Dell Inc.’s directors and top executives received a combined $59.1 million as part of the $24.9 billion leveraged buyout by Michael Dell and Silver Lake Management LLC.
The payout included partial compensation for options that couldn’t be exercised because their conversion prices were more than the purchase offer of $13.75 a share, according to filings with the U.S. Securities and Exchange Commission that were made public Oct. 31.
While the board and top managers received cash for their shareholdings in line with the offer, they shouldn’t have been rewarded for out-of-the-money stock options, according to Charles Elson, director at the John L. Weinberg Center for Corporate Governance at the University of Delaware. Dell took the company he founded in 1984 private to bolster its standing in the troubled personal-computer market, where consumers are shunning laptops and desktops in favor of mobile devices, and expand into corporate hardware and software. Shareholders approved the buyout in September and the stock was delisted Oct. 30.
“Underwater options don’t have value, so they shouldn’t have been given value,” Elson said in an interview.
Options holders were paid 10 cents to 70 cents a share for their out-of-the-money options, depending on the exercise price. Employees at the third-largest PC maker also received cash for their underwater options, said David Frink, a spokesman for Round Rock, Texas-based Dell.
“Stock options, whether they are in-the-money or out-of-the-money, have a value to them,” Frink said.
Of the $42.1 million paid to executives, $11.9 million went to 26-year veteran Jeff Clarke, who runs Dell’s PC business and is president of global operations.
The company’s 10 outgoing directors received $17 million as a group, with $10 million going to Don Carty, the former CEO of American Airlines who joined Dell’s board in 1992 and was chief financial officer in 2007 and 2008.
Michael Dell received a check for $461,752, for the 33,582 shares he owned in a retirement plan that weren’t rolled over into the private company, of which he now owns 75 percent. Dell has a net worth of $15.4 billion, according to the Bloomberg Billionaire’s Index.
The smallest payouts went to three of the four directors on the board’s special committee that handled the buyout process, which lasted for most of this year.