Lutz boosts GM stake by 20 percent

[1931Chevy]

http://www.detroitnews.com/apps/pbcs...76/1148/AUTO01General Motors Corp. Vice Chairman Bob Lutz added 47,834 GM shares Tuesday, boosting his personal holdings in the largest U.S. automaker by 20 percent, Bloomberg News reported today.
Lutz acquired 53,336 shares at $20.90 each, or $1.1 million, and sold 5,502 shares at $31.50, or $173,313, GM spokeswoman Julie Gibson told Bloomberg today. Lutz was exercising options granted in 2006 and now holds 281,962 shares of Detroit-based GM, Gibson said.

[psece]

Nice find. Now the question: Is he buying because he believes the worst is behind GM or does he need a tax write off over 5 years?

[vtbmann]

Originally Posted by 1931Chevy

Lutz acquired 53,336 shares at $20.90 each, or $1.1 million, and sold 5,502 shares at $31.50, or $173,313

I don't understand how he can buy at one price and sell at another price. This all happened on the same day right?

[megeebee]

Originally Posted by vtbmann

I don't understand how he can buy at one price and sell at another price. This all happened on the same day right?

No. He bought last year at a time when shares were $ 20.90 That part of the article is a little vague, but it did not happen on the same day.

[mgescuro]

Originally Posted by vtbmann

I don't understand how he can buy at one price and sell at another price. This all happened on the same day right?

Yes. This happened on the same day.
It says in the article.

Lutz was exercising options granted in 2006

He was given options in 2006 at $20.90, and sold off whatever for $31.50, which is probably at or near the current closing price for GM today. The option allows you to buy the stock a price establish whenever you got the option.

[2b2]

Thankx for clearing that up, Mge.
since I didn't read the article, I was 'fused (nothin new)
makes sense now.

[I-Love-Pontiac]

General Motors Corp. Vice Chairman Bob Lutz added 47,834 GM shares Tuesday, boosting his personal holdings in the largest U.S. automaker

It sucks that they have already stopped referring to GM as "world's largest".

[Dgrocho]

I need to get that option...

so probably once a year, he can just siphon money out of GM by selling what he has and then buying the same number of shares at the lower price? Or, he could sell what he has at the current price and buy more at the 20.90?

...talk about a sweet deal...

[K-1]

Originally Posted by Dgrocho

I need to get that option...

so probably once a year, he can just siphon money out of GM by selling what he has and then buying the same number of shares at the lower price? Or, he could sell what he has at the current price and buy more at the 20.90?

...talk about a sweet deal...

How did you think uber-rich executives get that way? Salary?

[andy82471]

Originally Posted by I-Love-Pontiac

It sucks that they have already stopped referring to GM as "world's largest".

Even though technically GM is still the biggest automaker I think nobody is under any illusion as to who will be the biggest by the end of this year.

[CaptainDan]

Originally Posted by Dgrocho

I need to get that option...

so probably once a year, he can just siphon money out of GM by selling what he has and then buying the same number of shares at the lower price? Or, he could sell what he has at the current price and buy more at the 20.90?

...talk about a sweet deal...

Stock options are given for a specific number of shares, at a specific price, to be exercised (or not) no sooner than 2 years after they are issued, and then expire after 8 years.

As a GM employee I have received stock options every year for various amounts (usually around 50 shares, at around the prevailing price when issued - executives may get a better price, I'm not sure) The higher your pay grade, the more shares. Lutz is quite a few pay grades above me. Currently, all my stock options are worthless. (today's stock price is lower than my option's price)

[zete]

Originally Posted by Dgrocho

I need to get that option...

so probably once a year, he can just siphon money out of GM by selling what he has and then buying the same number of shares at the lower price? Or, he could sell what he has at the current price and buy more at the 20.90?

...talk about a sweet deal...

That's not how it works. He's not siphoning any money out of GM. He must use his own cash to purchase the options. It's not a share grant, which is different again and has tax implications that can be quite serious -- i.e., you get a share grant but can't unload the shares and find yourself penniless. It's why folks prefer options, they get to decide if they'll exercise them or not.

To that end, options, as others have mentioned, are granted across multiple years. For each year, they are pegged at a given price dependent upon the price of stock for the given company. Many times they are granted monthly, so as to allow for averaging while other times they simply provide you with the price of a given day the shares were traded. Sometimes the shares are offered at a discount, but I'm not sure that's done anymore. And, also as mentioned, options expire. Again, totally dependent on the company.

When the options vest he can decide to exercise or not. Again, this is variable. Some options vest yearly, others don't start vesting until a given amount of time has passed, others start vesting monthly after a certain term of employment, etc. No matter, the fact is that those options, once vested, can be purchased at the strike price at which the shares were at (in the stock market, typically) when the option was granted. (This is not true for private companies where they must estimate the stock price, which is slightly easier if you have external investors -- i.e., VCs).

So, if the options were granted when the share price was $50, that's what you'd pay to buy them. The advantage of this is that you don't have to any cash outlay when you're offered the options.

Now, let's assume 4 years have passed since you were granted options at a strike price of $50 and the price today is $75. If you buy the options at the strike price you will have made $25/share, a tidy profit. You need to factor in taxes, etc. which usually means you sell a certain amount to take care of that issue. This may be what Lutz did. Of course, others sell some of their holdings to diversify or to eliminate other personal debt.

On the other hand, let's assume the price after 4 years is now $25. They're "under water" -- and everyone in high tech knows that saying. That means only a fool or someone in need of a lot of tax writeoffs would purchase the shares at $50 since you'd buy the shares at $50 but they'd only be worth $25, 1/2 the strike price.

Options are a nice way of rewarding employees and is common practice in many companies. However, the options are only useful if they stay above water. If you purchase your options, even when the stocks are above water you are (typically) betting the stock will rise. Most executives don't tend to buy their options out with the expectation the stock will fall.

And to whom do you pay for those options? In the case of Lutz, he'd pay GM. So, in effect, GM is getting some of the cash they paid Lutz back and Lutz is banking on the shares to make him more money back than he paid for those shares.

I hope that made sense.

[2000GTPBROTHER]

According to GM's PRER14A filling of April 27th, Mr. Lutz has 160,000 Units of Options at $20.90 that expire in 2/24/2016. They are good for 10 years. The amount bought yesterday is about 1/3rd of those options. The full amount that vest each year, on the anniversary of the grant.

If you think options are great things to have, check out the rest of Mr. Lutz's list.

200,000 Options @$54.91 expiring 09/05/2011
100,000 Options @$50.46 expiring 01/08/2012
100,000 Options @$50.82 expiring 02/05/2012
200,000 Options @$40.05 expiring 01/22/2013
160,000 Options @$53.93 expiring 01/24/2014
160,000 Options @$36.37 expiring 01/25/2015 (not all vested as of yet)
160,000 Options @$20.90 expiring 02/24/2106 (not all vested as of yet)

It would require GM stock to double in value to make all these options above water. If that were to happen, not sure it would be a long line of people complaining that someone made $10 a share on a few sales.

Mr. Wagoner has 25% of his vested options at the time of the report with exercise prices aboove $70 per share. Wouldn't that be great it these even got above water before they expired? A 7% block of vested options that just expired had an exercise price of $44.73.

[69Firebird400]

It shows some confidence in GM on Bob Lutz's part - a good thing to see from a top executive. A big part of his compensation is in the form of options or restricted stock grants (which are full value shares), and as you can see from the chart above, he hasn't realized much value from his option grants over the past several years.