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S&P 500 4th quarter buyback activity soars to $104 billion.

Standard & Poor's announced that S&P 500 fourth quarter buyback activity has surged 57 percent from that of the fourth quarter 2004. Standard & Poor's data shows that stock buybacks in the S&P 500 has increased to $104 billion for the fourth quarter of 2005 from the $66 billion registered during the fourth quarter of 2004. According to Standard & Poor's, companies take advantage of stock buybacks for several reasons: to reduce their overall share count (thereby increasing current shareholder value), to reissue shares for mergers and acquisitions, and to satisfy employees looking to exercise their stock options. Merger & acquisition activity within the S&P 500 has picked up, with over $250 billion awaiting consummation. While reissuance of shares to cover existing employee stock options is still a major component of buybacks, Standard & Poor's has noted the significant number of issues that have actually reduced their share count.

"The impact of the share count reduction was a significant boost to earnings per share for 52 issues in the S&P 500 during the fourth quarter," says Silverblatt, who just authored an S&P report on the buybacks and the impact of share reduction. "The shares have not been retired, but reside in the corporate treasury for future use, and we believe that use will be mergers and acquisitions when diluting EPS is more palatable."

Standard & Poor's data shows that the largest issues in the index were the most active for the 4th quarter of 2005. Exxon, General Electric and Microsoft combined to account for 17.9% of the buybacks, or an aggregate $18.7 billion. On a sector basis, Information Technology, which represents 15.3% of the market value of the S&P 500, continued to outspend all other sectors, accounting for 28.5% of the buyback expenditures for the last 12-months. Conversely, Health Care, which represents 13.2% of the index, accounted for 8.2% of the buybacks.

For the remainder of 2006, Standard & Poor's expects the strong buyback activity within the S&P 500 to continue, fueled by exercised employee options, the positive impact on earnings per share and the desire to satisfy investor demands to utilize built-up record cash reserves.

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Title Annotation:Headline: Standard & Poor's
Publication:Business Credit
Date:May 1, 2006
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