IBM Plans Major Stock-Option Issue
IBM Corp. said Wednesday that it will seek shareholder authorization to issue as many as 59 million shares in the form of employee stock options, the largest such program ever proposed by the world’s largest computer maker.
If approved, the stock option program could almost double employee ownership levels at IBM. Aligning the interests of employees and shareholders is one of the ways Chairman Louis Gerstner is seeking to make IBM a more nimble and competitive company.
The proposal also comes at a time when the company’s revenue growth increasingly comes from computer services, such as designing software applications and helping firms retool for electronic commerce. Computer services companies traditionally rely on stock options to attract talent.
“There is a pretty aggressive market for high-tech talent, particularly in the services area,” said John Bukovinsky, an IBM spokesman.
The proposal calls for authorization to issue restricted shares and options that equal 6.5% of IBM’s outstanding common stock, according to proxy materials filed with the Securities and Exchange Commission. Bukovinsky said it is the largest option request, both in percentage terms and absolute numbers, ever proposed by IBM.
In a letter to institutional shareholders, IBM said it wants to catch up with employee ownership levels at competing firms, where, it said, the median ownership level in 1997 was 21% of employees, compared with 5.1% at IBM.
About 5.2% of IBM’s 291,000 employees held options at the end of 1998, and the company wants to increase that percentage to between 8% and 10%, Bukovinsky said. He said there is no time period in which the options must be issued and that the company would not be required to award all 59 million.
Nevertheless, the proposal could be controversial to outside investors who worry about dilution of their IBM holdings. Stock option packages can increase the number of shares outstanding, which means that earnings are spread over a greater number of shares.
Separately, IBM announced a $3-billion parts order from rival data-storage company EMC Corp., the largest maker of computer storage systems for corporate networks. The five-year agreement calls for a broad cross-licensing of patents for storage and other technologies.
Shares of Armonk, N.Y.-based IBM rose $4.13 to close at $169.50; shares of Hopkinton, Mass.-based EMC rose $5 to $118.78. Both trade on the New York Stock Exchange.
