Ultimi Barbarorum Exposes the Cisco Buyback Game

People dislike share buybacks because they often feel as though there are more productive uses for the company’s cash or they would prefer their capital back in the form of a dividend.  This is an argument that is open to debate as their are proponents on either side (cash payouts versus shrinking the float) with legitimate points.

But what about when a corporation is not merely pissing away cash by doing an ill-conceived buyback, but is actually using a repurchase plan to mask stock option dilution?

What happens when management pays itself a boatload in stock options at low issuance prices and then buys them higher as a matter of course?

How about a management team that uses obfuscatory statements about the timing of stock buybacks to manage their earnings growth and hide the natural dilution that should be apparent to investors?

I haven’t crunched the numbers here myself, but if Baruch and Bento are on the money, Cisco (CSCO) should be ashamed of itself and it’s shareholders should call for a stock option moratorium until Chambers et al come clean.

And just where is that $600 million?

We’re all aware that this stuff goes on, but I’ve yet to have seen such a succinct breakdown of this anti-shareholder practice until now.  Cisco is just one example of a company engaging in this, but it’s a good example because of it’s size.

Ultimi Barbarorum‘s resident Spinoza scholars/ fund managers absolutely nail it with this post…so perfect I won’t even print an excerpt here just to make sure you click over and read the whole thing.

If you’ve ever owned a share of a stock (especially a tech stock), check it out:

Cisco earnings wildly overstated: management milks shareholders for fun and profit (Ultimi Barbarorum)

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