Message One: Don’t be alarmed, all you Merck longs. Why? Well, because Mr. Kuhlik had no discretion, in the moment, as to these trades (see Footnote 1 to the SEC Form 4 linked there). So, very little may be inferred from them. [But permit me to blather on for a moment here -- speculating about it, anyway! Net, net -- the executive simply added, and subtracted an equal number of shares -- thus he returned to the level of stock ownership he last had at February 2014, post these transactions. So he is standing pat.]
What we do know is that the EVP and General Counsel of Merck had previously adopted an algorithm (or set of instructions) — in writing — and left them with his broker or financial advisor. [See Sullivan & Cromwell's SEC rule 10b5-1 letter of comments, on such trading plans.] We also know that whatever those pre-authorized plans provided, as to Merck stock options, yesterday all the pre-approved wires were tripped. That is, at some level, at some time in the past, Mr. Kuhlik had determined that $56.50 would be fully valued — as a Merck common stock NYSE selling price.
And so, three large traunches of his previously-vested stock options were liquidated yesterday. Understand that the benefit of a 10b5-1 trading plan is that an executive may acheive a sale, even while in possession of material non-public information.
And that is why very little may be inferred from his plan sale. As of the close of Q1 2014, Mr. Kuhlik likely had inside information about the level of interest, and likely prices, for the Consumer Health businesses. He now very likely knows what Merck executive management (in consort with its bankers) will recommend to the board — on the topic. Yet — because he set up these trading rules long ago, while not in possession of that information — the plan sells, and he has a safe harbor from insider trading liability — for the trades, at the SEC. Clever. And fair.
Said another way, it is quite possible, that — based on what he NOW knows – $56.50 is far too low a price.
We won’t ever know. He could also think $56.50 unduly rich, based on today’s inside information. So don’t infer too much, at all — from his trades.
However, if my wild (spinco) guess proves right — that the bids are on the low side, and a spinoff might occur as to Consumer Health assets. . . then maxing out the exercise of stock options — as his plan did yesterday — is very smart. Stock options (that haven’t been exercised) are not entitled to receive shares of the newco — unless, of course, the Merck participant exercises the options and accepts full-voting common stock in return. That’s what he did yesterday. [If one is holding options of Merck, and ends up as an employee of the as-yet mythical new Consumer Health spinco, one would receive an equitable adjustment on those Merck options -- converting them into newco ones. Not so, if one is staying with mother Merck -- as I am certain the GC would be most likely to do. The Merck employees will see a decrease in exercise price, and an slight increase in the number of Merck shares under option -- but will not be entitled to spinco shares, absent exercise of the underlying options.]
So — that is about all we know — or can guess at — related to this $2.4 million sale. It is also possible that Mr. Kuhlik is buying some sweet weekend real estate — somewhere on the southeastern seaboard — and just paid it off. We. just. don’t. know. Be excellent to one another!