That’s the way the cookie doesn’t crumble…

August 28, 2006

cookie.jpegLast December, Centennial Communications (CYCL) announced that it planned to sell $550 million in notes and give a special dividend to shareholders. The dividend of $5.52 a share was paid in early January and the stock declined accordingly. Story over? Not quite, according to the proxy that Centennial filed late Friday.

That’s because it turns out that some of the biggest beneficiaries of the deal were Centennial’s top executives. In the summary compensation chart, the company disclosed that CEO Michael Small received $5.66 million in all other compensation, a significant multiple of his salary of $410.7K. It’s also nearly half of the $13 million Centennial spent "to compensate holders of our outstanding stock options for the loss in economic value". Indeed, as a group, the top five execs wound up with $9.8 million.

Shareholders, however, have done considerably worse. Since the special dividend was paid, the stock has continued to decline, falling nearly 50% since the beginning of the year. Why the company simply didn’t reprice the options — instead of handing out the cash — isn’t really clear from the filings. Then again, looking at the chart, it seems like a pretty smart move. After all, cash is always better than repriced options, particularly when the stock continues to fall after the repricing.

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