Intel Corp. may have to pay almost $1.4 billion to investors who own securities known as put warrants, now that its common stock has dipped below $70 a share.
The Santa Clara-based chip manufacturer last year sold 46 million of these warrants, which let investors sell or "put" stock back to Intel at a set price. Intel received $288 million in premiums by selling the warrants, and investors were able to insure their holdings against falling share prices.
Investors can use this insurance to force the company to repurchase millions of shares at above-market prices. While that ultimately raises the cost of the company's stock repurchase program, analysts expressed little concern, because Intel is sitting on about $10.3 billion of cash and short-term investments.
"Given the cash position of the company, it is not going to have an impact," said Ashok Kumar, a technology analyst at Piper Jaffray Inc. The put payments amount to "interest on their checking account really."
The repurchases won't affect earnings, because Intel sets aside reserves to cover the full cost of its put warrants, said spokesman Tom Waldrop.
But since Intel's shares have fallen recently, the put warrants may force the company to pay high prices for stock trading at bargain levels.
Intel shares have dropped about 33% from a high of $102 in August. Shares rose $2.25 to close at $68.19 on Nasdaq.
At that price, all 17.8 million of the outstanding put warrants can be profitably exercised. According to the quarterly report, the warrants entitle investors to sell stock back to Intel at $69 to $95 a share, with an average exercise price of $80 a share.