Amgen Inc., the world’s largest biotechnology company, gained the most in 17 months after the company said it’s planning a $5 billion share repurchase as part of a push to return profit to stockholders.
Amgen rose 5.9 percent Monday to $58.43 at the close in New York, the biggest single-day increase since June 2010. The shares of the Thousand Oaks, California-based drugmaker have gained 6.4 percent this year.
The modified Dutch auction, amounting to about 10 percent of the company, is part of a current $10 billion buyback program, Amgen said in a regulatory filing today. The drugmaker will raise debt to help fund the program, part of a commitment to return at least 60 percent of net income to investors, said Eric Schmidt, an analyst with Cowen & Co. in New York.
“This is a way to give money back to shareholders at a modest premium,” Schmidt said in a telephone interview today.
Amgen declared its first quarterly dividend this year, of 28 cents a share. The buyback offer starts tomorrow at a range of $54 to $60 a share, and Amgen will have about $2 billion of net debt afterwards, said Mark Schoenebaum, an analyst with ISI Group in New York.
“This move is very good,” Schoenebaum wrote in a note to clients today. The company told him the timing was optimal because debt and Amgen stock are cheap, he said. “Recall Biogen did it in 2007,and it worked very well for the stock.”
A Dutch auction enables investors to specify a price at which they’re willing to sell, and based on the number of shares tendered and the specified prices, Amgen will find the lowest price per share at which to buy $5 billion worth of stock, the company said in a statement. Amgen will buy all the shares at the same price.
The drugmaker is trading at a multiple of about 12 times earnings, compared with an average 13 times multiple for the Standard & Poor’s 500 Index, according to Bloomberg data.
The company had $13.9 billion of long-term debt as of Sept. 30. It was downgraded today by Moody’s Investors Service and Fitch Ratings, to Baa1 from A3 at Moody’s and to BBB from A- at Fitch. Moody’s had said last month that Amgen’s ratio of debt to earnings before interest, taxes, depreciation and amortization was already at the threshold for a downgrade from the A3 level.
Amgen plans to sell three-, five-, 10- and 30-year bonds to finance the share repurchases, the company said Monday in a filing with the Securities and Exchange Commission. Bank of America Corp., Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. are managing the debt offering, according to the filing.
Sales of Amgen’s Neulasta and Neupogen, which are used to reduce the risk of infection in patients on chemotherapy, rose to $1.34 billion during the third quarter, the company said last month. The company’s former core anemia therapies, Aranesp and Epogen, fell 16 percent to $1.08 billion.
Biogen Idec Inc., based in Weston, Massachusetts, said in May 2007 it would buy back $3 billion in shares through a modified Dutch auction. The shares of Biogen, the world’s largest maker of multiple sclerosis medicines, have more than doubled since then.
Sales of Biogen’s MS therapy Avonex will rise 5.4 percent to $2.66 billion this year from $2.52 billion in 2010, according to the average estimate of six analysts in a Bloomberg survey.
“This tender offer reflects Amgen’s confidence in the future outlook of our business and the company’s long-term value,” Chief Executive Officer Kevin Sharer said in the statement. “Our strong balance sheet and cash flow enable us to complete this transaction in an attractive interest rate environment while also preserving the flexibility to further accelerate the growth of our business through focused, strategic acquisitions.”