U.S. Sen. Elizabeth Warren (D-MA) and U.S. Rep. Sean Casten (D-IL) are urging BAE Systems not to engage in stock buybacks during the time it is using funds from a Department of Commerce grant.
BAE Systems recently got preliminary approval to receive $35 million from the U.S. Department of Commerce in CHIPS and Science Act federal grant funds. This is the first CHIPS grant awarded by the Commerce Department.
In a letter to BAE Systems president and CEO Tom Arseneault, the lawmakers expressed concern over BAE Systems’ history of large share repurchase programs – also called stock buybacks. The Congress members asked BAE to refrain from them for the duration of its CHIPS Act grant.
“We are concerned by BAE Systems’ history of engaging in massive stock buyback schemes that divert capital away from important investments. This history of buybacks raises serious concerns about BAE Systems’ intent to comply with the requirements of the CHIPS incentive programs. We urge BAE Systems to hew to the spirit of the law as passed by Congress, as well as guidance issued by Commerce, and refrain from engaging in stock buybacks for the duration of its CHIPS Act grant,” they wrote in the letter.
The CHIPS and Science Act contains several provisions outling exactly how award recipients can use program funds. The Department of Commerce reiterated this requirement by announcing it would make certain that awards were not used as “a subsidy for companies to make them more profitable or enable them to have more cash for stock buybacks or to pad their bottom line(s).”
Further, Section 102(g) of the CHIPS Act explicitly forbids companies from using CHIPS funding to engage in stock buybacks.
In the ten years prior to passage of the CHIPS and Science Act, BAE Systems paid out nearly $9.4 billion to shareholders in dividends and stock buybacks. In June 2023, the company commenced the third round of a nearly $2 billion stock buyback program while authorizing another roughly $2 billion in stock buybacks over the next three years. This new authorization falls squarely within the period of its CHIPS Act award.
The lawmakers pointed out that BAE Systems has made no public indication that it plans to suspend its most recent round of stock buybacks after receiving CHIPS Act funding. The Congress members said this would seem to run counter to the intent of the law.
“Expanding domestic capacity for chip manufacturing is critical to U.S. national security. Congress placed explicit guardrails on the use of CHIPS and Science Act incentives to ensure recipients use those funds for their intended purpose. In light of BAE Systems’ near-constant, decade-long stream of stock buyback programs raises, it is imperative the public know what commitments the company has made to protect taxpayer funds from diversion and misuse,” Warren and Casten wrote.
The lawmakers requested answers to a series of questions, including how the company will segregate CHIPS funds to ensure that they are not used for or to enable buybacks.