Amgen said Nov. 7 that it plans to buy back $5 billion of its shares as part of a push to return profit to stockholders. Shares of the Thousand Oaks-based drugmaker jumped 4.5 percent in morning trading.
Moody’s Investors Service and Fitch Ratings lowered their ratings on Amgen debt after the announcement because the biotech giant will have to take on additional debt to purchase the shares, but both credit ratings agencies gave the company stable outlooks.
Amgen said in regulatory filings with the Securities and Exchange Commission that it will sell three-, five-, 10- and 30-year bonds to finance the repurchases. Bank of America Corp., Morgan Stanley, JPMorgan Chase & Co. and Citigroup are managing the debt offering.
The modified Dutch auction, which starts Nov. 8, is part of a current $10 billion stock repurchase program, Amgen said in the filing, and amounts to about 10 percent of its shares.
Amgen had $13.9 billion of long-term debt as of Sept. 30, according to SEC filings. The company will have about $2 billion of net debt after the buyback, Mark Schoenebaum, an analyst with ISI Group in New York, told Bloomberg News.
Amgen CEO Kevin Sharer said in a statement that the buyback offer “reflects Amgen’s confidence in the future outlook of our business and the company’s long-term value. 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.”
The buyback plan is part of a commitment to return at least 60 percent of net income to investors, Eric Schmidt, an analyst with Cowen & Co. in New York, told Bloomberg. “This is a way to give money back to shareholders at a modest premium,” he said.
The Dutch auction works by allowing shareholders to state the number of shares they wish to tender and the price they are willing to pay, within the company’s range of $54 to $60 each. Amgen then figures out the lowest per-share price that lets it buy back $5 billion in stock. The company will buy all the shares at the same price.
“This move is very good,” Mark Schoenebaum, an analyst with ISI Group in New York, wrote in a note to clients obtained by Bloomberg. Schoenebaum said Amgen told him the timing was optimal because debt and the company’s stock are cheap. “Recall Biogen did it in 2007 and it worked very well for the stock,” he said.
The buyback offer comes after Amgen’s first quarterly dividend, of 28 cents per share, earlier this year. Amgen saw third-quarter profits fall 63 percent to $454 million last month, and also disclosed in its earnings release that it had set aside $780 million to settle federal charges related to illegal kickbacks to boost sales of its blockbuster anemia drug.
In mid-October, Amgen said it was laying off 226 people at its Thousand Oaks headquarters as part of a company-wide restructuring of its research and development department.[wikichart align=”center” ticker=”AMGN” showannotations=”true” livequote=”true” rollingdate=”6 months” width=”390″ height=”245″]