Nissan Surges Most Since 2009 on Record $3.5 Billion Buybackby and
Japanese automaker to acquire as many as 300 million shares
Alliance partner Renault to maintain its holding in Nissan
Nissan Motor Co. rose the most in almost seven years as the Japanese automaker plans its biggest share buyback ever and first in more than four years to counter a recent slump for the stock.
Nissan climbed as much as 12 percent, the biggest intraday jump since April 2009. The shares were up 7.9 percent as the benchmark Topix index gained 0.6 percent as of 11:23 a.m. in Tokyo. Japan’s second-largest carmaker will acquire as much as 400 billion yen ($3.5 billion) of stock, the company said in a filing with the Tokyo Stock Exchange on Friday.
Chairman Carlos Ghosn and fellow directors on Nissan’s board are responding to a 24 percent decline for the company’s shares this year through Friday. The stock was trailing its peer Toyota Motor Corp. and benchmark indexes, even as the company boosted earnings on rising sales in the U.S. and China. Japan’s exporters have been hit hard by the yen strengthening against the U.S. dollar, which cuts into the value of profits brought home from overseas operations.
“You buy back your shares when you think they are hugely undervalued,” said Nikkie Lu, an analyst for Bloomberg Intelligence. The repurchase suggests Nissan doesn’t foresee a global recession, she said by phone. “The automotive industry is cyclical, but it’s not as bad as people think.”
In its first repurchase since buying back 13 million shares in December 2011, Nissan will acquire as many as 300 million shares, or 6.7 percent of issued stock by Dec. 22, according to the filing. The company has forecast net income will rise to a record 535 billion yen in the year through March, helped by strong demand in the U.S. for models including the Rogue crossover.
“Return to shareholders is one of Nissan’s key objectives,” Ghosn, the chief executive officer of both Nissan and its alliance partner Renault SA, said in a statement Friday. “We took this decision considering our financial status and outlook to continuously generate significant free cash flow.”
Nissan is spending to benefit shareholders as the company negotiates with its union over the labor group’s request for 3,000 yen raises in their monthly base salaries for the fiscal year starting in April. Agreeing to that pay increase would cost the carmaker about 59.5 million yen.
The decision to buy back shares comes two months after Nissan failed in its effort to activate voting rights in its partner Renault. That preserved France’s status as having more say in the alliance than Nissan.
Nissan and Renault have agreed that the French automaker will sell shares in Nissan to maintain its holding at 43.4 percent, according to the filing. Renault’s stock rose 5.2 percent to 82.77 euros on Friday.
After adding capacity in China, Mexico, Brazil and Thailand in the past few years, Nissan has fewer pressing investment needs, freeing up cash to buy back shares, according to Ashvin Chotai, managing director of Intelligence Automotive Asia in London. Nissan had 860 billion yen of cash and short-term investments as of Dec. 31, according to data compiled by Bloomberg.
“The price-to-earnings ratio is very low today and this is clearly a good time for them to reduce the number of shares outstanding,” Chotai said. “I’m encouraged to see it means that the company thinks their shares are undervalued now.”