Mercedes 2008 Annual Report Download - page 41

Overview of the Group |Daimler Shares |37
As the second quarter progressed, many investors increasingly
assumed that economic growth would slow down more than had
been expected and that the period of economic weakness would
last longer than in previous downturns. The share price was also
depressed by high raw-material costs, the ongoing rise in the
price of oil, and the extremely weak dollar. In this negative envi-
ronment, Daimler’s share price fell to just below €40 at the end
of June and remained around this level during the third quarter.
Although shares were attractively priced, increasing indications
that the financial market crisis was affecting the real economy
led to low levels of stock purchases by institutional investors in
the fourth quarter of 2008. Share prices fluctuated sharply, not
only due to significantly reduced expectations for profits and cash
flows on the part of investors and analysts because of the eco-
nomic downturn, but also resulting from market and portfolio
trading strategies. For example, many investors who had
financed their shareholdings in Daimler with borrowed capital
were forced to sell some or all of their Daimler shares with high
losses because their banks demanded repayment of their loans.
At the end of 2008, Daimler’s share price closed at €26.70 in
Xetra trading in Frankfurt and at US $38.28 in New York.
This was equivalent to a market capitalization of €24.8 billion
or US $35.5 billion. In the first few weeks of the year 2009,
markets were unable to defend the gains made at the end of last
year. Due to the renewed weakening of the financial sector,
stock markets generally came under pressure. Daimler’s share
price was unable to avoid this trend.
Although the market is aware that Daimler’s share price is very
low in historical terms at the time of this report being prepared in
February 2009, investors are still unwilling to purchase our
shares. Most of the institutional investors are waiting until a clear
picture emerges of the future development of our earnings and
cash flows. The credit crisis has also caused uncertainty about
how and at what costs the automobile manufacturers will be
able to refinance their financial services business in the future.
From today’s perspective, it is not possible to reliably predict
when the stock markets will return to a long-term upward trend.
This very much depends upon when investors start to assume
that the general economic situation will improve once again.
Optimization of capital structure with share buyback pro-
gram. In order to optimize Daimler’s capital structure, on the
basis of the authorization granted by the Annual Meeting on April
4, 2007, the Board of Management and the Supervisory Board
approved a share buyback program in August 2007. The back-
ground to this decision was the high net liquidity and high
equity ratio in the industrial business following the separation
from Chrysler. The optimization of the capital structure has the
goal of reducing the use of equity capital, which is more expen-
sive than borrowed capital. This should prevent investment
decisions being limited and growth opportunities not being uti-
lized due to the excessive cost of capital.
In exercise of the authorization granted by the Annual Meeting on
April 4, 2007, 49.8 million shares were bought back for a total
of €2.7 billion in the months of February and March 2008. All of
those shares were cancelled without any reduction in the capital
stock by April 2008. As a result, the proportionate share in the
capital stock of each no par value share increased from €2.73
to €2.87.
The Annual Meeting of the shareholders held on April 9, 2008
approved a new authorization to buy back a maximum of 10% or
approximately 96.4 million of the outstanding shares. In the peri-
od of June through October 2008, we bought back 37.3 million
shares for €1.4 billion under this authorization. Due to the wors-
ening of the worldwide financial and economic crisis and its
impact on the real economy, Daimler discontinued implementa-
tion of the share buyback program on October 24, 2008.
Employee share program with enhanced attractiveness. In
two offers made in the year 2008, eligible members of the work-
force were once again able to acquire employee shares with tax
advantages. In the second action in October, Daimler made a
one-time offer of up to two bonus shares per person, thus provid-
ing a bigger incentive for employees to acquire shares in their
company. The response was strong: In 2008, approximately
41,300 employees (or 24% of those eligible) purchased a total of
973,000 employee shares.
10
00
20
30
40
50
60
70
80
12/0811/0810/089/088/087/086/085/084/083/082/081/08
Daimler share price (high/low), 2008
in €
Dow Jones STOXX Auto Index
DAX
Daimler AG
100
90
80
70
60
50
40
30
110
Share price index, 2008
12/31/07 2/29/08 4/30/08 6/30/08 8/29/08 10/31/08 12/31/08