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IBM Sells $1 Billion of Debt Amid Acquisition Spree

IBM Sells $1 Billion of Debt Amid Acquisition Spree
Sam Palmisano, president and chief executive officer of International Business Machines Corp. Photographer: Joshua Roberts/Bloomberg

International Business Machines Corp., the world’s biggest computer-services provider, sold $1 billion of debt due January 2016, according to data compiled by Bloomberg.

IBM issued the notes four months after selling $1.5 billion of debt due 2013 at the lowest interest rate on record at the time, according to data compiled by Bloomberg. Moody’s Investors Service upgraded the senior unsecured rating of IBM’s debt one level to Aa3 from A1 last month, citing a growing emphasis on higher-margin software and services.

“The transition from a server-production-based company to a service-based company has been valuable towards their credit improvement,” said Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “And the rating upgrade certainly helped them price a little tighter than they would have otherwise.”

The company plans to spend about $20 billion on acquisitions by 2015 as it aims to almost double operating earnings per share. Chief Executive Officer Sam Palmisano is investing in analytics software and services that help predict trends, as well as cloud computing, which helps customers save money by letting them store and access data via the Internet rather than from their own servers.

Issue Details

The 2 percent notes pay 55 basis points more than similar-maturity Treasuries, Bloomberg data show, and yield 2.07 percent. A basis point is 0.01 percentage point.

Absolute yields on investment-grade debt have declined seven basis points to 3.989 percent since IBM’s previous debt sale on Aug. 2, according to Bank of America Merrill Lynch’s U.S. Corporate Master Index. Yields fell as low as 3.53 percent on Nov. 4, the lowest yield since the index began in October 1986.

“The offering is very tight even for a high investment-grade offering and shows the strength of demand within the credit markets right now,” LeBas said in a telephone interview. “There’s a lot of high-quality cash chasing limited investment opportunities right now.”

IBM’s 1 percent debt maturing August 2013 traded at 99.778 cents on Dec. 3 to yield 1.085 percent, or 30.4 basis points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes were sold at a spread of 30 basis points.

The company, which has completed 16 acquisitions this year, ended the third quarter with more than $11 billion in cash and short-term investments, according to data compiled by Bloomberg.

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