Ben Bernanke couldn't have planned it better if he tried. Monday's announcement of new stock-buyback programs by three well-known companies -- Microsoft, Hewlett-Packard and Nike -- was a reminder of the strength of nonfinancial U.S. companies.In contrast to banks in need of a bailout, all three companies have solid balance sheets and strong cash flows. Microsoft dwarfs the others. It had about $30 billion in cash and investments at June 30.
The timing of the announcements, however, may be somewhat symbolic. H-P and Nike, at least, have buyback programs under way that are far from being exhausted. As of July 31, H-P had $3 billion of repurchase authorization remaining under its current $8 billion plan, and it had only spent $1.6 billion in the quarter ended July. Nike was only two-thirds of the way through its $3 billion plan as of May 31. Microsoft was announcing a new program to replace one whose authorization was exhausted earlier in the quarter.
The real significance of Microsoft's announcement came in its decision to tiptoe into the debt market with a $2 billion commercial-paper program. Microsoft historically hasn't needed to borrow money because it generates so much cash. On Monday it became the first new corporate issuer to secure a triple-A rating from Moody's since 2002.
It certainly doesn't need to borrow to fund the buyback. But establishing a presence in the debt markets will give Microsoft the flexibility to make big acquisitions, whether renewing its pursuit of Yahoo (whose shares are back below the level that proved too tempting for Microsoft in February), or another multibillion-dollar morsel.
By: Martin Peers
Wall Street Journal; September 23, 2008
