DaimlerChrysler plans up to $10 billion share buyback

FRANKFURT (Reuters) - Flush with cash after selling Chrysler, DaimlerChrysler (DAIGn.DE) will spend up to 7.5 billion euros ($10.20 billion) to buy back nearly 10 percent of its shares over the next year, the carmaker said on Wednesday.

The move eclipsed second-quarter results that met market expectations and revealed how DaimlerChrysler will return excess funds to shareholders after selling a majority stake in its struggling U.S. arm to buyout group Cerberus Capital Management.

Chief Financial Officer Bodo Uebber told an analyst conference call that more shareholder rewards could follow if the group's focus on higher-margin cars, trucks and financial services continues to bear fruit.

"Based on the further development of our earnings, cash flows and net liquidity, we may decide upon further buyback programmes or dividends in the future," he said.

The shares it buys back now are to be cancelled, which has the effect of boosting earnings per share.

"This is a logical step to take in view of the high net liquidity in the industrial business as well as the good prospects for earnings and cash flows in all divisions," the carmaker said in a statement.

Uebber said net liquidity of 13.9 billion euros at its industrial business was far more than needed.

UPBEAT ON U.S. SALES

Its stock reversed declines on the buyback news and rose as much as 2.7 percent before ending up 0.9 percent at 63.26 euros.

Daimler trades at around 12 times consensus 2008 earnings per share, according to Reuters Estimates, an 8 percent premium to the European sector average of 11.1 and above arch-rival BMW (BMWG.DE) at nearly 10 times.

The sale of an 80.1 percent stake in Chrysler and its North American financial services business for 5.5 billion euros pushed the company -- to be renamed Daimler AG in October if shareholders agree -- out of the world's 10 biggest carmakers.

But the move has also cut its exposure to gyrating earnings at Chrysler by breaking up a failed $36 billion transatlantic car merger struck in 1998.

Chief Executive Dieter Zetsche said the company was "somewhat concerned" that credit market uproar could weigh on the underlying economy and slow economic growth, but said U.S. sales of the flagship Mercedes-Benz brand should not suffer.

"Perhaps some realtors and some mortgage fund managers will buy less Mercedes and BMWs and Porsches. Overall...the assessment of our people at the front, in the marketplace in the U.S., is that they will meet and beat their plans," he said.

The only issue was whether Mercedes had enough cars -- especially its new C-Class model -- to go around, he added.

Shorn of Chrysler, second-quarter earnings before interest and tax were 2.13 billion euros, down 10 percent from a year earlier when it booked a one-off gain worth over 800 million.

Revenue slipped 3 percent to 23.8 billion euros.

The company forecast that the group in its new structure would have 2007 EBIT of around 8.5 billion euros. EBIT at its market-leading trucks business would stay roughly flat despite sharp market downturns in the United States and Japan.

DaimlerChrysler said it now anticipated a charge against earnings of 2.5 billion euros in 2007 as a consequence of the Chrysler sale. This is less than the estimate of 3-4 billion euros it had made in May.

"What the markets are worried about is not one-off charges but ongoing earnings capability and I don't think this has really changed much at all. In a certain sense I think this is a non-event," said Sanford Bernstein analyst Stephen Cheetham.