Comcast Option Liquidity Program Cleared by SEC Staff

Comcast became the first company to use the model created by Microsoft and JPMorgan more than a year ago to provide liquidity for underwater stock options. Under the arrangement, former employees can tender their options to Comcast, which will cancel the options. JPMorgan will then purchase equivalent (in exercise price and expiration date) options from Comcast at an arm's length value, and Comcast will pay the proceeds to the former employees. The SEC staff, pursuant to Rule 13-e-4(f)(2)(ii), allowed Comcast to terminate the withdrawal rights to tendered options at the end of the employee's election period and, under Rule 13-e(f)(8)(i), permitted Comcast to exclude some options and optionees from the program. The staff said it would not object to the pricing structure. The text of the letter is at this link.

The approach allows former Comcast employees with underwater options to get some (albeit usually small) value for them. Comcast, meanwhile, benefits from having fewer options outstanding, options that really have little incentive or compensation benefit. That gives Comcast more flexibility in creating a more effective equity program. JPMorgan, of course, hopes that it will be able to buy the options at a price that will make them profitable in the long run.