Wednesday, February 12, 2014

In Addition To His $14.3 Million In Stock "Outright", Mr. Frazier Holds "Rights To Acquire" At Least 1.3 Million MORE Shares: Well-Aligned.

As a few more semi-automated drone-financial-publishers blather on -- about Mr. Frazier's exercises and sales of yesterday, I thought I'd call out, as a new post, the vast number of shares he has the right to acquire. And these shares are in addition to his direct holdings. That "right to acquire" figure stands at at least 1.32 million, as of the last proxy filing (see page 46). [He has been granted more since then, but I'll not dig through the SEC archives to find them, as we will see them in a few weeks, as updated, when Merck's new proxy for this year-end cycle is filed.]

Significantly, with Merck trading at or above $53 on the NYSE over the last few weeks, all of these 1.32 million option shares are "in the money". That is, Mr. Frazier could immediately exercise about one million shares (the other 320,000 or so will vest in the coming couple of years) -- if he chooses to suffer through, and pay the taxes, at ordinary income rates (as opposed to capital gain rates) -- and sell them without any meaningful risk of any loss. In that sense, these 1 million option shares (albeit unexercised, but vested) should be seen as additional equity interest alignment, with the common shareholders.

Now, it is certainly true that his losses, overall, should the stock turn south, at least on these 1 to 1.32 million shares, will be proportionately smaller than those experienced by an ordinary common shareholder holding a like amount, for he will have paid less for his, in all likelihood. And should Merck stock roll onward, north -- his gains will be amplified, as compared to a straight common holder, on these 1.32 million shares (as again, he has paid less, in all likelihood). [The graphic at right shows the fully granted amount of unvested options, as well -- as a separate line item for 1.2 million shares.] But remember, he also holds $14.3 million worth of "ordinary" common shares. In that sense -- he IS a common stockholder (and a very large one).

So, I guarantee you that his interests are very-closely aligned with those of the the common stockholders. [Some other quiet snowy morning/day, I will contrast this Merck philosposhy of compensation/incentive alignment (with the ordinary stockholders), with the runaway land-grabs authorized at legacy Schering-Plough, by its board compensation committee, and compensation consultants. There the bets were always stacked -- so that from 2005 to 2009, at least, the executives (especially the Chairman and CEO) literally could not lose. That's my experienced opinion. And Mr. Hassan walked away with perhaps $235 million, all in, for wrecking the company. Nice.] Yes. Another day. Another day. Keep calm, and. . . Carry on.

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