Sun Microsystems is the latest high-profile company to launch a sizable stock buyback.
Sun announced Wednesday that its board had authorized the company to repurchase up to $3 billion worth of its shares, or nearly 16 percent of the total of equity outstanding. The high-end computer maker explained that the repurchase plan is designed to increase shareholder value and reduce the dilutive effect of its equity-compensation programs.
“With over $5.4 billion in cash and marketable debt securities, we have maintained a strong balance sheet and feel confident that this program will allow us to further pursue strategic opportunities for growth,” said CFO Mike Lehman.
After five years of declining revenue and market share, Sun saw a profit in the fourth quarter of 2006. Perhaps not coincidentally, last year also saw the return of Lehman to Sun’s top finance job after a nearly four-year retirement. “Clearly, in the last few years the company hasn’t been the darling of Wall Street,” Lehman told CFO magazine in May 2006. “[A] key for me will be to improve our relations with investors.”
At midday Thursday, investors had responded to the buyback news by raising Sun’s share price more than 4 percent.
Sun also announced that its prior repurchase program, authorized in February 2001, has been terminated. The new repurchase authorization has no expiration date. The pace of repurchase activity will depend on factors including cash generation from operations, cash requirements for acquisitions, repayment of debt, and the company’s share price, according to the company.
Sun said it may also repurchase shares from time to time on the open market or in private transactions, including structured transactions, and stressed that repurchase program may be modified or discontinued at any time.