IBM shares reached their highest level in nine years on Tuesday when the company announced plans to buy back up to $3.5 billion in stock. Some analysts believe IBM has made the decision to use cash that had been reserved for an acquisition that fell through - Bay Networks and Netscape being the names most mentioned on Wall Street. Most investors, however, welcomed the move, which is likely to boost share prices even further.
"It's a vote of confidence by management that the share price is inexpensive," said Phil Shettewi, managing partner at investment firm Loomis, Sayles & Co. IBM shares rose 1 5/8 to 159 1/4 on Tuesday, but a buyback should boost the price higher by instilling confidence in the market, and by reducing the number of shares outstanding, so increasing their attractiveness to buyers.
The buyback is the second this year and authorises IBM to buy about 22 million shares at current prices - about four per cent of the total outstanding.
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