Tuesday, February 11, 2014

Chairman & CEO Kenneth C. Frazier Still Owns Over $14.3 Million Worth Of Merck Stock -- He Is Well-Aligned.

Several Wall Street wags/rags are making a story tonight, out of the fact that Mr. Frazier sold off about $2.2 million worth (that's the SEC Form 4) of his Merck common stockholdings today. Yawn. Here's a considerably more-sophisticated, and more nuanced analysis:

(1) He still holds essentially the same amount of stock he held -- overall -- a few days ago (his next most recent SEC Form 4, from May of 2013, bears this out -- do take a look, if you are a skeptic). That's over $14.3 million worth. (2) He had 45,000 shares (granted in February 2005) represented in vested and unexercised employee stock options -- strike-priced at $48.24 -- that were set to expire worthless, if he did not exercise them, by the end of February 2014. (3) That he did, today -- adding to his common stock holdings by 45,000 shares. (4) He will owe taxes on that gain, so he sold some of the shares to pay the taxes on the gain. (5) True enough -- he sold more shares than just enough to cover the tax-burden.

But pulling back a bit -- to see the forest, here, not the bark, on just one tree -- (6) all he really did today was avoid INCREASING his overall stake in the company. And (7) at $14.3 million -- it is likely his largest single owned-asset class. (8) He SHOULD diversify his assets, if for no other reason than his entire paycheck comes from that same place. That's just smart business -- and (9) not a bad thing for Merck, overall. Not that he is hurting, mind you -- but sound financial planning advice always includes. . . that's right! -- (10) diversification.

The wag then, again -- and my edits:

. . . .Kenneth C. Frazier sold 41,520 shares of the company’s stock in a transaction dated Tuesday, February 11th. [EDITOR'S NOTE: he also acquired 45,000 more (same day), from stock option exercises.] The shares were sold at an average price of $54.52, for a total value of $2,263,670.40. Following the completion of the transaction, the chief executive officer now directly owns 262,829 shares of the company’s stock, valued at approximately $14,329,437 [EDITOR'S NOTE: Which is about the same dollar-valued amount he held this morning, before the sales, and exercises]. . . .

UPDATED | 02.12.14 @ 8 AM EST: I am adding have added a new post, above, to detail just how well aligned Mr. Frazier is -- with the stockholders' interests. See it in a minute.

Again, to be clear, this is in no way a bearish sign. Now you know. [For the sake of a complete record, I ought to note that the retiring Controller, John Canan also conducted a similar, though smaller, series of transactions yesterday. As did two directors, and the EVP and President of MMD.] Be excellent to one another.

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