Intel Does Repricing Right

Editor's note: Contrary to reporting in a previous version of this article, AMD and eBay both employ value-for-value option exchange strategies, much like Intel's. The Fool regrets the error.

When Google (Nasdaq: GOOG  ) allowed employees to exchange their underwater stock options for freshly minted ones at a lower strike price, it was easy to get angry at the Big G. Isn't "repricing" just a twist on the old "backdating" scandals that rocked the markets just a couple of years ago?

And here we are again: Tech giant Intel (Nasdaq: INTC  ) is planning a repricing scheme of its own. But the chipmaker is taking several steps to avoid a firestorm of public backlash against this plan:

  • Unlike Google's repricing, which simply put a new price tag on each old options certificate, Intel plans a value-for-value exchange. More on the intricacies of that later.
  • Top executives like CEO Paul Otellini won't be invited to utilize the exchange program.
  • Executives won't get pay raises this year, and matching contributions to Intel's retirement-savings plan have been suspended. Intel's people aren't getting this options exchange for free.

These elements make Intel's plan look a lot like the ones followed by Starbucks (Nasdaq: SBUX  ) , rival Advanced Micro Devices (NYSE: AMD  ) , and online auctioneer eBay (Nasdaq: EBAY  ) , and less like Google's straightforward repricing.

Thanks to the value-for-value deal structure, Intel employees will get fewer options than they have now, sans the underwater strike price. The plan shouldn't change anything on the balance sheet, but will reduce the amount of dilutive options outstanding, and increase the chance of employees exercising their options in the future.

It remains to be seen how major shareholders and individual investors react to the announcement. But I believe that the spitballs will be few and far between: Intel's people don't get anything for free, while shareholders recapture some theoretical dilution and nobody owes a huge financial adjustment.

Well played, gentlemen. Now let's see whether that semiconductor rebound is for real, so your employees can get some actual value out of these brand-new options. That's what really matters to investors who don't work for Intel.

Further Foolishness:

eBay, Intel, and Starbucks are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breaker. eBay and Starbucks are Motley Fool Stock Advisor picks, too. The Fool owns shares of Intel and Starbucks. It also owns covered calls of Intel. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares in AMD and Google, and would really have preferred a value-for-value exchange for those companies, too. He holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2009, at 3:08 PM, markfenix wrote:

    I find it ironic that more often than not, motley fool keeps ripping up AMD while posting "cheery-fluff" like this on Intel. Does anyone really care? I've always found it more interesting to read about unbiased articles relating to strategies drummed up by underdog competitors.

    Ironically enough, Intel keeps getting picked-at slowly on the open market while AMD is slowly climbing upward thanks to new product innovation - do you think we'll see an article about AMD's promising results of server virtualization or another kick'm piece about speculation?

  • Report this Comment On March 24, 2009, at 3:13 PM, actue wrote:

    Anders, there is hope for you after all. This is one of the first articles about the Intel repricing that is accurate. I assume they will use the BSM Model to determine the # of new options vs the # of older ones.

  • Report this Comment On March 24, 2009, at 4:06 PM, directd wrote:

    "Intel getting picked on by the market"

    Are you serious?

    Intel has received upgrade after upgrade and has rallied from its 52 week low of 12 bucks to 15+.

    That 3 dollar increase is about the share price of 1 AMD stock.

    As far as MF's coverage is concerned: Hmm let's see Intel the #1 leader in its sector, no debt and a 4% yield vs AMD , distant 2nd, loads of debt and no yield

    Tough choice for the unbiased investor huh?

  • Report this Comment On March 24, 2009, at 4:18 PM, TMFZahrim wrote:

    Hey markfenix, I usually get knocked for being *too* AMD-friendly, so this is a refreshing change of pace. Thanks! :)

    Anders

  • Report this Comment On March 24, 2009, at 8:12 PM, TMFZahrim wrote:

    Okay, egg on my face: as it turns out, eBay and AMD are already doing the value-for-value thing with restrictions on executive participation and everything. Google is the lone black sheep here. My bad for using a secondd-hand source rather than going to the mattresse... to the SEC filings directly. We apologize for any confusion or inconvenience.

    Sheepishly,

    Anders

  • Report this Comment On March 25, 2009, at 11:22 AM, markfenix wrote:

    Anders,

    I didn't mean to go after you, but I think the other editors on the fool are constantly hammering a company that has not in anyway shown an interest in failing. It just seems like we see more negative press when in fact, AMD has the potential to be a real come-back kid.

  • Report this Comment On March 25, 2009, at 11:27 AM, markfenix wrote:

    directd, facts are facts and I'm not disputing the numbers, but Intel isn't going to make you more money than AMD. AMD has demonstrated a good financial plan and will shed the debt with the Foundry deal. Let's try this again in July and see who has the better return despite the rumblings.

  • Report this Comment On April 01, 2009, at 10:03 AM, jrbill67 wrote:

    Intel's made money for 40 years; AMD's lost money for 40 years; neither of these facts are going to dramatically change in the next 40 years. Intel has money, talent, capacity, technology, & a well known brand. My bet's on Intel, not AMD.

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