The Rush to Rebuy

Throughout the deep stock market slump of the past 2 1/2 months, some investors have been buying all the shares they can lay their hands on. But their interest is highly selective. With all the zeal of an author singlehandedly trying to make his book a bestseller, many of the nation's best-known corporations are buying up their own stock.

Just since Jan. 1, companies have announced stock repurchases adding up to nearly $1.4 billion--a total already more than double the figure for all 1972. The ranks of the corporate buyers include AMF, American Broadcasting, American Cyanamid, Continental Can, Gulf & Western, INA, Olin Corp., Raytheon and United Aircraft. Gulf Oil, through a tender offer, is acquiring 13 million of its own shares worth around $338 million, making Gulf Chairman Bob Dorsey probably the biggest stock repurchaser ever.

Why the rush to rebuy? For one thing, the price is right. Since the Dow Jones industrial average began sliding from its peak of 1,052 in January, the shares of many companies have fallen to what corporate officers regard as unreasonably low levels. Thus company treasurers are scrambling to buy up shares that they can use for several purposes. Among them:

> Maintaining an employee stock-option plan or, more and more often, launching a long-term bonus incentive program (see following story).

> Redeeming bonds and warrants that can be converted into common stock at an investor's option. If it did not buy up its own stock for that purpose, a company would have to issue new shares, thus diluting the equity of present shareholders.

> Consolidating control of the company in the hands of its present managers by removing from the market shares that could be bought in a takeover attempt.

> Buying other companies. The hope is that shares purchased today can be reissued at a higher price after the market turns around and used to complete a desirable acquisition. Bethlehem Steel, for one, is in the process of accumulating a million of its own shares for just that reason.

> Eliminating the cost of servicing small shareholders. Even the owner of a single share, if he holds on to it, must be issued annual reports, proxy statements and an individual dividend check.

Stock repurchases also bring another benefit: they raise a company's per-share earnings, which are closely watched by investment analysts as a clue to how well a firm is doing. Repurchased stock vanishes into a company's treasury and is not included in earnings calculations. A simplified example: if a company earns $20 million and has 10 million shares outstanding, it will report profits of $2 per share; if it buys up 2,000,000 shares, the same $20 million profit will be divided among 8,000,000 shares and will amount to $2.50 per share.

In theory, a company could also buy its own stock in order to push up the price, but in practice that ploy is difficult. Securities and Exchange Commission guidelines specify that a company cannot account for more than 15% of average daily trading in its own stock and cannot make either the first or the last purchase of the day (the first trade often sets the price pace, while the price on the last trade is the one most widely published in newspaper stock tables). Still, suspicion occasionally surfaces. David Herman, chairman of Coffee-Mat Corp., is suing his six fellow directors for adopting a plan last November to have the New Jersey maker of coffee-vending machines buy 150,000 of its own shares. He charges that they were trying to support the price of the stock, in which they had large personal holdings. The purchases, which were halted last month pending resolution of Herman's suit, did not in fact help the price of the stock. It fell from $20 to $15.

This file is automatically generated by a robot program, so reader's discretion is required.