Thursday, October 7, 2010

Stock Buybacks, Cash & ERRP

Cash rich corporations are buying back stock to the tune of $273 billion, five times last year's level.  Cheap credit means companies, already flush with cash, are borrowing to fund stock buybacks.  Firms conducting buybacks include:

Hewlett Packard--$10 billion
Pepsico--up to $15 billion
The Washington Post--1.5 million shares in 2010
Chevron--$1 billion
Amerisource Bergen--$500 million

PPACA provides federal funding for corporations via the $5 billion Early Retiree Reinsurance Program (ERRP).  Hewitt Associates estimates the average federal reimbursement will represent between $2,000 and $3,000 per pre-65 retiree per year, approximately 25 percent to 35 percent of total health care costs.  The money is intended to save retiree medical programs, but it comes late in the game.  All five cash-rich companies are on ERRP's dole, Hewlett Packard, Pepsico, The Washington Post Amerisource Bergen and Chevron Mining Inc..

How about firm's completing buybacks?

IBM--$8.1 billion
WalMart-$7.8 billion
Microsoft--$5.8 billion
Proctor & Gamble--$4.6
ExxonMobil--$4.3 billion
Goldman Sachs--$2.3 billion

Two of the above firms are ERRP participants, International Business Machines and The Proctor & Gamble Company.  Seven of the eleven cash rich companies are getting millions in government ERRP subsidy.

Meanwhile, less than 1% of corporate chief financial officers expect to hire new full time employees.  Where will that fungible money land?

Update 1-12-11:  According to a letter sent Wednesday by HHS Secretary Kathleen Sebelius, Department of Labor Secretary Hilda Solis and Treasury Secretary Timothy Geithner, HHS began making reimbursements late last year and as of Dec. 30 said it had paid out about $1 billion.  Let the good times roll!