Price OKs new stock buyback

Baltimore company now authorized to buy 5.5 million shares

Mutual funds

November 04, 1999|By William Patalon III | William Patalon III,SUN STAFF

T. Rowe Price Associates Inc., the Baltimore-based mutual fund company, said yesterday that its board of directors has authorized it to buy back up to 4 million additional shares of the company's stock.

With roughly 1.5 million shares remaining from a buyback program authorized in 1995, yesterday's announcement means Price could repurchase as many as 5.5 million shares on the open market, the company said. That's about 5 percent of its shares outstanding.

The stock-repurchase program is testimony to "management's long-term confidence in the company," said Steven Norwitz, a vice president and spokesman for Price, the seventh-largest publicly traded mutual fund company.

Shares of Price closed yesterday at $35, down 5.625 cents.

Stock-buyback programs are one tool companies use to reward shareholders by boosting stock prices. That's because, at a given level of profits, reducing the number of outstanding shares boosts the company's reported earnings per share, the figure that analysts and other investors focus on in deciding whether to buy, sell or hold a particular stock.

Studies show that, in general, the shares of companies that buy back shares outperform the overall market.

Such a market-beating performance is only for companies that follow through with announced repurchase programs. When a corporate board authorizes a buyback, the company isn't required to proceed.

Price did follow through on its 1995 announcement. Before yesterday, the company had bought back about 5.2 million shares of the 6.7 million authorized. Of those, about 2 million were bought back during this year's third quarter, when concerns about higher interest rates swatted down the shares of financial-services companies, including those of Price, then trading about about $30.

That meant the company spent about $60 million on the buyback in the third quarter, said a recent report by Prudential Securities Inc. analyst John Hall.

When it comes to buying back stock, Price has lots of company. Many money-management companies -- including Eaton Vance Corp., U.S. Trust Corp., Gabelli Asset Management Inc. and Affiliated Managers Group Inc. -- have said they are repurchasing stock.

In his recent report, Hall wrote that the buybacks by money-management companies -- presumably the most knowledgeable when it comes to the financial markets -- are significant.

"Lots of companies buy back shares, but when the professional arbiters of value wade in and buy back their own shares, we think that is worthy of taking note," Hall wrote.

Bloomberg News contributed to this article.

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