Och-Ziff Shares Stumble Toward NYSE Delist Territory at $1

(Bloomberg) -- Billionaire Dan Och’s hedge fund is pennies away from raising a red flag at the New York Stock Exchange.

Shares of his Och-Ziff Capital Management Group LLC -- one of the few publicly traded hedge-fund firms -- have plummeted 97 percent since the firm went public, to a record low of $1.01 as of Monday. That’s just one cent away from a key threshold for the exchange.

Companies on the NYSE risk being delisted when their shares trade at an average price below $1 over a 30-day trading period.

It’s a mortifying prospect for what was once one of the world’s biggest hedge fund managers, and one that two years ago made headlines for its eye-popping, stock-based pay packages. And it adds to a mounting list of woes for employees -- the company’s biggest shareholders -- since the firm first disclosed a regulatory probe in 2014 that triggered an exodus of client cash and a slide in Och-Ziff’s stock price.

Och-Ziff Shares Stumble Toward NYSE Delist Territory at $1

The delisting process isn’t automatic once a company falls out of compliance with the exchange.

A company has six months to fix its standing after receiving notification from the exchange, according to NYSE rules. That gives companies on the verge of being delisted an opportunity to do a reverse stock split, for example, which would reduce the number of shares outstanding, thereby increasing the per-share price. Och-Ziff would need the approval of its board to execute a reverse stock split.

An Och-Ziff representative declined to comment on whether the New York-based company would take steps to prevent being delisted. A spokeswoman for NYSE, which is operated by Intercontinental Exchange, Inc., declined to comment on whether the exchange has already held talks with Och-Ziff, citing company policy against discussing individual firms.

Keeping Employees

The tumble in the firm’s share price and assets -- withdrawals from Och-Ziff’s multi-strategy hedge funds have reached almost $25 billion since the end of 2014 -- paired with a fumbled succession plan have weighed on morale and employee turnover, people familiar with the matter say.

Because Och-Ziff’s senior managers received much of their compensation over the years come in stock, the company may opt to restructure its pay packages to keep key employees from leaving in the event shares are delisted, according to Dafina Dunmore, an analyst at Fitch Ratings.

“Employee retention would be really important at a time when they’re going through the issues they’re already going through,” Dunmore said by phone. “So to retain the employees that can help grow the business would be a focus, and they would restructure some compensation packages to accommodate that.”

Och-Ziff already renegotiated the payment agreement for its co-Chief Investment Officer Jimmy Levin earlier this year, to align it more closely to the funds’ investment performance rather than the company’s stock gains. Levin, who will become sole CIO at the end of this year, was previously awarded a pay package consisting of 39 million shares tied to stock returns. The award would’ve been worth north of $200 million if the company had met all its goals -- one of the highest pay packages on Wall Street. With shares where they are now, those targets haven’t been met.

Meanwhile, the firm’s flagship hedge fund has fared better: It has returned an annualized 5 percent since 2007, versus 3 percent on average for hedge funds.

That’s why Och himself is still a billionaire, despite owning a good chunk of shares. The majority of his fortune is derived from the $1.2 billion in proceeds he collected from the Och-Ziff initial public offering in 2007, which were reinvested into the company’s funds, according to the Bloomberg Billionaires Index. He’s also collected more than $1 billion in dividends, according to filings and an analysis of Bloomberg data.

Delisted Companies

It’s not that common for a company to be delisted. NYSE has delisted 12 firms this year, half of which had failed to meet the exchange’s requirements for minimum market capitalization or share price. There are 27 companies still listed on the NYSE that have seen their shares trade at $1 or below at some point this year, according to data compiled by Bloomberg.

Of those, just four have recovered to trade above $2, and three of those executed a reverse-stock-split in 2018. Och-Ziff shares were unchanged, closing at $1.01 on Tuesday in New York.

In the unlikely scenario Och-Ziff ends up delisted, “while clearly it won’t be good from an optics perspective, the fact that they’re not in any indices and institutional ownership is already pretty thin would minimize forced selling,” Gerald O’Hara, an analyst at Jefferies Financial Group Inc., said by phone.

And although it will reduce the company’s funding options, getting delisted won’t have an immediate impact on Och-Ziff’s existing debt contracts, said Elizabeth Campbell, an analyst at S&P Global Ratings. The hedge fund firm should be able to pay off its upcoming loan obligations with the cash it has on hand, she said.

“Their near-term business and financial objectives are met without needing to go raise equity capital at this point in time,” she said by phone.

“It’ll come down to investment performance,” added Campbell, who rates Och-Ziff’s debt three levels below investment grade at BB-. “If morale and turnover drives a point of underperformance for investments, those are the things that would put downside pressure on the rating.”

©2018 Bloomberg L.P.