Accelerated Stock Repurchase Programs: Underreported and Overpriced? KLA-Tencor Addendum
11 Pages Posted: 8 Jul 2008
Date Written: July 6, 2008
The current study briefly considers KLA-Tencor's 2007 $750 million accelerated stock repurchase (ASR). Companies commonly indicate ASRs contractually promise execution of stock buybacks at a discount to market. To the contrary, analysis of a small sample of 2006-2007 ASRs finds:
1) Inferior risk/reward relative to simple alternatives (inefficient execution), 2) Liability (ASRs are denied a 10b-18 safe harbor against charges of manipulation), 3) Disturbing, pre-deal, stock activity (prices rise 10% shortly preceding an ASR), 4) Idiosyncratic, incomplete, and sometimes misleading disclosures.
KLA-Tencor's 2007 ASR shares the above listed shortcomings. In particular, by electing to execute a stock buyback through an ASR, KLA-Tencor appears to overpay by at least 3-6% ($23 - $45 million) though incomplete disclosure makes any calculation of excess cost simply an estimate. As with all ASRs, KLA-Tencor exposes itself to governance liability since it is denied a 10b-18 safe harbor.
Keywords: KLA-Tencor, KLAC, Accelerated stock repurchase, ASR, stock buyback, share repurchase, VWAP, variable share, 10b5-1, 10b5 1, 10b-18, 10b 18, capital structure, dividend, Hewlett-Packard, HP,HPQ,Cypress, Cypress Semiconductor, CY, Applied Materials, AMAT, Xilinx, XLNX, Linear Technology, LLTC, payout
JEL Classification: G12, G24, G30, G32, G34, G35, G38, M41, M44, K22
Suggested Citation: Suggested Citation