Accelerated Stock Repurchase Programs : Underreported and Overpriced? KLA-Tencor Addendum

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