Wal-Mart's take-over of the UK supermarket chain may offer a bonus for share-owning staff
FIFTY THOUSAND Asda employees will find themselves pitched into the American stock market later this month, after the British chain's take-over by the US giant Wal-Mart.

The deal means that workers exercising their rights under the company's employee share ownership scheme will no longer be given UK-listed Asda shares. Instead they will get Wal-Mart shares, which are listed in America.

Most UK high-street brokers cannot deal in US-listed shares. But Asda promises to have a low-cost dealing service in place for employees by the time the first Wal-Mart shares are issued on 26 August.

Asda's company secretary, Denise Jagger, says: "We're looking to replicate a similar service to the one we used to offer, to make it a bit easier to deal in Asda stock. We're putting it together at the moment."

Broking schemes like this also help companies running employee share ownership schemes to keep some control of their share price. Sally Russell, head of employee share ownership at Proshare, explains: "If you had 50,000 Asda employees all hitting the market on the same day, with pounds 1,000-worth of shares each, it might just cause a ripple in the share price. They would normally set up a service through the company's corporate broker, so the trades could be managed."

Asda hopes to use Wal-Mart's corporate broker, First Chicago, for its own broking service.

Share options entitle their holders to buy shares when the option matures - but at the price that applied when the option was issued. Russell says: "An option is a right to buy shares at a point in the future at a price agreed today".

If the market has risen, the option-holder can buy the shares at the lower price, sell them at the higher, and make an instant profit. If the share price falls, the right to exercise the option to buy can be delayed, or allowed to lapse altogether.

Asda's share move across the Atlantic comes just as European fund managers are expressing renewed fears that the US market is over-valued. A Merrill Lynch survey out this week found that a net 26 per cent of European institutions are now bearish on the US, compared to just 1 per cent three months ago.

For any Asda employees who are equally doubtful about US shares, the only alternative to accepting the Wal-Mart swap is to cash in their share options before the maturity date is reached. But there is a price to pay for doing this.

Jagger says: "If you cash your options in early, you get only a proportion of your shares, because you won't have been in the scheme for the full three or six years. If you've been in for two years, you'd get only two- thirds of your three-year option and one-third of your six-year option.

"Obviously, we're hoping a lot of people will roll over into Wal-Mart, but it's up to them."

Cashing in employee share options early may also mean losing the income tax break that the options normally carry. The Inland Revenue allows only one tax-free exercise of your options every three years.

Derek Hunter, of GMB's food and leisure sector, says the union may be able to help any Asda employees among its members who are worried by the switch.

He explains: "If somebody says they don't understand this, or they're not happy with it, or there's something going wrong, I couldn't give them the advice - but we would find people who could."


TO ILLUSTRATE how the Asda/ Wal-Mart share option deal may work, Asda takes the fictional example of Mary Smith, a check-out girl who joined the firm in 1995 on a salary of pounds 6,144 a year.

Asda employees get their first share options one year after joining, when they are given Asda options worth 25 per cent of their salary. Half of these options mature after three years, the rest after six. So Mary would be given options worth pounds 1,536, half of which (pounds 768) would mature in August 1999.

Asda's share option price was set at 114.5p in August 1996, when Mary got her first issue. That means that her pounds 768 holding of three-year options would buy her 670 Asda shares when those options matured in August 1999.

On 26 August, Mary would be told how many Wal-Mart shares this Asda holding entitled her to, based on the Wal-Mart share price that day. Asda's example takes 27 July, the deal's official take-over day, as an illustration.

The equivalent Wal-Mart option price to Asda's price of 114.5p when the options were issued is pounds 14.88. Mary would therefore get 52 Wal-Mart shares for her pounds 768 holding.

Selling these shares at the 27 July price of pounds 28.58, would have given her a profit of pounds 13.70 per share, a total of pounds 712.40. Mary would have the choice of taking that profit either as additional Wal-Mart shares, or in cash.