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Employment

Roth Selling Out?

News surfaced last night that John Roth, ex-CEO of Nortel Networks Corp. (NYSE/Toronto: NT), has sold a huge chunk of the remainder of his stock options in the company.

According to reports from Reuters, Roth sold 751,245 shares for a little less than US$1 apiece, generating about $738,000 at the start of August 2002. The filing was sent to the Ontario Securities Commission last week, according to Reuters, though Light Reading was unable to confirm. No corresponding filings have appeared in the online logs of the U.S. Securities and Exchange Commission (SEC), although they will eventually materialize there, since Nortel trades on the New York Stock Exchange as well as Toronto's.

Roth's entire stake in Nortel as of February 29, 2002, was 6,402,846 shares, according to SEC filings. But most of those shares are unexercised options that Roth still has time to act upon, and sources say the amount he cashed in last month probably represents the total of shares he actually owned, as opposed to ones that are "under water" at unknown strike prices.

Nortel's not commenting on the sale, saying Roth no longer has a role with the company. But the news was greeted with disdain in several quarters, since it appeared to signal a loss of faith by a key former insider.

"It's just one more sad statement in a long line of sad happenings at Nortel," says Timm Bechter, VP and broadband equipment analyst at Legg Mason Inc. In Bechter's opinion, Nortel shares will be worth at least $4 to $5 if the company can return to profitability.

Like most analysts, Bechtel isn't sure why Roth sold his shares. Some have speculated in the press that he was attempting to avoid tax liability by selling now. "No one person -- especially Roth -- has any great insight into where this thing is going," says one analyst, who asked to remain anonymous. "I'm sure there is a host of personal/tax/diversification reasons why he did it."

Whatever his motivation, the news appears to say as much about Roth himself as about the economic uncertainty Nortel faces.

Despite his company's ongoing struggles, including enormous layoffs and losses, Roth walked away in May 2001 with a raise in pay that brought him more than US$1.4 million in salary and bonuses for a year during which he was absent from Nortel for more than six months (see Nortel's Roth Rakes It In).

Indeed, while Roth sucked up the cash in 2001, Frank Dunn, the new CEO, was paid $564,833 in salary along with 1,750,000 options, with no bonus. Dunn was the highest-paid active executive at Nortel last year.

Meantime, the company continues to struggle and recently warned of an even greater revenue shortfall this quarter than initially expected (see Nortel's Bottom Sags). Nortel has cut over 55 percent of its staff since January 2001 and plans to cut more. In contrast with Roth's contract, Nortel's typical severance package includes 60 days notice plus four weeks of pay and an additional week of pay per year of service (see Got Severance? Count Your Blessings).

As the company teeters and totters, other top execs have chosen not to wash their hands of Nortel. Surprisingly, several top managers, including CEO Frank Dunn, CTO Greg Mumford, and division presidents Frank Plastina and Brian McFadden, as well as an array of Nortel directors, have all bought substantial shares in the company recently.

Since the start of June 2002, insiders have purchased more than 2 million shares of Nortel stock in ordinary and private buys, according to several online sources, including Quicken.com.

As ever, it may be perilous to read too much into these insider dealings. At the same time, it may be misguided to read too much into Roth's as well, given his apparent disconnect from the company he once led.

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com
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amiableCDN 12/5/2012 | 4:16:57 PM
re: Roth Selling Out?

Yes, Rob was tall, dark, bearded but not heavyset at least during his early and middle years at BNR/Nortel.


He was manager of the Operating System group as the DMS was being initially designed and then the emergency re-write that preceeded its initial deployment.


He was very intelligent and very "driven".

Doom 12/4/2012 | 9:47:39 PM
re: Roth Selling Out? Roth doesn't believe in Nortel future.
He's sending a clear message.
If I had any shares, I would be selling also.

Bad thing we don't know where he's putting his money now... (Biotech? Gold?)

maryhadalambda 12/4/2012 | 9:47:38 PM
re: Roth Selling Out? glove compartments for British sportscars
hiddentiger 12/4/2012 | 9:47:38 PM
re: Roth Selling Out? I agree- I think that he believes 90 cents a share is better than a bankrupt NT.
ironman 12/4/2012 | 9:47:37 PM
re: Roth Selling Out? Roth needs the tax break. Your missing the key ingredient to Canada 'TAX' His capital losses will certainly out way and reduction in income. And don't sell Roth short, he didn't get to the top of the heap without some finicial knowledge. As for Nortel - yes its true Nortel will never be what it was, but then again what company will? Will it rebound. The answer is definitely 'YES'.
eieio 12/4/2012 | 9:47:37 PM
re: Roth Selling Out? Wait a sec ... didn't Dave House invest $1,000,000 of his personal money into NT ... and wasn't he an insider once upon a time just like Roth ... so who is right

Roth: $0.90 of NT is better then $0.00 of NT
House: NT - great Canadian Company will not be allowed to go to $0.00 by Oh Canada ...
Doom 12/4/2012 | 9:47:28 PM
re: Roth Selling Out? In Canada, people pay about 25% income taxes on capital gain.

The argument of the tax break doesn't seem to fly high. Don't forget these executives get the shares at very low price. The capital loss is not worth the income taxes saving.

Let's say M. Roth got his shares at $9 (I'm sure we can find the real number somewhere) and he's selling at $1. The $8 loss multiply by x shares multiply by 25% for taxes gives a lower number than if he waited to sell the shares at $3.

Also, there are still few months left in the year. Why sell now? Why not wait for the price to move up a bit? (Assuming he believes the price would go up...)






--------------------------------------------------

Roth needs the tax break. Your missing the key ingredient to Canada 'TAX' His capital losses will certainly out way and reduction in income. And don't sell Roth short, he didn't get to the top of the heap without some finicial knowledge. As for Nortel - yes its true Nortel will never be what it was, but then again what company will? Will it rebound. The answer is definitely 'YES'
sauron5 12/4/2012 | 9:47:23 PM
re: Roth Selling Out? The price did go up. So, either he is wrong
you are wrong or both.

Sauron
RouterOttawa 12/4/2012 | 9:47:06 PM
re: Roth Selling Out? Roth needs the tax break. Your missing the key ingredient to Canada 'TAX' His capital losses will certainly out way and reduction in income. And don't sell Roth short, he didn't get to the top of the heap without some finicial knowledge. As for Nortel - yes its true Nortel will never be what it was, but then again what company will? Will it rebound. The answer is definitely 'YES'.

You can only use capital losses to offset capital gains in Canada. Now, if he were to donate that cash to the Liberal Party of Canada, he could get a nice tidy deduction for the political contribution.
ironman 12/4/2012 | 9:47:04 PM
re: Roth Selling Out? An do you suppose Roth doesn't have any capital gains to offset??? My educated guess would be yes. Being Canadian I do remember that my marginal tax rate was pretty hefty. Anything to lighten the load.. Cheers.
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