Why Salesforce Stock Topped the Market on Thursday
Key Points
It's seeking $25 billiion in financing.
This comprises eight tranches of varying coupons and maturities.
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After market close Wednesday, Salesforce (NYSE: CRM) priced a bond offering that will provide the monies for a massive share repurchase program. Since investors like such programs, particularly when they're huge, they snapped up the customer relationship management (CRM) company's stock the following day. It closed Thursday up nearly 3% in price.
A seller and a buyer
Salesforce divulged that the $25 billion in senior notes it is floating will comprise eight tranches. The coupons range from 4.5% to 6.7%, with the earliest note maturing on March 15, 2028, and the latest on March 15, 2066. The interest on all notes is to be paid semi-annually.
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All proceeds the specialized tech company receives from the issue will be devoted to share repurchases. Such buys will be made under an accelerated share repurchase (ASR) arrangement, under which unnamed investment banks are contracted to purchase Salesforce stock aggressively.
The company added that the prepayment and initial share delivery under the ASR agreement is to occur by this coming Monday, March 16.
That's a lot of red ink
While large-scale (not to mention accelerated) share buyback programs can give a stock a nice boost when announced, I'd be a bit cautious here. $25 billion in debt is a significant amount to take on at once, even if some of those notes are very long-term, and the company has the resources to retire those borrowings over time.
Personally, I like to see companies use large chunks of capital to improve their businesses rather than fund monster-scale share buyback initiatives. Still, this wouldn't dissuade me from owning Salesforce stock, as the company is a powerhouse in the CRM world and likely to remain so.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.
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