Fund-Raising: Have Cash, Will Travel?

GDRs may become popular if U.S. equity markets sag. Also, a whole lot of repurchasing going on.

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Don’t look now, but the theory of covariance seems to be staging a comeback — at least for a day.

On Monday, the Dow Jones Industrial average plummeted nearly 7 percent, falling some 685 points. That drop, coming on the first day of trading since terrorist attacks closed Wall Street last Tuesday, was the largest one-day point drop in the history of the DJIA.

But across the pond, several major European exchanges booked sizable gains on Monday. Leading the pack: the AEX index in Amsterdam, up 3.18 percent at closing. Even in the U.K., traditionally a staunch ally of the United States, punters fared well. The FTSE index of 100 companies closed a little over 3 percent higher on Monday.

Granted, most European exchanges gave back those gains on Tuesday. But Monday’s rally on the continent, coming on the heels of the huge loss on U.S. exchanges, bears watching. Indeed, the upward jag in share prices on Monday wasn’t confined to Europe; with the notable exception of the IPC in Mexico, every major exchange index in Latin America posted sizable gains. In São Paulo, the Bovespa was up a whopping 5.09 percent.

Even some of Asia’s equity markets, which have been in a holding pattern since the financial crisis of 1998, posted gains. The Nikkei 225 index in Japan — not exactly an investor favorite over the past few years — bounced back big on Tuesday, closing 1.85 percent higher. The BSE 30 in India and the Seoul Composite also posted big gains for the day, both up well over 3 percent.

What does all this mean for CFOs at U.S. companies? Hard to say for certain. But if stock exchanges in Europe, Asia, and Latin America do rally (and that’s a big if), expect to see more global fund-raisings from U.S. corporations. If negative covariance continues in force — that is, cross-border exchanges begin to move out of step with U.S. exchanges — global depositary receipts may be headed for a little comeback of their own.

Buybacks Back

Yesterday we reported on the SEC’s easing of rules governing stock buybacks. Specifically, the Commission will allow publicly traded companies to repurchase shares without meeting the usual volume and timing restrictions. The repurchase of shares during the grace period will also not affect a company’s ability to get pooling-of-interest accounting treatment for a merger.

Apparently the SEC’s rule-relaxing got the attention of corporate stewards. Already, 75 companies have announced plans to initiate or expand stock buyback programs. Among the repurchasers: General Electric Co., Intel Corp., and Walt Disney Co. These are not small ventures into the stock retirement business, either. Managers at FleetBoston Financial Corp. said they intend to repurchase as much as $4 billion worth of the company’s shares.

Obviously, now is a particularly good time to launch repurchase programs. With the DJIA at its lowest level in three years, companies will be able to improve their price-to-earnings ratio fairly cheaply. What’s more, since buybacks tend to create a floor for share prices, such programs buoy the spirits of shareholders.

They can use some buoying right now. As 3Com CEO Bruce Claflin said in a statement explaining the company’s buyback program: ”We are entering the market today as a clear signal of confidence in our company and the public equity markets. The events of last week do not diminish one iota our confidence in the economic and political systems of this country and other free market countries in which we do business.”

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