Mondays can be rough, but at least it's not 'under investigation by the Australian Securities and Investments Commission' rough for most of us. The same can't be said for Ruslan Kogan and David Shafer, as their $17 million payday from options over Kogan.com Ltd (ASX: KGN) shares catches the attention of Australia's corporate canine.
In light of the development, shares in the online retailer are down 1.3% to $5.60. However, that's only slightly worse than the 0.3% fall in the S&P/ASX 200 Index (ASX: XJO) today.
The redness in Kogan's share price is a long way off from the wooden spoon currently held by HMC Capital Ltd (ASX: HMC).
Image source: Getty Images
How'd we get here?
To understand the present situation, we must first go back to the beginning.
In 2020, long-term incentives of 3.6 million options and 2.4 million options for Kogan and Shafer were approved with one condition: they must not resign before the FY23 numbers get a green light. The options — which allow the holder to buy shares at a predetermined price and sell at the market price — carried a strike price of $5.29.
The incentive was already 'in the money' when approved because Kogan shares were fetching $7.90 at the time. However, for Kogan and Shafer's options to have any value, the Kogan share price needed to be above $5.29 after the approval of the company's FY23 financial report — the options couldn't be exercised before then.
As fate would have it, profits and investor sentiment deteriorated as the company approached 2023. Kogan shares lost approximately 81% of their value between 2021 and the last day of 2022, as shown in the chart below. If the lousy share price persisted beyond August 2023, the options awarded would be worthless.
In April 2023, Kogan announced a share buyback, a process in which the company buys shares on the stock market to return capital to shareholders. The additional buying can create upward momentum in the share price.
Coincidental timing for Kogan share sale
Kogan shares rallied 105% — above the $5.29 exercisable price — until Kogan and Shafer cashed in their options on 4 April this year for $17 million. To avoid shareholder dilution, the company elected to buy the options from the executives rather than issuing new shares.
Coincidentally, a disappointing market update sent Kogan shares back below that all-important $5.29 price point 22 days later.
This intriguing timing has ASIC interested.
At this stage, there is no implication of wrongdoing. Instead, the watchdog is taking a closer sniff to ensure all is above board.
