“. . .investing domestically is exactly what we need to bail this country out.
~ Dr. Somnath Basu, California Institute of Finance
The following is an article that appeared in November 7th edition of the Ventura County Star.
Biotech drugmaker Amgen said Monday it plans to buy back up to $5 billion of its stock in a modified Dutch auction tender offer.
The Thousand Oaks-based company will pay $54 to $60 for each share.
Two credit ratings agencies — Moody’s and Fitch — lowered their ratings on Amgen Inc. debt after the buyback announcement.
But Amgen shares climbed $2.46, or 4.5 percent, to $57.63 in late morning trading, closing at $58.43.
The modified Dutch auction tender offer allows shareholders to state how many shares they wish to tender and the price they are willing to accept within the company’s range. Amgen then will determine the lowest per-share price that enables it to buy $5 billion of stock.
It will pay the same price for all shares purchased in the offer, so it may buy some stock at a higher price than the shareholder indicated. But the company said it will not make purchases from a shareholder at a price lower than the stockholder indicated he or she wanted.
“Our strong balance sheet and cash flow enable us to complete this transaction in an attractive interest rate environment while also preserving the flexibility to further accelerate the growth of our
business through focused, strategic acquisitions,” Chairman and CEO Kevin W. Sharer said in a statement.
Amgen will hold a public offering of senior notes to help pay for the tender offer. Bank of America, Merrill Lynch, Morgan Stanley, J.P. Morgan and Citigroup are acting as joint book-running managers for the offering.
Somnath Basu, finance professor at California Lutheran University, said Amgen’s latest move to buy its stocks rather than give out the dividends is a signal the company is “aging” and getting ”leaner.”
“In the long run, Amgen hopes its shares will pick up and the company as a whole will become more attractive globally,” Basu said. “They are choosing not to invest domestically because they are scared of the economic situation. It is difficult to blame them, but investing domestically is exactly what we need to bail this country out.”
Investor Service and Fitch Ratings downgraded Amgen after the Monday announcement. Moody’s dropped the company’s senior unsecured rating one notch to “Baa1″ from “A3.” The new rating is still investment-grade.
Moody’s said in a statement the downgrade reflected Amgen’s “more aggressive financial policies,” which are expected to lead to a big increase of debt during the next several years.