FedEx Accelerating Buybacks, Issuing $2 Billion Worth of Bonds
FedEx (NYSE: FDX) on Monday announced that it would issue $2 billion of bonds to speed up its stock buyback plans.
Back in October 2013, the company authorized buying back as much as 32 million shares. The buyback authorization represents the company's largest and most ambitious action to create further shareholder value.
A buyback of this magnitude reflects managements confidence in its strategic initiatives, long-term growth potential, strength and flexibility of its balance sheet and accelerating free cash flow.
Fox News reported that the company is expected to buyback “initially” around 11.4 million of its shares. The action is expected to be completed before the company's fiscal year ends on May 31.
A few weeks after the share authorization, Dan Loeb's Third Point revealed a stake in FedEx. On November 12, the activist investor noted that he is a fan of the company and had no intentions of attempting to oust CEO Fred Smith.
FedEx is planning to issue 10-, 20- and 30-year debt as early as today. The last time the company made use of an offering was a $750 million two-part issue in April 2013.
Investors expecting a sizable move up in FedEx shares following the announcement might be disappointed. It has been widely known that the company will proceed with a large buyback, as there have been a recent influx of billionaire investors that include George Soros and John Paulson who have also taken stakes.
“We believe the share repurchase program will be accretive to earnings, but believe the Street has already priced in the buyback,” said Helane Becker, an analyst at Cowen & Co. in a note to investors.
FedEx is also in the process of cutting operational costs by $1.7 billion over the next three years.
Shares of FedEx opened higher by around 1.8 percent, but quickly reversed gains and were trading in negative territory during the early afternoon trading session.
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