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Yesterday, we expressed some doubts over the wisdom of AMD's $300 million share buyback (see AMD to buy back 'undervalued shares). Today, we bring you two counter-arguments - and pretty persuasive ones at that.

First up, we can thank Isak Swahn for alerting us to this post on Raging Bull's AMD message board Apparently, the share buyback is a wizard wheeze that exploits "the biggest corporate tax loophole in history". You can read how it works here, but you may have to register first.

While $300 Million (US) doesn't sound like alot to some people. It is to AMD. Think of it this way. $300m @ $23/share could buy just over 13 million shares. 13 million share is about 5.7 per cent of the AMD share available on the market (known as "float"). The other shares are held by AMD/AMD management.

If Intel were to purchase 5.7 per cent of their "float" it would cost them $13.2 BILLION. Here's a scary thought... AMD is only currently worth about half that, even when you add in the value of the shares "held by AMD/AMD management". Maybe Intel is an 800Kg gorilla?

This is indeed a large buy for AMD. It will take some time to execute and I'd imagine the stock price would go up at least another 10-25 per cent while they do it.

Similar things happened when Fidelity bought in some
time ago... and the opposite when they sold as well I believe.

So there you have it, AMD is a corporate finance genius after all. ®

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