FedEx Sells $2 Billion of Bonds to Speed Stock BuybacksThomas Black
FedEx Corp. sold $2 billion of bonds today to speed up stock buybacks, following through on plans for a record repurchase program announced last year at the operator of the world’s largest cargo airline.
Accelerated repurchase agreements with Goldman Sachs Group Inc. and JPMorgan Chase & Co. should result in “an initial delivery” of about 11.4 million shares at current prices, FedEx said today. The Memphis, Tennessee-based company said buybacks under the accords should be done by the end of May.
FedEx unveiled authorization in October for buying back as many as 32 million shares, its biggest ever, weeks before activist investor Daniel Loeb disclosed a stake in the company. Since FedEx’s repurchase plans were already known, the impact of today’s push to quicken the transactions may be muted, Helane Becker, an analyst at Cowen & Co., said in a note to investors.
“We believe the share repurchase program will be accretive to earnings, but believe the Street has already priced in the buyback,” said Becker, who rates FedEx as market perform.
FedEx fell 1 percent to $138.72 at the close in New York. The stock gained 57 percent last year, outpacing a 30 percent increase for the Standard & Poor’s 500 Index.
The company has been working through a plan to cut operating costs by $1.7 billion over three years, chiefly at the FedEx Express unit, as shippers seek cheaper services over the carrier’s signature next-day air deliveries.
Loeb’s Third Point LLC reported a holding in November of 2 million shares, and was followed by disclosures that billionaire investors George Soros and John Paulson also had taken stakes. Loeb, who has pushed for change at companies including Sony Corp., said he had met with Chief Executive Officer Fred Smith.
Elissa Doyle, a spokeswoman for Third Point, declined to comment.
FedEx has shown more willingness to return cash to shareholders over the past several months, said David Vernon, an analyst with Sanford C. Bernstein & Co, who has a market perform rating on the stock, the equivalent of hold. While Loeb alone probably didn’t spur the acceleration of buybacks, his voice would have added to the clamor, he said.
“I’m sure it had to be a factor,” Vernon said. “But it’s just one piece of new shareholder feedback that they would have weighed along with all the other shareholder feedback.”
The buyback follows through on FedEx’s comments in December that it planned additional share purchases. Terms of the debt offering “will depend on market and other conditions at the time of pricing,” FedEx said.
At the end of November, FedEx had $3.94 billion of cash and near cash items against $2.99 billion of borrowings, according to data compiled by Bloomberg.
“They basically don’t have any debt after you net out cash,” Vernon said. “The business can afford to have a bit more leverage there.”
FedEx sold $750 million each of 10- and 30-year debt and $500 million of 20-year notes to fund the accelerated share buybacks. The joint booking-running managers are JPMorgan, Goldman Sachs and Morgan Stanley, according to a FedEx filing earlier today.
The offering is the company’s first since a $750 million, two-part issue in April, according to data compiled by Bloomberg. The $500 million, 4.1 percent portion due April 2043, traded Dec. 18 at 86.2 cents on the dollar to yield 5 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.