Wall Street Journal
Are Options an M&A Bribe? (Not That There’s Anything Wrong With That) >
By Mark Maremont >
David Yermack, a finance professor at New York University’s business school, says doling out new stock options to target company CEOs in the midst of merger talks is like a “bribe” to get them to go along with the deal. >
But that may not be such a bad thing, he says.>
Yermack was reacting to this page one article in Monday’s Wall Street Journal that focuses on cases in which target companies award unusual stock-option grants to their executives during merger talks. The executives often pocket millions of extra dollars from the new options when a deal later is announced and closes.>
Yermack, who is credited for first uncovering the practice of stock-options timing by companies more than a decade ago, says handing out pre-deal grants isn’t much different from golden parachutes or special deal-related bonuses. Such goodies tend to smooth the way for CEOs to agree to sell their businesses, he says, rather than fight to hang on to their well-paid jobs. >
“You have to ask the question, would the CEO have advanced the deal if he hadn’t gotten a payoff?” Yermack says. “This may resemble what’s been done with the tacit agreement of shareholders for a long time.” >
Still, Yermack says he would prefer to see better disclosure of pre-deal options grants. The only way to discover them is by piecing together disclosures in multiple regulatory filings. Just as with golden parachutes, he says, shareholders deserve to know how much extra they are giving to their hired managers in the context of selling the company. >
Meantime, Larry Ribstein, a University of Illinois law professor, at his Ideoblog is pondering the phenomenon and hoping that, though the practice may be legal, “misguided federal regulation” won’t result. >
Access article and imbedded links: http://blogs.wsj.com/deals/2009/10/12/are-options-an-ma-bribe-not-that-theres-anything-wrong-with-that/
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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