Monday, November 7, 2011

Interesting Modified Dutch Auction Offer by Amgen

Very interesting announcement today by Amgen (AMGN) that the company would buy $5B of it's outstanding shares via a modified dutch auction. This would amount to roughly 10% of the outstanding stock.

This puts AMGN into play for out Net Payout Yields model that looks for high yielding dividend and stock buyback companies.

AMGN just recently became a dividend payer yielding roughly 2%. Also, previous buybacks have yielded about 4% over the last 12 months giving it a previous 6% NPY. Not to shabby considering most investors get excited about 3-4% dividend yields.

Unfortunately AMGN announced a Senior Notes Offering to at least partially pay for this share auction. While studies aren't conclusive on whether buying stock with cheap debt is long term beneficial to shareholders, our model tends to stray away from such financial engineering.

Companies that are so cheap that it can pay high NPYs via free cash flow are much more attractive. Regardless, AMGN will make our list to research for inclusion in the model.

This dutch auction is worth watching because AMGN is going directly to the public and offering to buy shares. The price is roughly in line with the current price so I'm not sure where the demand will come from. Small investors could have already sold and institutional investors looking to dump large lumps of shares could've already worked with the share repurchase plan that has bought $2B worth in the last 12 months.

The tender offer lasts through December 7th so keep this on your radar.


Details from PR:


  • plan to launch a modified Dutch auction tender offer to purchase up to $5 billion of its common stock
  • Amgen will offer to purchase up to $5 billion of Common Stock at a price not greater than $60.00 nor less than $54.00 per share.
  • A modified Dutch auction tender offer allows stockholders to indicate how much stock and at what price within the range described above they wish to tender their stock.  Based on the number of shares tendered and the prices specified by the tendering stockholders, Amgen will determine the lowest price per share that will enable it to purchase $5 billion of Common Stock at such price, or a lower amount depending on the number of shares that are properly tendered and not properly withdrawn. 
  • representing approximately 9.5 percent to 10.6 percent of outstanding Common Stock as of Nov. 7, 2011.
  • Amgen's public offering of its senior notes will be made pursuant to an effective shelf registration statement on file with the SEC.  Amgen expects to use the net proceeds from the offering to fund Amgen's stock repurchase program, including the modified Dutch auction tender offer described above, and for general corporate purposes. 

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