Although they have sustained less damage than other industries caught up in the market tumult brought on by the recent terrorist attacks, a handful of healthcare companies have since tried to instill investor confidence with the announcement of share repurchase programs.
Three days after the Sept. 11 attacks, before the markets reopened for business on Sept. 17, the U.S. Securities and Exchange Commission used its emergency powers to temporarily ease regulatory restrictions on the timing and volume of share repurchase programs. Companies use such programs to return cash to their shareholders and to reassure investors that have a stake in their corporate product. It also is an alternative to using cash for acquisitions. In this case, the securities regulators were hoping companies would step in and send a calming message to shaken investors who might be tempted to pull their money out of the market altogether.
According to news reports, more than 75 companies have started or accelerated share repurchase programs since the SEC's action, which was set to expire last Friday; at deadline the commission appeared ready to extend the special trading rules.
Among healthcare companies, which were generally spared the wild swings in stock prices other industries experienced recently, several signaled an intent to participate in the shopping spree.
Health Management Associates, a 38-hospital chain based in Naples, Fla., announced last week that its board had authorized the repurchase of up to 5 million of its shares.
HMA's stock price had dropped nearly 6% the week after the terrorist attacks, more than most other publicly traded hospital companies.
"Part of it was to support the markets," said John Merriwether, director of financial relations for HMA. "I think part of it is a signal to investors to say management feels the company is headed in the right direction, but we're not the type of company that just goes and buys stock to send a signal. We buy stock to enhance earnings per share."
Other companies, such as Universal Health Services, had existing share repurchase programs in place from years ago. Universal, a hospital chain based in King of Prussia, Pa., quietly repurchased some shares in the week after the terrorist attack, said Kirk Gorman, the company's senior vice president and chief financial officer.
"Part of it was an expression of patriotism, regardless of the pricing," he said. "When the markets reopened, we thought it might be reasonable to support the market and support the share price all at the same time. In this case, both economics and patriotism flowed in the same direction, and we're pleased to have done what we did."
Unrelated to the SEC's action or the terrorist attacks, Universal also announced it was redeeming $135 million worth of senior notes on Oct. 9, because interest rates have fallen enough that the company can refund the amount by either borrowing under its credit agreement or by issuing more bonds, either of which would involve a lower interest rate.
Andrew Bhak, a healthcare facilities senior analyst at Goldman Sachs & Co., said dollars spent on share repurchases should be weighed against other uses of those dollars such as acquisitions in the case of hospital companies.
"The strategic opportunity for consolidation is unchanged by these tragic events," he said. "From a financial standpoint, many managements would look to deploy those dollars toward acquisitions given the financial rewards that can be achieved from those transactions."
But healthcare companies outside the hospital industry are not necessarily so acquisition-minded.
IMS Health, a market research company for the pharmaceutical industry, accelerated its existing share repurchase program, under which it had already bought back 17.5 million shares.
Jack Walsh, vice president of investor relations, said the Fairfield, Conn.-based company buys back its own stock on a daily basis.
"It's a good use of our excess cash to buy back our own stock," he said. "We think it's a good buy, and if it helps our share price or makes investors feel more comfortable to know we're here buying our shares back every day, that's an added benefit."
Cardinal Health, a pharmaceutical distributor based in Dublin, Ohio, made an announcement, shortly after the SEC's emergency decree, that its board of directors had authorized a $500 million share repurchase program.
Geoffrey Fenton, a Cardinal spokesman, said the company already had been contemplating a stock repurchase but had not announced it before the markets were closed after the terrorist attacks. The SEC's loosening of the rules pushed the company to get its announcement out more quickly than it otherwise would have, he said.
"Companies were given flexibility, rules were relaxed to allow it to happen to make it easier, and I think companies took advantage of that," Fenton said.