Good morning. In October 2008, with markets cratering and the financial system in crisis, Texas Instruments announced it would exit the cellular baseband chip business. The move was widely panned. The iPhone had launched eighteen months earlier and the smartphone market was accelerating. Nokia was the company's largest customer. Analysts downgraded. Competitors expanded into the space TI was leaving. The stock dropped more than 5 percent in after-hours trading on the announcement.

Nearly two decades later, the decision looks like one of the best capital allocation calls a public company has made this century. TI redeployed the freed capital into analog and embedded processing, businesses with structurally higher returns and longer product lives. The wireless chip industry it exited became a commodity dominated by Qualcomm and MediaTek.

Today's memo is a case study applying last Friday's framework to one company. TI has practiced the three disciplines, divestiture, buybacks, and counter-cyclical acquisition, with unusual consistency. The academic research explains why the pattern works. The track record shows what it looks like in practice.

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PART ONE

The 2008 Divestiture

In October 2008, TI announced it would exit the merchant baseband chip business and reduce wireless expenses by roughly $200 million annually. The cellular baseband unit had accounted for more than 20 percent of company revenue a few years earlier. Nokia was the primary customer and the shift to smartphones was accelerating. By most industry frameworks, this was exactly the wrong time to leave. The exit was staged over several years: the merchant baseband operation wound down by mid-2009, and TI completed the phase-out of its OMAP applications processor business in 2012.

The academic literature on divestitures suggests otherwise. Schipper and Smith, writing in the Journal of Financial Economics in 1983, documented significant positive announcement returns for voluntary spin-offs and asset sales, particularly when the divested unit was in a different industry or operating logic than the parent's core. John and Ofek extended the finding in 1995, showing that focus-increasing divestitures produced sustained operating improvements at the parent over the three years following the transaction. Desai and Jain in 1999 documented 36-month post-divestiture abnormal returns that were concentrated in exactly the cases TI's 2008 move fit: a parent selling a unit whose economics were diverging from the core business.

Wireless baseband chips required constant process-node investment to match cellular standards, carried customer concentration risk, and competed on price. Analog and embedded processing, by contrast, ran on older process nodes that amortized over decades, served thousands of customers with no single-digit concentration, and competed on engineering specification rather than price. The two businesses needed different capital intensity profiles, different R&D allocation, and different sales motions. Keeping them under one business meant neither got the capital focus they needed.

TI's subsequent decade validated the thesis. Analog margins expanded from the mid-30s to the mid-40s percent. Free cash flow per share roughly quadrupled between 2008 and 2020. The wireless business TI exited was, within five years, a commodity dominated by Qualcomm and MediaTek with razor-thin returns on capital. What looked like retreat at the depth of the financial crisis was disciplined capital reallocation toward businesses with durable economics.

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PART TWO

The Buyback Machine

Since late 2004, TI has reduced its share count by 47 percent through repurchases, a figure the company discloses on its own investor relations page. The program has been one of the largest and most disciplined in American corporate history. Crucially, it has not been continuous. TI has accelerated buybacks during market dislocations (2008-2009, 2015-2016, 2020, 2022) and paused or slowed them during capital-intensive cycles.

That pattern is the one Dittmar and Field identified in their 2015 Journal of Financial Economics paper as the value-creating version of repurchases. The infrequent opportunistic repurchaser earns discounts of 2 to 6 percent on purchases and captures positive risk-adjusted returns of roughly 0.3 percent per month for the three to thirty-six months following. The frequent routine repurchaser does not capture value for shareholders.

For comparison, Intel spent $108 billion on repurchases between 2005 and 2020 at an average price that turned out to be well above the stock's trading range in the years that followed. TI spent a comparable share of cumulative free cash flow on buybacks over the same period at prices that look, in hindsight, like bargains. The difference is not luck. Intel bought back shares to manage EPS against quarterly expectations. TI bought back shares when internal valuation frameworks said the stock was cheap. One is capital allocation. The other is financial engineering.

In the current cycle, TI has deliberately paused aggressive repurchases to fund a multi-year fab expansion in Texas, Utah, and elsewhere. The capex program is projected to run through the end of the decade. Investors who focus on near-term buyback yield have marked the stock down. Investors who understand the framework see the pause as the same discipline that drove the 2008 divestiture. When the marginal return on internal investment exceeds the return from share retirement, the capital goes to the investment. When it does not, the capital goes back to shareholders. The decision rule is consistent across two decades. The inputs change. The rule does not.

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PART THREE

The National Semiconductor Deal

In April 2011, TI agreed to acquire National Semiconductor for $6.5 billion in cash, paying $25 per share against a prior-day closing price of $14.07. The 78 percent premium drew criticism. Industry M&A volume was subdued. Most analog peers were retrenching rather than acquiring. TI's bid was the only competing offer National received. The deal closed in September 2011, funded with $3.5 billion of new long-term debt and existing cash balances. No equity was issued.

