Capital Cities/ABC surprised investors Tuesday with plans for a 10-for-1 stock split to be ratified at its annual meeting in May.
That news sent the Alphabet web’s shares soaring $ 11.75 or 1.7% to $ 708.75 on unusually heavy volume of 650,000 shares and triggered a sympathetic boost for CBS Inc. — the other pure play TV stock — which rose $ 7.75 or 2.6% to $ 310 per share.
CapCities/ABC is well known for prudent investment strategy and propensity for re-purchasing its own shares given what management previously has termed a lack of value among current acquisition possibilities.
Control of an 18% stake by investor Warren Buffett’s Berkshire Hathaway Inc. and total institutional ownership of about 77% meant few CapCities/ABC shares were available to retail investors. The stock’s lofty perch in the triple digits also put it off limits for many would-be shareholders.
The web bought back about one million or one-third of Buffett’s shares at $ 630 per last December, trimming his stake to about 13% of its total shares outstanding.
“They have been so long at a price up where the air gets thin,” said Dennis McAlpine, analyst at Josephthal Lyon & Ross. “It meant to them that they could stay with the institutional side and not worry too much about the retail side.”
Shareholders must approve the proposal at the May 19 annual meeting before CapCities/ABC directors can determine a record date for the split. As of Feb. 28 , the web had about 15.34 million shares outstanding. CapCities/ABC also declared a cash dividend of 5 cents per share on its common, payable May 18 to holders as of March 31.
Since the announcement of the Paramount-Viacom merger last fall, investors have seized on media and entertainment companies as extremely attractive bets for the widely hyped interactive future. At its current valuation, CapCities/ABC shares are trading at a price-earnings ratio of about 25-to-1 based on 1993 annual earnings.
“It makes sense to split it so it can be more buyable by retail investors and institutions,” said Salomon Bros. analyst Frederick Moran. “It was a very prudent move to allow for proper valuation of the stock.” But he and other web watchers agree the split is unlikely to herald any change in management’s penchant for stock re-purchases.