BASF, Allianz, Deutsche Bank & Co: DAX companies buy in the crisis

Ahen Russia launched its attack on Ukraine on the morning of February 24, the DAX lost more than five percent in value at its peak. Flight to safety was the reflex of many investors. The finance department of BASF chose a different direction: The chemical company bought its own shares worth almost 28 million euros.

The Ludwigshafen company presented its annual report the next day. CEO Martin Brudermüller also spoke in a conference call with financial analysts about the long-term performance of the stock. The management team was frustrated by the price development: “We consider BASF to be dramatically undervalued,” said Brudermüller. In that week alone, BASF bought more than 2.9 million of its own shares on the stock exchange.

As early as January, BASF gave the sign that it would invest up to three billion euros in buying its own shares by the end of next year. The chemical giant is therefore in line with the trend. Companies from the leading German share index have designated more than 25 billion euros for buybacks. More than a third of the DAX members have set up corresponding programs. Deutsche Bank, which intends to spend 300 million euros on it, started this week. Allianz has also been active again since the beginning of the month. Siemens is currently working on a program of up to three billion euros.

BMW could be the next to join from the DAX: The car company has announced that it will obtain approval for the purchase of its own shares at the annual general meeting. For BMW, it would be the first buyback in more than a decade and a half. The Munich company last took action in 2005 and took more than 20 million shares or three percent of the share capital from the stock exchange at a price of 770 million euros. BASF also took its time with the new edition. Most recently, the group bought back shares for almost ten billion euros between 1999 and 2008. The long waiting period now gives the decision particular weight.

adidas plans to spend EUR 4 billion by 2025 on acquiring treasury shares. In addition, there are 1.5 billion in special proceeds from the sale of the Reebok brand. Linde moves in even larger dimensions. The specialist in industrial gases plans to invest up to ten billion dollars in buybacks by the summer of 2024. At the time of the announcement, this corresponded to 8.9 billion euros. Linde has just completed a $5 billion program. Henkel and HeidelbergCement are also on a shopping spree in the DAX.

The purchases reflect the good economic condition of the companies. Most DAX companies increased their profits sharply in 2021 and left the pandemic behind. Without major takeovers, there is considerable financial leeway.

right mix

Buybacks are a popular addition to dividends, particularly in the United States. While with the latter, the shareholders receive a money transfer to their accounts, buybacks help the shareholders indirectly: If the purchased paper is stamped, the total number of shares decreases. This makes future dividend increases cheaper because fewer papers have to be taken into account. Each individual share also accounts for a larger part of the annual profit. Each piece should increase in value. Shareholders have no lasting benefit if the purchased securities remain in circulation, as is the case with the current SAP program. The software company primarily wants to “reward employees who make a valuable contribution to the company’s success”.

A major criticism of buybacks: companies spend money to optimize key figures, not to push the operative business. “Motivation and financing are crucial: If a company has the means but sees no other value-enhancing investment opportunity, share buybacks can make sense,” says Christof Schürmann from the Flossbach von Storch Research Institute.

A prominent buyback supporter is Warren Buffett. Its investment company Berkshire Hathaway has taken nine percent of its outstanding shares off the market over the past two years and spent almost $52 billion on it. Each shareholder now owns a proportionately larger stake in Berkshire’s businesses, Buffett said. But he also says: Just as one does not want to spend too much on the shares of other companies in a takeover, it is value-destroying to pay too much when buying one’s own shares.

People often buy when business is good and there is a lot of money in the register. But then the share is usually expensive. In times of crisis, when prices are low and good opportunities arise, there is a lack of money and courage to take anti-cyclical action. Ideally, companies suck shares from the market continuously. Munich Re is one of the regular buyers. Between 2006 and 2020, the reinsurer invested almost 13 billion in its own shares, reducing the number of shares in this way by more than a third. Another billion euros are already planned.

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