Yeah, It's Still Water
Comment of the Day

October 28 2019

Commentary by Eoin Treacy

Yeah, It's Still Water

This article by Ben Hunt for Epsilon Theory may be of interest to subscribers. Here is a section:

Over that same time span, Texas Instruments sold 90.8 million shares to management and board members as they exercised options and restricted stock grants, for a total of $2.5 billion. That works out to an average sale price of $27.51.

The difference in average purchase price and average sale price, multiplied by the number of shares so affected, is the direct monetary benefit for management. This is true whether or not management sells their new shares into the buyback or holds them. That amount works out to be $3.6 billion.

In other words, 40% of TXN’s stock buybacks over this five-year period were used to sterilize stock issuance to senior management and the board of directors.

In other words, senior management and the board of directors received $3.6 BILLION in direct value from these stock buybacks.

But wait, there’s more …As of December 31, 2018, there were still 40 million shares outstanding in the form of options and restricted stock grants to management and directors, at an average weighted exercise price of $55.

At today’s stock price, that means there is an additional $2.6 BILLION in stock-based compensation already awarded to TXN’s executives and directors.

Eoin Treacy's view

This point about the quantity of shares not declining even through share buybacks have been going on for more than a decade is a topic which is getting increased airplay since Yardeni Research first highlighted it in March. 

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