siliconvalley.com
Cash for options popular at Siebel
By Mark Schwanhausser
Mercury News
Nearly 3,400 Siebel Systems workers have voted with their pocketbooks. They gave up long-shot stock-option payoffs for a sure thing: trading in nearly 90 percent of their eligible ``underwater'' options for $1.85 a share in cash or stock.
Siebel's offer to buy back its options will trigger an estimated $56 million charge to the software company's third-quarter earnings, which will be reported at mid-month. Siebel initially had predicted the deal would cost nearly $64 million.
Stock options typically give employees the right to buy company stock for 10 years at a price set on the date of the grant. If the stock price rises above that price, they can buy the stock at a discount. If the price drops, however, the options are essentially worthless or ``underwater.''
Leading the way
Up to now, Silicon Valley companies have tended to reprice or exchange options when stock prices tank. But Siebel could be a pioneer as companies struggle to satisfy workers who have lost hope that their boom-time options will ever pay off. Last week, for example, graphics-chip maker Nvidia offered a similar deal despite a potential $66 million charge.
``Nobody wants to be first, but once someone does, they follow them,'' said Matt Ward, who heads WestWard Pay Strategies, a San Francisco compensation consulting firm. ``Basically, we have a lot of lemmings out there, and they will follow Siebel into the sea.''
Under its innovative deal, San Mateo-based Siebel offered workers $1.85 a share for every stock option with an exercise price of $40 or more. Those with pay-outs less than $5,000 would get cash. The others would receive Siebel stock, half of which could be sold immediately.
Top executives and directors, including Chairman Thomas M. Siebel, were not eligible.
In a report filed with the Securities and Exchange Commission on Thursday, Siebel said 1,390 workers accepted cash totaling nearly $4.5 million before taxes. About 2,030 other workers exchanged 25.6 million options for 5.3 million shares of stock, after accounting for withholding taxes.
Siebel's stock closed Thursday at $5.53. That's down 37 percent since Siebel made the offer Aug. 29, and it's down 85 percent from its 2002 peak in January.
`Pragmatic move'
Despite the $56 million earnings charge, Siebel's option buyback was a ``pragmatic move,'' said Bob Austrian, a software analyst for Banc of America Securities. For one thing, Siebel eliminated options that one day could have diluted shareholder holdings by 14 percent.
But more important, it was a way to buy back employee morale. The Siebel workers who declined the trade-in offer won't get a payoff from their options unless Siebel's stock climbs seven to 20 times in value over the next eight years.
Although Siebel stock rocketed 29-fold in just two years in its heyday, the 3,400 workers who accepted the deal apparently doubted Siebel's prospects during this protracted bear market.
``I suspect employees see this as godsend,'' Austrian said. ``In a sense, they've reduced the uncertainty in the equation for employees. They're giving away long-shot odds of big money in exchange for certain odds for something tangible but smaller.''
That's not to say employees have lost faith in stock options altogether, said consultant Ward. ``I think it's a referendum on underwater stock options. I don't think anybody objects to getting new ones going forward.''
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