AOL Jumps on Buyback, Analyst Coverage

AOL Time Warner (NYSE: AOL) rose US$4.03 to $53.80 Friday after the newly merged company said it will buy back up to $5 billion of stock and sell $10 billion in additional securities.

Reports that Morgan Stanley Dean Witter analyst Mary Meeker began coverage of the stock with a strong buy recommendation and a 12-month price target of $75 also provided a boost.

Directors, at their first meeting, approved the buyback and securities sale to underscore the board's belief "in the underlying value of the company and its potential business opportunities moving forward," AOL Time Warner said.

The stock repurchase program will begin in February and continue over the next two years.

"We said we would hit the ground running, and that is exactly what we are doing," said chief executive officer Gerald M. Levin. "We have a clear road map for creating dynamic value for our shareholders, and the stock repurchase program we are announcing today is part of our commitment to improving the return on our invested capital."

Levin added: "Thanks to the strong growth prospects for our company, we're able not only to continue to invest in our world-class businesses, but to use a portion of our growing financial capacity to buy back stock at a time when we believe our shares are undervalued."

AOL said it will also file with the U.S. Securities and Exchange Commission (SEC) a plan to sell $10 billion in debt, common stock, series common stock, preferred stock and warrants to purchase debt and equity securities. Proceeds from the sales will be used for investments, capital expenditures, repayment of debt and financing acquisitions, among other things.