Merger speculation has boosted Sprint’s stock and triggered a windfall of company shares currently worth $411.5 million to employees — all 27,000 of them.
The payday will come in the form of 50 million Sprint shares. They are scheduled to be delivered in two equal batches, the first half in 2020 and the rest in 2021, to employees who manage to hang on to their jobs.
Exactly what each employee’s windfall is worth will depend on the market price of shares at the time.
Sprint promised the shares to everyone on the payroll last September. The number of shares was prorated according to job levels right down to the clerks in Sprint stores.
CEO Marcelo Claure previously was promised 10 million shares tied to a turnaround in Sprint’s fortunes. Last year, he persuaded the board of directors to add more shares to the pool and include all employees in the deal.
This would get everybody pulling in the same direction, doing whatever their jobs allowed to improve Sprint’s situation. It would mean everyone would share in the benefits of the turnaround.
The turnaround’s success, and the payout of shares to employees, would be measured by Sprint’s stock price.
Shares were trading at around $6.50 when the turnaround incentive shares were promised to rank-and-file employees last September. The price would have to climb above $8 and stay there for 150 trading days for everyone to earn those promised shares.
Prices promptly began the necessary climb starting Nov. 9 — the day after Donald Trump delivered a surprise election victory.
Analysts immediately reasoned that a Trump administration would be more likely to approve a Sprint merger with T-Mobile than the departing Obama administration had been. Sprint Chairman Masayoshi Son had dropped his public hopes of a merger in mid-2014 when it became clear that Obama’s Washington wouldn’t approve a merger.
Post election, Sprint shares quickly passed $7 and then $8.
The stock reached $8.90 in early December when then president-elect Trump publicly touted the job-creating promises of Son, who stood by his side at Trump Tower. This, analysts said, was a prelude to Sprint asking the new administration for a merger with T-Mobile.
Merger talk of one kind or another has persisted and so has Sprint’s higher stock price. Officially, the turnaround incentive awards met the 150-day threshold above $8 on March 9, according to Sprint spokesman Dave Tovar. Employees were notified that day in Claure’s weekly electronic newsletter.
Shareholders were notified in Sprint’s annual proxy statement filed with the Securities and Exchange Commission.
Could Sprint shares have made the move above $8 solely on the company’s turnaround progress?
“No. I don’t believe so,” said Vivek Stalam, an analyst with New Street Research. “You can see where it was trading prior to the election.”
The pre-Trump prices — around $6.50 — reflected the considerable progress Sprint had made in its still incomplete turnaround, Stalam said. The company had steadied its revenue collections, begun to add new subscribers and filled its cash needs with innovative borrowing deals.
Tovar acknowledged that Sprint is roughly midway through its five-year turnaround plan, which Claure developed after becoming CEO in August 2014.
The turnaround incentive shares come with a catch. Employees have to hang on to their jobs to collect all that’s coming to them.
Control of the shares is tied up until they vest to the employees. Half the shares will vest to employees four years after they were awarded, or in September 2020. The other half vest five years after the award, or September 2021.
Tovar said terms of the deal allow an employee to receive a pro-rata share of the award if they are still employed at the two-year mark in September 2018 and their job is eliminated before the 2020 or 2021 vesting dates.
Although Sprint has not had a major layoff for some time, its payroll continues to shrink. The company reported 27,000 employees at the end of March, down from 30,000 a year earlier.
Once an employee’s shares vest, he or she is free to sell them for whatever price the market offers, or keep them. Employees still will get their shares even if prices fall below the $8 that earned them the shares in March.
Including the 10 million shares Claure earned, executives are in line to receive about a third of the 50 million shares. The other 27,000 employees collectively earned more than 33.8 million shares, which amounts to $278.8 million at Wednesday’s closing stock price of $8.23.
Just as Sprint’s turnaround continues, so do the incentives set by the stock awards. Employees can earn bonus shares, equal to 20 percent of their original award, if Sprint shares reach and stay above $10 a share for 150 days.
It could happen, analyst Stalam said. New Street Research has a $12 price target on Sprint shares. The target, however, is based on Sprint ending up in a strongly beneficial merger or acquisition.