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Messier's Misleading Stock-Option Math

The notion of hierarchy is important in French companies. But when communications giant Vivendi Universal launched an "exceptional stock options plan for everyone" on Jan. 1, 2000, it looked as though the corporate class system was being overthrown.

Some 250,302 employees received roughly 10 options at $57.60 per share. These could be exercised starting Nov. 26, 2002. "A few months later, the value of these options already represented a potential capital gain of thousands of francs: an increase well above what a modest employee could expect as a pay raise," explains Jean-Marie Messier, Vivendi Universal's CEO, in his book, Is There Reason to Fear the New Economy?

NO MIRACLE. But the reality of the stock-options miracle has turned out to be quite different, at least for Vivendi's employees. With the company's stock worth $61.60 at closing on Mar. 2, employees who bought stock options actually hold in their hands a potential capital gain of only $40.

Even more misleading are figures Messier gives for the value of his own stock options. At the time Messier wrote his book in 2000, Vivendi stock was worth $83. Messier explains that "the total of options I have received since my nomination represents 0.33% of Vivendi's capital, which amounts to 2 million options over five years. On this basis, my portion of capital corresponds to net assets of $21 million." But what does Messier mean by "net assets," when he talked about "potential capital gain" for the "modest" employees?

Messier's explanations are unclear. However, by taking the information he has given, it is possible to estimate, very conservatively, that Messier's potential capital gain was actually between $31 million and $73 million at the time his book was published -- not $21 million.

EXCEPTIONAL PLANS. The actual numbers are easy to figure out. In J6M Messier wrote that he received his options "mainly as part of two exceptional plans granted to top managers" in 1997 and 1999.

However, even if Messier, with his 0.3% of Vivendi capital, had benefited from the least favorable stock-option plan in five years -- which happened to be in May, 1999, at $67.17 -- he would have made a potential capital gain of $31 million.

And if Messier had benefited from the least advantageous plan in 1997, at $47.86, the potential capital gain would have been more than $73 million. In Vivendi's case, at least, stock options don't seem to have brought about a breakdown of company hierarchy, they have just masked it. By Adrien de Tricornot

Translated by Inka Resch

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