Vonage Hires a CFO, Dilutes Its Shareholders

Holmdel, N.J.-based Vonage (NYSE: VG  ) has a new Chief Financial Officer.

On Friday, Vonage closed out the trading week with an announcement that it's hired away David T. Pearson from Deutsche Bank to become its new Treasurer and CFO. At Deutsche, Pearson spent nine years working as a managing director and head of the bank's Global Media & Telecom Group. Before that, he worked in Goldman Sachs' Technology, Media & Telecommunications group.

So he's got impeccable investment banking credentials ... for which Vonage is paying through the nose. In an SEC filing today, Vonage revealed that it's paying Pearson $475,000 in base salary, plus:

  • an annual cash bonus targeting 100% of base salary
  • and two million stock options -- an equity award equal to nearly 1% of Vonage's shares outstanding

That last number is pretty staggering in size, and Vonage's share price is looking a little wobbly today, perhaps because of it. In fact, as of this writing Vonage's share price is down almost precisely in line with the size of the stock dilution expected from Pearson's hiring -- 1%.


Read/Post Comments (7) | Recommend This Article (0)

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  • Report this Comment On April 26, 2013, at 12:08 PM, masterwallstreet wrote:

    In my opinion only, I disagree with your article a little bit. There is an old saying you have to spend money to make money. The new CFO is definitely overqualified and possibly will take this to the next level. This company could be traded at a fair market value not just ridiculously low. Vonage is very undervalued. If he has the skills, talents and connections to take this to the next platform he is worh every penny. Look what Howard Stern did to Sirius Radio. He brought that to the next level. They were near bankruptcy before Howard Stern. Look what Steve Jobs did to Apple.If he could produce resuts and get this to a market price of what it should be at a fair value of 9 to 12 dollars. I think this CFO obviously is a heavy hitter and has talent, skills and connections, he should produce excellent results.

  • Report this Comment On April 26, 2013, at 3:20 PM, b17fortress wrote:

    To masterwallstreet (above)

    There is not much to "disagree" with the subject "article" (above). They're simply stating what the shareholders will be paying for this new CFO/David T. Pearson " is pretty staggering in size," and "Vonage is paying through the nose". There's nothing there to disagree with.

    What I say as a long term VG shareholder is this new CFO/David T. Pearson better earn every penny of it!

  • Report this Comment On April 26, 2013, at 4:42 PM, dgroves0 wrote:

    Typical MF Vonage garbage. If investors listened to the negative sentiment here for the last year, They would have missed a 48% move up.

    If you haven't been paying attention, the company has directed $100 million in share buyback over the next 18 months.

    That doesn't sound like they are "diluting" their shareholders.

    You can focus on the pimple on a flea's butt, but you will completely overlook the dog if you do.

    Agree with the fellow commenter that states fair value $9 - $12.

    This new CFO is adept in M&A, perhaps there are circumstances you don't have a handle on.

    More important than this GREAT NEWS of a heavy hitter CFO is the upcoming 1st Qtr. CC next Wednesday

  • Report this Comment On April 26, 2013, at 5:41 PM, dgroves0 wrote:

    Of course you completely forget to post the full quote of the stock option. Let me help you

    ...."Mr. Pearson is entitled to receive on May 3, 2013, a non-qualified stock option grant entitling him to purchase two million shares (2,000,000) of the Company's common stock at a price equal to the closing price on that date"

    In other words, he will be able to buy 2 million shares, at next Friday's prices. Two days After next weeks earnings report.

    meanwhile Vonage is buying back $100 million in shares (33 million shares at todays prices) but perhaps this new CFO will find a better place for that $100 million.

    Do you really want this to go down because of misinformation, before earnings CC, then gap up 15% like the fake push down last quarter?

  • Report this Comment On April 27, 2013, at 12:08 PM, Bill78910 wrote:

    "In other words, he will be able to buy 2 million shares, at next Friday's prices. Two days after next weeks earnings report." - This is not entirely true.

    If you read it, the 8K states that "The stock options will vest in four equal installments on the first through fourth anniversaries of the grant date, subject to Mr. Pearson's continued employment on such dates"

    Accordingly, he will receive 500,000 options at the end of each year over four years IF he stays around AND the share price goes up. If he does not increase the share price his options will be worthless. By no means does this mean that 2 million options will be immediately flooded into the market.

    Regardless…

    It is "only" 2 million shares. Vonage purchased back 8+ million shares in 2012 alone, and they authorized $100M more in buybacks for 2013 which would be ~33 MILLION shares at the current market price.

    This article is very misleading. Vonage is clearly making a big attempt to take shares OFF the market.

  • Report this Comment On April 27, 2013, at 3:11 PM, b17fortress wrote:

    Bill78910 (warmcamp),

    Don't forget, regardless of their share value on any given date the options this new CFO are being given are FREE!!! kg

  • Report this Comment On April 27, 2013, at 6:36 PM, Fool555625 wrote:

    Yea, 2 million options are alot - but consider that the Company had over 40 million options O/S at year end and it is not too crazy for the CFO to hold 2 million of them.

    No Doubt about it though - nice comp package

    ...Although the prior CFO received $4.8M, $3.3M, and $1.6M in total compensation (Salary + stock comp) for 2010, 2011 and 2012...

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