ONEOK, Inc. (OKE - Analyst Report) has entered into a share buyback agreement worth $150 million with Goldman, Sachs & Co., a unit of The Goldman Sachs Group, Inc. (GS - Analyst Report). Per the agreement, ONEOK has instantly purchased approximately 3.6 million shares from Goldman, Sachs & Co. at Monday’s closing stock price of $41.19 per share. Of the shares repurchased, 80% will be received immediately.
This is the company’s second accelerated share repurchase based on the company's previously announced three-year stock repurchase program in which the company had received approval to buy back up to $750 million of the company’s issued and outstanding common stock. However, the company was not allowed to make purchases of more than $300 million in any one calendar year. This buyback program will be over on the completion of the repurchase of $750 million of common stock or on December 31, 2013, whatever is earlier. Under this program, the company had previously completed a repurchase of $300 million of common stock in August 2011.
Both the share repurchases were financed by the company's cash and short-term borrowings. At the end of March 31, 2012, cash and cash equivalents were $781.2 million versus $66 million as of December 31, 2011.
The company is continuously making efforts to increase shareholder value and deliver attractive returns on their investment. The company has only recently completed its two-for-one stock split of the company's common stock. At its annual shareholders’ meeting, in May this year, the company announced that it expects net income to increase by approximately 18% annually between 2012 and 2014. It plans to increase its dividend by 40% between 2012 and 2014. These increases will be driven by volume growth of natural gas and natural gas liquids and not by higher commodity prices or wider price differentials.
The stock split and a bullish projection for the next couple of years offer investors a solid investment thesis. We believe that the company remains focused on maximizing profit by leveraging and enhancing existing assets. Also, its wide array of services, supply diversity, excellent market connectivity and low operating costs provide distinct competitive advantages.
However, the volatile credit markets, utility regulations, dependence on weather and unpredictable commodity prices keep us on the sidelines. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
ONEOK, Inc. is a diversified energy company. It is the general partner and own 43.4% of ONEOK Partners, L.P. (OKS - Analyst Report), one of the largest publicly traded master limited partnerships and a leader in the gathering, processing, storage and transportation of natural gas in the U.S. The partnership owns one of the nation's premier natural gas liquids systems, connecting NGL supply in the Mid-Continent and Rocky Mountain regions with key market centers.