Royal Philips Electronics NV, the world's biggest maker of light bulbs, will buy back 5 billion euros (US$7.2 billion) in stock in its biggest such program ever.
Philips will buy back the shares "within the next two years," the Amsterdam-based company said in an e-mailed statement today. Philips has bought back 820 million euros of shares as part of an earlier 1.63 billion euro program, which will now be canceled.
Philips is using proceeds from selling semiconductor holdings to bolster the medical and lighting divisions and return cash to shareholders. The company has said it will have as much as 20 billion euros available for acquisitions, dividends and share buybacks over the next three years. A new tax plan adopted by Dutch parliament yesterday will allow companies to buy back more stock without paying a withholding tax starting on Jan. 1.
"This is a really nice start with upside potential," said Marcel Achterberg, an analyst at ING Wholesale Banking in Amsterdam who recommends buying the stock. "It illustrates they're confident."
Philips rose as much as 1 euro, or 3.3 percent, to 31 euros in Amsterdam trading, a two-month high. They traded at 30.53 euros as of 10:38am. Before yesterday, the stock was up 5 percent this year, compared with a 1.5 percent increase in the benchmark Amsterdam Exchanges Index.
Until the new law becomes effective next month, Dutch companies must pay the tax when a buyback exceeds a certain amount. The new plan doubles the exempted amount, according to the proposal posted on the Finance Ministry's Web site.
"This new program has been enabled by a more investor- friendly tax regime in the Netherlands that Philips has been advocating for a while and which will increase the tax efficient share repurchase capacity of companies within its scope," chief executive officer Gerard Kleisterlee said in the statement.
Philips will finance the buyback using its cash position, Philips spokesman Arent Jan Hesselink said in a telephone interview. The company is "willing" to increase debt to pay for buybacks and acquisitions, he said.
The buyback is part of the company's long-term strategy and isn't linked to the letter from the investors, Hesselink said.
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