Search Firm Cashes in on Google Warrants

Monday, September 20th 2004, 10:08 am
By: News On 6

NEW YORK (AP) _ Executive search firm Heidrick & Struggles International Inc. on Friday said it earned nearly $130 million by selling Google Inc. stock it got as payment for finding the Internet company a new CEO in 2001.

When Google made its long-awaited public debut on Aug. 19, Heidrick and Struggles exercised its 3-year-old warrants to buy about 1.2 million Class B shares for 30 cents apiece _ a small fraction of Google's opening-day share price of $100.01 on the Nasdaq.

Earlier this week, Heidrick & Struggles then sold off its shares at an average $108.22 per share, netting $128.8 million. The Chicago-based company said 55 percent of the proceeds _ roughly $70.8 million _ will go directly to the team of consultants who helped Google hire CEO Eric Schmidt, formerly chairman of software firm Novell Inc.

A quarter of the consultants' bonus is going to Heidrick & Struggles CEO Thomas J. Friel, who was a member of the Google search team in 2001 before being named chief executive in June 2003. Friel's personal take is $18 million, which he opted to add to his deferred compensation plan, according to a Securities and Exchange Commission filing.

Heidrick & Struggles spokesman Eric Sodorff said the deal was a throwback to the early days of the dot-com era, when the millions of stock options dished out by Internet startups had the glimmer of gold in most investors' eyes.

Without enough seed money to offer extravagant salaries, startups lured high-profile executives to Silicon Valley with heaps of stock options, driven by hopes that an over-hyped initial public offering would lead them to the end of the rainbow. Options and warrants also changed hands as a way to acquire companies and settle some service deals.

``For a lot of the smaller dot-com companies, what they had was stock, and that's how they compensated everybody,'' Sordoff said.

Sodorff said the company typically charges one-third of a hired executive's first-year compensation as the recruitment fee. For comparison, Schmidt earned a salary of $250,000 and took in a bonus of $301,556 in 2003.

``But if that placed executive is getting warrants, we get 33 percent of that too,'' he said. ``Any warrants we take is in addition to, not in place of, the normal cash fee.''

The warrants issued to Heidrick & Struggles were originally valued at $1.1 million in Google's SEC filings.

Aside from the Google deal, Sodorff said the firm has generated more than $40 million in compensation through exercising warrants since 1999. The collapse of the dot-com market has all but eliminated that type of compensation.

``In the dot-com days, it was commonplace if not almost requisite when structuring a recruitment deal,'' said Michael Distefano, vice president of global marketing for Korn/Ferry International Inc., the world's largest recruiting firm. ``These days we haven't seen much of that at all.''

Google, which is based in Mountain View, Calif., in some cases did rely on its highly anticipated IPO as future currency. The company settled a contract dispute with Yahoo Inc. and patent infringement claims from Yahoo's Overture Services Inc. by issuing almost 4 million shares to its biggest rival a week before Google was scheduled to begin trading.