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Ovitz Severance Deal Worth $130 Million? Disney Shareholders Are Upset

Sat., Dec. 21, 1996

Outgoing Walt Disney Co. president Michael Ovitz’s severance package, already the target of ire and envy, could be worth even more when its stock options are valued with the future in mind.

The grand total: as much as $130 million.

At issue are options to buy 3 million Disney shares at $57 each any time over the next 5-3/4 years. If exercised immediately, they would yield slightly more than $46 million. In addition to cash payments of $38 million, Ovitz’s total package would come to $84 million.

More sophisticated accounting, however, boosts the value of the stock options since Disney shares have tended to rise over time.

Part of an option’s value is the potential for hanging onto it and letting the stock price rise. Currently, Disney shares are worth about $72 each, so options exercised at $57 would pay off $15 or so. If the shares were to, say, reach $100, the payoff would be $43 each.

Of several ways to price options, the Black-Scholes model, a complex mathematical calculation, is most commonly used.

Stephen O’Byrne, an expert with Stern Stewart & Co., a compensation consulting firm in New York, applied the Black-Scholes model to Ovitz’s options. Using Disney’s closing stock price Thursday, he valued the 3 million options at about $92 million.

“It’s what an investor would pay” to purchase the options from Ovitz, O’Byrne said Friday.

Previous calculations of Ovitz’s severance pay have focused only on the value of the options if exercised immediately, giving the entire package a far lower value in the $80 million to $90 million range.

Even the lower estimates have provoked shareholders.

The Progressive Asset Management brokerage in Oakland, a specialist in socially responsible investments, has said it will introduce a resolution at Disney’s next shareholder meeting asking the board to link executive compensation more closely to job performance.

Disney disclosed Ovitz’s contract to shareholders last year in its annual report. Under a “non-fault termination” clause, the $38 million cash payment when he departs on Jan. 31, 1997, will be include a $10 million termination payment and salary and bonus money for the rest of his contract.

Still under discussion, according to one Disney source speaking on condition of anonymity, is a big bonus Ovitz expects to collect for the Disney fiscal year ended Sept. 30.

That bonus apparently boosted the cash portion of his severance to the $50 million range in some earlier reports. Spokesmen for Disney and Ovitz declined to comment on the severance package or the negotiations.

Tags: business

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