04 October 2009

Marvel CEO Got Options Prior To Disney Deal

Story from the Wall Street Journal

Marvel Entertainment Inc. Chief Executive Isaac "Ike" Perl-mutter was granted stock options for more than a million shares in the weeks after a subordinate opened discussions with Walt Disney Co. that ultimately led to a merger agreement, according to a filing Disney submitted to the Securities and Exchange Commission.

Mr. Perlmutter stands to reap more than $34 million from the 1.27 million options, granted at strike prices ranging from $23.15 to $25.86 -- around half the $50 Disney has agreed to pay for each Marvel share as part of its $4 billion acquisition, which was announced Aug. 31.

According to the filing, David Maisel, chairman of Marvel's film division, met with Disney's CEO, Robert Iger, on Feb. 18, 2009, "to discuss ways in which the relationship between the two companies could be expanded."

The document, filed late Tuesday, adds that Mr. Maisel didn't mention the meeting to anyone else at Marvel, including his boss, Mr. Perlmutter, because the conversation was "general" in nature.

Less than two weeks later, on March 2, Mr. Perlmutter was granted options for 514,354 Marvel shares with an exercise price of $25.86.

On March 23, he was granted options to buy another 750,000 shares for $23.15 each.

According to a timeline in the filing, months passed and Messrs. Iger and Maisel next met again on June 2. This time, the Marvel executive told the Disney chief "that he would pass on the interest expressed by Mr. Iger to Mr. Perlmutter."

Talks accelerated rapidly from there, with numerous executives from both companies meeting throughout the summer, culminating in the merger agreement reached Aug. 30.

At the time of the March 2 grant, the company said 514,354 options were a reward for the company's 2008 performance. In the company's latest proxy statement, the board compensation committee said the option grant occurred a month after it dropped plans to instead bestow restricted shares valued at $4.3 million.

The company described the March 23 award of 750,000 options as part of an agreement to extend Mr. Perlmutter's contract, which had been due to expire in November of this year. Renewing an employment contract so far in advance "is a little unusual," said Mark Reilly, a partner at 3C, Compensation Consulting Consortium, who hasn't done work for Marvel or Disney.

The proximity of the options grants to the first meeting was reported Wednesday by Footnoted.org, an executive-compensation blog.

For years, Marvel in early March has awarded its executives restricted stock, not options. Only Mr. Perlmutter received options instead of restricted stock this year, according to a filing, which said the options "could provide him with a greater incentive to continue and improve upon his strong performance."

According to another Marvel filing, Mr. Perlmutter in April of this year did a "net exercise" of 333,333 stock options, garnering 21,149 shares.

Mr. Perlmutter holds about 28.9 million shares of Marvel, or around 37%.

Asked about the Marvel options, Disney said "the filing speaks for itself."

Although Mr. Perlmutter's ability to exercise the options was initially spread over several years, the Disney deal changes that. "Mr. Perlmutter's options will become fully vested immediately prior to the completion of the merger," the filing says.

Whether the two option grants to Mr. Perlmutter violated securities law would partly depend on whether any Marvel board members were aware of the Maisel-Iger meeting, according to a New York securities lawyer.

"If the board didn't know, they didn't do anything wrong," the securities lawyer said. But if board members were aware of a possible business combination, the lawyer continued, "that certainly is a securities law violation."

The filing says Mr. Maisel didn't disclose the meeting to "anyone else at Marvel."

Mr. Maisel's background is in corporate strategy, not in the creative side of the film business, and he was named as a senior executive at Marvel Studios in 2004, largely in order to bolster the film unit's fiscal discipline. People close to Marvel say he regularly meets with executives of other entertainment companies to discuss issues such as strategic alliances and distribution deals.

The company's filing said that Mr. Maisel had met "periodically" in the past with Mr. Iger on such subjects.

Asked to specify when or how often other such meetings had taken place, a Marvel spokesman said Mr. Maisel was unavailable.

The filing is an SEC S-4, a document offering details of a merger or acquisition.

The deal is still subject to shareholder approval.

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