Tuesday, March 24, 2015

Merck Replenishes Stock Repurchase Program -- Incremental $10 Billion Equal To May 2013 Authority

Just as it did in May of 2013, Merck has once again added an incremental $10 billion of stock buyback authority, tonight, after the NYSE closed for the day.

A more jaundiced viewer might ask whether Kenilworth cannot find some higher -- internal rate of return on capital hurdle exceeding -- use for that $10 billion of capital, now deployed to the pockets of shareholders wishing to get liquid. Afterall, "investing" in a buyback just exactly meets one's cost of internal equity capital. True enough -- it won't drag the return rate down -- but it doesn't bump it up, either.

And that is a fair view. Moreover, shareholders don't mind the soft support a buyback program of size offers, should there be an anomalous dip in the NYSE price, on a temporary basis. Then the stock repurchase program can kick in -- and act as gentle slow support to the price.

I do wonder though whether Merck might see a higher return on that capital, longer term, by investing more in a Keytruda trial/launch in yet another cancer. Here's a bit, from PharmiWeb simply parroting the presser from Kenilworth:

. . . .With today’s announcement the company’s total outstanding share repurchase authorization is now approximately $11.7 billion which includes approximately $1.7 billion in authorized repurchases remaining under the program previously announced on May 1 2013.

Merck continues to expect average diluted shares outstanding will be approximately 2.86 billion in 2015. . . .

So -- I'd look for a mild price rise, in the coming weeks -- or at least less erosion than the general DJIA experiences, due in no small part to the cushion of a replenished $10 billion repurchase program.

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