Why Salesforce Stock Topped the Market on Thursday

After market close Wednesday, Salesforce (CRM +2.36%) priced a bond offering that will provide the monies for a massive share repurchase program. Since investors like such programs, particularly when they’re huge, they snapped up the customer relationship management (CRM) company’s stock the following day. It closed Thursday up nearly 3% in price.

A seller and a buyer

Salesforce divulged that the $25 billion in senior notes it is floating will comprise eight tranches. The coupons range from 4.5% to 6.7%, with the earliest note maturing on March 15, 2028, and the latest on March 15, 2066. The interest on all notes is to be paid semi-annually.

Image source: Getty Images.

All proceeds the specialized tech company receives from the issue will be devoted to share repurchases. Such buys will be made under an accelerated share repurchase (ASR) arrangement, under which unnamed investment banks are contracted to purchase Salesforce stock aggressively.

The company added that the prepayment and initial share delivery under the ASR agreement is to occur by this coming Monday, March 16.

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NYSE: CRM

Salesforce

Today’s Change

(2.36%) $4.59

Current Price

$198.72

Key Data Points

Market Cap

$179B

Day’s Range

$193.15 - $204.84

52wk Range

$174.57 - $296.05

Volume

1M

Avg Vol

11M

Gross Margin

75.28%

Dividend Yield

0.86%

That’s a lot of red ink

While large-scale (not to mention accelerated) share buyback programs can give a stock a nice boost when announced, I’d be a bit cautious here. $25 billion in debt is a significant amount to take on at once, even if some of those notes are very long-term, and the company has the resources to retire those borrowings over time.

Personally, I like to see companies use large chunks of capital to improve their businesses rather than fund monster-scale share buyback initiatives. Still, this wouldn’t dissuade me from owning Salesforce stock, as the company is a powerhouse in the CRM world and likely to remain so.