By Scott Thurm
As Congress mulled higher tax rates last month, dozens of
corporate executives sold big chunks of stock, saving themselves
millions of dollars in taxes.
A Wall Street Journal review of securities filings found that 58
executives sold stock valued at $10 million or more in December as
talks intensified over raising tax rates. On Jan. 1, Congress voted
to increase taxes on income, capital gains and dividends for high
earners.
Capital gains were hit more than other types of income,
according to David Kautter, the managing director of the Kogod Tax
Center at American University in Washington. "So if you could move
that into 2012, you saved the most of anyone."
Most executives contacted by the Journal either said tax
considerations didn't influence their plans to sell stock in 2012
or didn't return calls and emails seeking comment. But a few
acknowledged that the prospect of higher tax rates did influence
their stock-sale decisions.
James L. Dolan, chief executive of Cablevision Systems Corp.
(CVC), exercised stock options in Cablevision, Madison Square
Garden Co. (MSG) and AMC Networks Inc. (AMCX) in November and
December and then sold the stock for gains of $26 million. Mr.
Dolan hadn't previously sold shares in any of those companies since
at least 2009. He is a director of Madison Square Garden and AMC,
which were spun off from Cablevision in recent years.
A Cablevision spokesman said "tax planning" had played a role in
the sales. He added that he couldn't elaborate.
Mr. Dolan's father, Charles F. Dolan, the chairman of
Cablevision and AMC and a director of Madison Square Garden,
exercised options in the three companies in November and December
and sold the shares for gains of $21 million. He also sold AMC
shares valued at $72 million in August. The spokesman said Charles
Dolan declined to comment.
Fortress Investment Group co-founder Robert Kauffman said in
late December that his decision to retire--and to sell $180 million
in stock back to the private-equity firm--was partly influenced by
concerns about higher rates.
"It was more that the current certainty, with rates relatively
attractive, was a factor," Mr. Kauffman said. "It's a material
amount of money."
The move may have saved Mr. Kauffman millions of dollars. Single
executives with incomes above $400,000--or married executives with
incomes over $450,000--who sell stock will pay 25% of the gains in
taxes this year, compared with 15% last year, said Roberton
Williams, the Sol Price Fellow at the Tax Policy Center, a
nonpartisan group. That is the combined effect of the new law's
higher capital-gains rate and limitation on deductions, as well as
a new tax this year to help pay for the new health-care law.
For executives who exercised stock options and then sold stock,
the savings from selling in 2012 would have been smaller, closer to
6.7% of the gains in most cases, Mr. Kautter said. That is because
options are taxed as earnings when they are exercised, based on the
difference between the exercise price and the value of the stock.
The new law boosted the tax rate on earnings over $450,000 to 39.6%
from 35%, and it limited deductions; a health-care tax applies as
well.
It is unclear if the prospect of higher rates sparked a wave of
insider selling. Thomson Reuters says high-ranking executives and
corporate directors sold shares valued at roughly $4 billion in
December. Insiders sold more stock than that in February, March and
November. For the year, insider selling rose 28% from 2011, to
roughly $35 billion, higher than any year since at least 2007.
Executives were "selling consistently throughout the year
because stocks were doing well and they were taking profits," says
Richard Uhl, lead business analyst for the Thomson Reuters unit
that tracks insider trading. "The fiscal cliff was a nonevent."
The biggest beneficiary of a December sale may have been Andrew
T. Mack, the founder and chief executive of Teavana Holdings Inc.,
which agreed last year to be acquired by Starbucks Corp. (SBUX).
The deal was completed on Dec. 31, and Mr. Mack sold $333 million
of Teavana shares the same day. If the sale had taken place a day
later, he likely would have had to pay more than $20 million in
additional tax.
In an earlier securities filing, Teavana said its board had
considered the benefits of closing the deal by the end of 2012,
"such as avoiding potential tax-rate increases in 2013." Mr. Mack
didn't reply to an email seeking additional comment.
Starbucks CEO Howard D. Schultz sold, too. He exercised two
million stock options he had been granted in November 2008, selling
the shares for $107 million in December, according to Starbucks
filings.
After subtracting the cost of the options, Mr. Schultz recorded
a roughly $90 million pretax gain on the sales, meaning he may have
saved at least $6 million in taxes by not waiting until 2013 to
sell.
A Starbucks spokesman said potential tax-law changes "did not
play a role" in the sales. The spokesman said Mr. Schultz's pay is
tied to company performance and his gains reflected a more than
threefold increase in Starbucks's share price since he returned as
CEO in 2008.
Another executive involved in a deal didn't wait for it to be
completed to sell his shares. James M. Bernhard Jr., chief
executive of Shaw Group Inc. (SHAW), sold shares valued at $103
million on Dec. 27 and 28, shortly after Shaw shareholders approved
the sale of the engineering and construction company to Chicago
Bridge & Iron Co. (CBI).
The $3 billion deal is expected to close in the next few months.
Shaw shares are up more than 75% since the deal was announced in
July. A Shaw spokeswoman didn't return a call or email seeking
comment.
Other executives recorded big stock sales in December that
appeared similar to sales in prior months. Google Inc. (GOOG)
Executive Chairman Eric E. Schmidt sold 153,000 shares of the
search-engine company in December, reaping $108 million.
He had sold a similar number of shares monthly since July.
During 2012, he sold a total of 1.5 million shares, for proceeds of
almost $1 billion.
Google CEO Larry Page sold 83,000 shares in December for
proceeds of $57.8 million. Mr. Page sold an identical number of
shares in most months last year. Google declined to comment.
-David Benoit contributed to this article.
Write to Scott Thurm at scott.thrum@wsj.com