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Cap Cities/ABC buyback a dud

What if a company threw a buyback and nobody came? Nobody, that is, except the guest of honor, who sent an RSVP in advance that he would attend.

That’s pretty much what happened to Capital Cities/ABC in its latest stock repurchase. Of the2 million shares the web wanted back, it got only 1.1 million at $ 630 per share, the highest tender price. And 1 million of those belonged to majority holder Warren Buffett, who had promised to tender.

But you can’t really blame the no-shows. After all, many Wall Street watchers dismissed CapCities’ offer to pay between $ 590 and $ 630 a share as too low when the stock traded at $ 610 a share. That opinion gained even more converts by the tender’s expiration Wednesday, when CapCities closed at $ 637.50 a share.

What pushed the stock up was the pivotal fin-syn ruling allowing webs to enter the lucrative primetime programming and syndication markets in two years. News of Judge Manuel Real’s decision sent CapCities up $ 11.63 on Nov. 15 to close at $ 630.75. It clung to those gains until after the tender expired, shedding $ 7.50 a share Thursday to $ 630 amid late profit-taking.

The 100,000 other shares tendered likely came from small shareholders who wanted to avoid paying brokerage commissions or fund managers who needed to take a loss for tax purposes, industry sources surmised. Some sellers may have actually misunderstood the terms of the offer.

On Nov. 1, CapCities said it would repurchase 2 million shares via Dutch auction, possibly including one-third of Buffett’s holdings in an all-or-nothing deal. In the auction, shareholders would name a price between $ 590 and $ 630 at which they would be willing to sell. The web would then pick the lowest price in that range for 2 million shares and pay that amount for shares tendered at or below that price — anywhere from $ 1.18 billion to $ 1.26 billion.

Although CapCities did not get all its desired shares, the company’s notably prudent management still achieved some of its long-term goals. It shrank the shares outstanding — to 15.38 million. Despite the recent run-up, it did not exceed its specified spending limit, shelling out only $ 693 million. And Buffett’s 41.6% controlled Berkshire Hathaway Inc. trimmed its 18% holdings to about 13% without glutting the market and triggering panic sales.

“They knew that if Buffett threw them on the market, it would have depressed the price, said one analyst. “But to be able to do it with Buffett, they had to offer it to everyone. This was an accommodation to him.”

Recent erosion among certain media and entertainment issues has prompted some market minders to downgrade the sector on a price basis. A correction in CapCities shares would likely herald another opportunistic repo plan, industry types said.

“Cap Cities — more than most companies — is willing to let the stock go (up) and sit it out,” said Josepthal Lyon & Ross analyst Dennis McAlpine.

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