shares outstanding.
General Dynamics Corp., cash-heavy after selling several divisions to streamline operations, announced Monday that it will spend up to $975 million to buy back 30% of its common stock.
The stock buyback--one of several announced recently by large corporations--was not unexpected. General Dynamics officials have said that they were considering ways to distribute to shareholders some of the cash that the defense contractor has amassed through the sale of subsidiaries.
“You have to remember that a year and a half ago, Wall Street figured the whole company wasn’t worth a billion dollars. What a dramatic change,” said Jack Modzelewski, an aerospace analyst at Paine Webber Inc. in New York.
Modzelewski said he thought that the buyback was an alternative response to the product diversification that some defense contractors are doing in the wake of post-Cold War military downsizing.
“If the defense budget’s going to come down, assets have to flow out of the industry--and the way to do it is give the money back to the shareholders and let them do their own diversification,” Modzelewski said.
The stock price, as low as $19 in late 1990, closed at $65.375 Friday on the New York Stock Exchange. It surged Monday in response to the news, closing at $71 in active trading.
The buyback, which will start this week, will be done through what is called a Dutch auction. That allows shareholders to specify what price they want within a range of prices, the company said at its suburban Falls Church, Va., headquarters.
Stockholders can specify a price between $65.375 and $75 per share at which they are willing to sell, and General Dynamics will determine the lowest price within that range that will enable it to purchase 13 million shares.
The company then will pay a single purchase price for all shares tendered at or below the price.
If the purchase price were $75 a share, General Dynamics would pay about $975 million. If the price were $65.375, it would pay about $850 million.
Chief among the beneficiaries would be the Crown Stockholders, a key shareholder group that the company said must reduce its stake by 20% to ensure capital gains tax treatment.
The buyback is an opportunity for “the Crown family . . . to sell off half their holdings” rather quickly and without fear of a drop in the market, said defense industry analyst Paul Nisbet at Prudential Securities Inc.
