Abstract
A case study of Intel's 2004-2007 buybacks extends a series of reports on the division in buyback benefits between shareholders and management options. Intel spends $23.1 billion to repurchase 14.3% of its outstanding shares. The stock subsequently rises 0.7%. Intel shareholders by -$0.05 (-0.2%) before tax due to the direct effect of the buyback; Intel executives benefit by up to $3.46 per option. Future stock price fluctuations will change actual returns on Intel's buybacks, but the advantage to executive (and employee) options will persist. In addition to salary and bonus for running operations, execs with options receive hedge fund type 2/20 fees from their buyback work. The skewed returns are paid by shareholders and tilt management preferences towards buybacks at the expense of dividends and/or business reinvestment. Four remedies are suggested to rebalance dividend, buyback, and reinvestment incentives. Companies should report: 1) Absolute accretion from buybacks2) Option expense at time of exercise3) Monthly VWAP at time of buybacks4) Income on buybacks
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