The academic framing for this is Harford's 2005 paper on merger waves, combined with Duchin and Schmidt's 2013 extension. Acquirers during industry merger waves underperform by 4.65 to 6.25 percentage points of annualized buy-and-hold abnormal returns. Acquirers outside of waves do not. 2011 was outside the wave. TI was willing to pay a premium to the market price precisely because no one else was willing to commit capital in the sector at that moment. The premium over the spot price was a discount to the long-term economic value of the asset.

Moeller, Schlingemann, and Stulz documented in their 2004 JFE paper that smaller, more focused acquirers outperform larger, diversifying ones. The National deal fit that description. It was not transformational in the sense of adding a new business line. It was concentrating, adding analog capacity to an already analog-dominated portfolio and eliminating a direct competitor. The integration was straightforward because the businesses overlapped almost completely. Synergies from manufacturing consolidation and sales force combination materialized within two years.

Andrade, Mitchell, and Stafford, in their 2001 Journal of Economic Perspectives review, observed that the M&A transactions that create the most value share common features: concentrated rather than diversifying, funded by cash rather than stock, executed outside of industry merger waves, and priced at discounts to a reasonable estimate of fair value. The National deal ticked every box. It also looked expensive at the time. Every transaction that fits the high-value pattern does.

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THE THROUGH-LINE

What the Track Record Shows

The divestiture, the buyback program, and the acquisition look unrelated on the surface. They share a common logic. Each decision got made when the marginal return calculation favored it and the consensus view opposed it. The 2008 exit looked like giving up on growth. The buyback cadence looked like financial engineering. The 2011 acquisition looked like overpaying in a downturn. In every case, the company was acting on an internal valuation framework that did not match the market's narrative framework.

The current fab expansion is the fourth instance. The market's narrative is that TI should return more cash to shareholders. The internal framework says that domestic analog capacity is a scarce strategic asset, that the capex payback extends over fifteen to twenty years, and that the supplier contracts signed during the buildout lock in volume economics that competitors cannot match. The decision rule is the same one that drove the earlier moves. The question is whether the payoff will look the same in 2040 as the 2008 divestiture did in 2020.

This piece argues about what to look for, rather than recommending TI as an investment today. Companies that execute on all three capital allocation disciplines over multiple cycles are rare. Most boards cannot sustain the discipline required. The ones that can tend to compound at rates that look ordinary quarter-to-quarter and exceptional decade-to-decade. TI is one of maybe a dozen public companies in the United States that fits the pattern. The harder question for allocators is how to identify the next one before the track record becomes visible.

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Tomorrow I will look at spinoffs from the opposite side. Friday's memo covered divestitures from the parent's perspective. The reader perspective, what happens to the spun-off company's stock, has one of the most consistent empirical patterns in corporate finance.

— Marques

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Marques Blank is the founder of Blank Capital (fractional CFO and FP&A advisory) and Blank Capital Partners. Former Northrop Grumman and Citibank. CMA, MBA, Series 65.

This newsletter is for informational purposes only and does not constitute investment advice. Research cited: Andrade, G., Mitchell, M., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic Perspectives, 15(2), 103-120. · Desai, H., & Jain, P.C. (1999). Firm performance and focus: Long-run stock market performance following spinoffs. Journal of Financial Economics, 54(1), 75-101. · Dittmar, A.K., & Field, L.C. (2015). Can managers time the market? Evidence using repurchase price data. Journal of Financial Economics, 115(2), 261-282. · Duchin, R., & Schmidt, B. (2013). Riding the merger wave. Journal of Financial Economics, 107(1), 69-88. · Grullon, G., & Michaely, R. (2004). The information content of share repurchase programs. Journal of Finance, 59(2), 651-680. · Harford, J. (2005). What drives merger waves? Journal of Financial Economics, 77(3), 529-560. · Ikenberry, D., Lakonishok, J., & Vermaelen, T. (1995). Market underreaction to open market share repurchases. Journal of Financial Economics, 39(2-3), 181-208. · John, K., & Ofek, E. (1995). Asset sales and increase in focus. Journal of Financial Economics, 37(1), 105-126. · Moeller, S.B., Schlingemann, F.P., & Stulz, R.M. (2004). Firm size and the gains from acquisitions. Journal of Financial Economics, 73(2), 201-228. · Schipper, K., & Smith, A. (1983). Effects of recontracting on shareholder wealth: The case of voluntary spin-offs. Journal of Financial Economics, 12(4), 437-467.