Magellan Financial Group to issue share options to employees as it tries to retain staff

Up to 10 million employee options will be gifted to Magellan Financial staff as the embattled fund manager heads off any discontent that could cause a loss of talent.

Magellan Financial Group will issue share options to employees. Picture: Christian Gilles

Magellan Financial Group is moving ahead with its plan to retain shareholders and staff as it lays the groundwork to turn around a damaging two-year slide in its share price.

Prospectuses for a one-for-eight bonus issue of options to shareholders and the issue of up to 10 million share options to employees were lodged with the Australian Securities & Investments ASIC on Thursday. Magellan shares lost ground after surging more than 16 per cent in the past two days.

Under Magellan’s staff engagement and retention program, up to 10 million employee options will be gifted to staff as the fund manager heads off any discontent that could cause a loss of talent.

But importantly for investors, Magellan’s guidance range for funds management business expenses was unchanged at $125m-$130m and included the staff retention initiatives.

A weak investment performance caused a significant outflow of funds under management and a consequent collapse in Magellan’s share price from $79.41 to $13.22 in the past two years.

Late last year, Magellan lost its CEO, Brett Cairns, then its biggest investment mandate, St James’ Place, pulled about $23bn from the global fund manager, causing a further sell-off.

The sell-off in Magellan has continued this year after its high-profile co-founder and biggest shareholder, Hamish Douglass, took medical leave, then resigned as chairman and CIO.

As announced in the interim results in February, the staff options will be exercisable by continuing employees at $35 per option between September 2024 and April 2027.

The share price will effectively need to more than double for those options to become valuable. Magellan shares fell 2.2 per cent to $15.94 on Thursday.

Some employees will also be paid a bonus, in two instalments in 2024 and 2025, subject to their continuing employment on those dates. Where an employee has an outstanding share purchase plan loan balance on a retention bonus payment date, the after-tax amount of the retention bonus will be applied to reduce the outstanding loan balance, or it will be paid in cash.

The share purchase plan loans will also be extended and a requirement to direct a portion of an employee’s annual bonus towards the repayment of their SPP loan will be removed.

Magellan also confirmed as part of its capital management strategy that it would proceed with a “bonus issue” of options on a one-for-eight basis to shareholders on April 7.