Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, October 12, 2009

Companies Awarded Execs Pre-Takeover Stock Options

Another stock options scandal?  Many corporations awarded stock options to their senior executives while they were engaged in undisclosed discussions about being taken over, the Wall St. Journal reports today.  As a result, the executives received a bigger payout when the takeover is announced.  Academic researchers examined over 100 deals between 1999-2006 in which target company CEOs received unscheduled stock options prior to the public announcement of the takeover, and the WSJ found 6 more since 2007, including options issued to Marvel Entertainment CEO before its acquisition by Disney.  This is a variation of the practice of "spring-loading," which received quite a bit of attention a few years back.  Companies are supposed to disclose in their proxy statements whether they have engaged in options timing practices.  WSJ, Option Grants Draw Scrutiny.

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