Who gets the money spent on share buybacks?

Sorkin quotes Warren Buffetts 2011 annual letter, where the Sage of Omaha explains why he likes stock buybacks. He explains that if IBM starts with 1.16 billion shares, and buys back 250 million shares over five years, then at the end of that period there would be just 910 million shares outstanding. On the other hand, he says, if IBM bought back 167 million shares, there would be 990 million shares outstanding.

But thats simply not true: Warren Buffett should spend more time reading blogs like Ultimi Barbarorum. While shareholders love to think that share buybacks are a way to give money to the owners of capital, a lot of the time theyre a back-door way of giving money to high-priced producers of labor, a/k/a senior management. The Ultimi Barbarorum post mentions Cisco, for instance, which managed to spend $600 million on its own stock in one quarter, without the share count falling at all.

-Felix Salmon on Medium

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