DaimlerChrysler AG Announces Record Buyback

DaimlerChrysler AG, the auto major based out of Stuttgart, Germany, seems like it wants to make its way into the record books, with its announcement of a record stock buyback. Along with this announcement, the company also declared it was raising its forecast of profits for 2007.

The decision to raise the profit forecasts was based on higher revenues from the sale of its premium brand, Mercedes-Benz, and a corresponding cost reduction arising from the sale of Chrysler.

Coming to the stock buyback itself, the company said it would be buying back shares worth €7.5 billion, or $10.2 billion. Making the announcement, CEO Dieter Zetsche said this buyback would take place over a period of one year.

As a result of the buyback, the earnings for the entire year, prior to interest deduction, would be €8.5 billion. The net income has, however, declined by 14 percent during the second quarter of fiscal 2007.

DaimlerChrysler AG announced the decision to buy back less than a month after it decided on the sale of Chrysler to Cerberus Capital Management LP. With this decision, a nine-year stint at the U.S. markets came to an end for the company. It has been a hard time for Daimler, as the company saw $12.6 billion worth of market value bite the dust.

CEO Zetsche said Daimler intends to now take on rival Bayerische Motoren Werke AG, the company that pried out Mercedes-Benz from the top of the luxury automobile pile in 2005. The strategy the company is going to adopt to achieve this goal is to develop new fuel efficient models.

There has been a hike in Daimler shares with these developments. After an initial steep hike of €1.73, Daimler shares settled at a hike of 59 cents, finishing at €63.26, a rise from its previous value by 0.9 percent. Overall, Daimler stock has jumped ahead by a whopping 35 percent, increasing the company’s value to €65.1 billion.

Analysts are happy with the developments, saying a share buyback is the most cost-effective and easy way for a company to increase its earnings for each share.