Cisco Systems, Akamai Technologies, 3Com and E*Trade were among a wave of companies Monday that announced plans to buy back shares under newly loosened regulations issued by the Securities and Exchange Commission in the wake of the attack on the World Trade Center and the Pentagon.
Under the temporary guidelines aimed at helping stabilize the markets, public companies are now allowed to repurchase their own securities without meeting the usual strict volume and timing restrictions. Companies are normally not allowed to buy their own stock in the first and last 30 minutes of trading. Public companies can also now repurchase their shares without adverse accounting consequences. The SEC also changed some accounting regulations to remove penalties.
It was the first time the SEC has used its emergency powers.
Individual investors are expected to largely applaud the move, said Mark Robertson, a senior contributing editor for nonprofit investment education organization National Association of Investors.
"It's a good sign when companies buy back their stock. It usually means a company believes its stock price is undervalued," Robertson said. "But if we think the stock was overvalued to begin with and expensive, the fact that a company is buying back its own stock won't necessarily impress us. But companies that are doing it today tend to be undervalued in these current conditions of the terrorist attack and market downturn."
Akamai said it would buy back up to $20 million of its stock over the next six months. E*Trade said it would buy back up to 50 million shares over the next several years. And 3Com--which last May authorized a two-year, $1 billion repurchase program--said it would begin open market repurchases of its stock.
"We are entering the market today as a clear signal of confidence in the company and the public equity markets. The events of last week do not diminish one iota our confidence in the economic and political systems of this country and other free-market countries in which we do business," 3Com Chief Executive Bruce Claflin said in a statement.
3Com had spent about $750 million in buying back shares, before it temporarily suspended the program last December. But several events have occured that prompted the company to re-open its repurchase program, said Brian Johnson, a 3Com spokesman.
"It was important to communicate our support for the public equity markets and show these markets were healthy," Johnson said. "Combined with that, 3Com said it would not re-enter the market until it believed its cash position had stablizied."
He added a third aspect, though a distant consideration, was the SEC's actions and timing element. "The SEC clearly wanted corporations to freely enter the market," Johnson said.
The SEC, which has authority to keep the emergency actions in place for up to 10 days, has announced it will use these measures through Friday for now, SEC representative John Nester said.
"It was a smart move by the commission," said Louis Thompson, chief executive of industry trade group National Investor Relations Institute.