Employees at Warner Music are outraged that their corporate parent, Time Warner, is yanking their stock options as part of the recent sale of the business, The Post has learned.
According to a memo that was recently distributed to employees – a copy of which was obtained by The Post – all unvested stock options for Warner Music employees will be immediately terminated.
Employees will receive a “retention bonus” for the unvested options, yet the size of the bonus will not necessarily reflect the value of the stock options, sources say.
This effectively means that Warner Music employees who have seen the value of their stock options decimated in recent years – following the disastrous merger with America Online – now have virtually no hope of benefiting should Time Warner stock rebound.
Spokespersons for Time Warner and Warner Music declined comment.
All stock options that have vested remain exercisable for one year, but the strike prices of these options – some in the $40 to $50 range – are so far above Time Warner’s current share price of around $16 that it is unlikely they could ever become valuable within a year.
Meanwhile, unvested options that were granted last February in the $10 to $11 range – and thus are “in the money,” providing the best chance for employees to make some money on the stock – will be lost.
Warner Music employees, who have worked amid enormous uncertainty this year as Time Warner shopped the division to a variety of suitors, see the yanking of the options as a final kick in the butt as they are shown the door.
Warner Music sources say that when Time Warner CEO Dick Parsons announced the pact to sell the division, he noted the deal was in the best interest of shareholders and that Warner Music employees are shareholders.
Time Warner retains an option to buy back a stake in Warner Music in the future, should the music industry rebound.
On Nov. 24, Time Warner announced it was selling the music division – which includes the recorded music unit as well as the music publishing business – to a group headed by Edgar Bronfman Jr. for about $2.6 billion. The private equity backers are Thomas H. Lee Partners, Bain Capital and Providence Equity Partners.
The deal marked Bronfman’s return to the media industry following his decision to sell his family’s Seagram liquor and entertainment empire to Vivendi in 2000.
It also ended months of uncertainty for Warner Music employees, who over the last year have seen Time Warner negotiating with music companies BMG and EMI about a possible deal.
The Bronfman deal is expected to close early next year, and is expected to result in scores of job losses. Sources say Bronfman is expecting to shave nearly $200 million in annual cost savings.
While employees who hang onto their jobs will suffer the options loss, staffers who get canned during the restructuring will get an additional week’s pay for each year of service, according to the memo.
Under current policy, workers who are laid off without cause receive two weeks’ pay for each year at the company.
Outraged
Time Warner hit a sour note with Warner Music employees by canceling unvested stock options amid a sale of the unit. Details:
* Vested options will be exercisable for a year – but they’re under water
* Unvested options granted earlier this year – now “in the money” – will be lost
* Employees will get a retention bonus for unvested options, but it may not be as lucrative