Sybase, Inc.
(NYSE: SY) shares rose marginally after the software-maker agreed to to
boost its share buyback program as part of an agreement with one of its
largest shareholders. The firm announced a $300 million self-tender
offer at prices between $28 and $30 per share and will use its best
efforts to complete approximately $82.9 million in additional open
market repurchases prior to the completion of their 2009 annual
meeting. The shareholder, Sandell Asset Management, will in turn drop
its bid to takeover the board and limit its future acquisition of
stock. So, should you ad some Sybase to your stock portfolio?
Sandell Asset Management had been concerned about the company’s
large cash position. Sybase noted that it had about $735 million in
worldwide cash, with between $225 million and $250 million of free
cash. However, restricted cash and long-term investments reduce this
amount to around $700 million in available cash balance. Looking ahead,
the company estimated that it would need working capital in the United
States of about $85 million and $115 million outside of the United
States. Clearly, this is excess cash that could be leveraged elsewhere
to deliver value for shareholders rather than sit in a bank account.
So, is this buyback a good deal for shareholders? The current
agreement calls for purchasing at a significant premium to the current
market price. The premium currently stands at around 9.5 percent and
could rise higher, since the additional $82.9 million buyback is not
tied to a specific price. There are also many other benefits brought on
by a share buyback program given that it will reduce the number of
outstanding shares by over 10 percent. Since it was financed out of
cash on hand and not earnings, the reduction should boost the earnings
per share. Some of this may be priced into the stock, but it is still a
benefit worth mentioning.
Sybase is also quickly turning itself around after being left for
dead not long ago. The software-maker announced record earnings in 2007
with a 17 percent increase in revenues and 26 percent increase in net
income, which indicates that it has been improving its profit margins.
Meanwhile, the company is continuing to take a larger portion of the
database market from competitors like Sun Microsystems who had the
opportunity to acquire the company on the cheap not long ago! In the
end, these factors all make SY a stock worth watching closely over the
next few months!
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