Fred Smith Put $7 Million in His Pocket This Week - April 03, 2008

Just because the headline for the recent news article that noted Fred Smith's stock market transition was so clearly misleading, we set out to look more closely.

In a Form 4 filed with the SEC Monday, the founder of the shipping giant bought the shares for $31.98 each, spending $9.6 million on the acquisition. Smith then disposed of 175,800 shares at prices ranging from $92.69 to $93.01.

FredEx's stock sales were in the open market.  So he exercises call options to buy the stock at $31.98, costing $9.6 million.  Then he sells 175,800 shares at an average of, say, $92.80 which nets him $16.3 million. 

FredEx has a realized gain of $6.7 million and an unrealized gain of an additional $8 million at current prices.  Of course, he has to pay capital gains taxes but he just put $7 million pre-tax into his pocket.