IBM Buys Itself

The problem confronting the International Business Machines Corp. these days is unusual indeed: What to do with $6 billion in excess cash lying around in company coffers? The embarrassment of riches afflicting the world's largest computer maker (1976 sales: $16 billion) was spotlighted last week when Chairman Frank T. Cary announced that IBM wants to spend $1.1 billion to buy back at least 4 million shares--almost 3% of the total outstanding--at $280 a share. The company's stock closed last week at $275.

By way of explanation, IBM would say only that "at this time" it regards its own stock as "an attractive investment." On Wall Street, many analysts reckoned that IBM aimed its offer mainly at institutional investors like banks, pension funds and insurance companies. Although trading far below its peak of $365, in 1973, before recession selling hit many flyers, IBM is still treasured by institutions. Indeed, there are more than 1,200 institutional holders of IBM. and together they hold more than 60% of the company's stock--an unusually high percentage. In fact, institutions own more IBM than any other single stock; the average institution has 7% of its portfolio in IBM, and some have as much as 9% of their assets in the stock.

That concentration worries Government officials, who are afraid that institutions that administer pension funds are investing too much money in a few popular stocks. The Employee Retirement Income Security Act, enacted last year, has been interpreted by many institutions as limiting holdings of any one stock to 5% of their portfolios. IBM's move allows institutions overloaded with its stock to sell shares back to the company without depressing the market. Given the fondness of money managers for IBM, some analysts wonder whether the $280 offer will actually persuade many institutions to sell. Still, the offer strikes a balance. It allows the faithful to stay committed to IBM. And it permits skeptics who wonder whether the company's premier growth days are over to trim holdings quietly without sending tremors through Wall Street.

Loose Billions. IBM had been squirreling funds away in anticipation of possibly losing several lawsuits brought by competitors, including one by Los Angeles-based California Computer Products Inc. That case was recently dismissed, leaving IBM with its boodle intact. Where will IBM spend its remaining loose billions? The company will not say, and many analysts believe that it probably does not know. At the moment, analysts foresee no new products of great significance on IBM's drawing boards, and thus massive outlays for development seem unnecessary. But shareholders still stand to gain from IBM's buyback: with fewer shares on the market, a potentially higher value awaits the ones outstanding.

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