Shares of The Walt Disney Company (NYSE:DIS) spiked 3 percent suddenly after it was reported that the company will buyback between $6 billion and $8 billion worth of shares. The entertainment company told investors today at a conference that it will borrow to finance some of the share buybacks. Bloomberg reports that the company plans to maintain its current single A bond rating.
Disney plans to borrow to pay back shares
Jay Rasulo, chief financial officer of The Walt Disney Company (NYSE:DIS) said they can afford to spend money on a share buyback because they will be seeing an increase in cash flow after making major investments in their theme parks. The company said it spent $1.81 billion on its various properties this year.
Bloomberg reports that Disney buys back its shares regularly, repurchasing $800 million worth of them in the most recently completed third quarter and $3.2 billion this year to date. The entertainment company also raised its dividend, boosting its 2012 annual payout 25 percent to 75 cents per share.
Disney in a holding pattern
David Lieberman, financial editor of Deadline, reports that today’s surge in Disney shares comes after four months when shares of the company’s stock have been holding steady. They hit a new all-time high just shy of $70 a share in the middle of May, but shares have fallen almost 6 percent since that high.
Investors have apparently been worried about weak ratings from ESPN, which were down 32 percent in the second quarter.
Icahn pushing Apple to do the same
Sam Ro of Business Insider notes that interest rates have been inching upward since May. CFOs and company treasurers may be starting to notice their opportunities to leverage their companies without great interest expenses are starting to fade away. The Walt Disney Company (NYSE:DIS) is just the latest company to take advantage of how low interest rates have gotten by using borrowed money to buy back some of its shares.
Recently Carl Icahn bought shares of Apple Inc. (NASDAQ:AAPL) and is now pushing the company to increase its share buyback plan using the same method Disney is using—by borrowing money at today’s low interest rates.