Nightingale Health’s Board of Directors resolved on a change to the share-based incentive schemes

Translation: Original comment published in Finnish on 8/12/2022 at 7:33 am.

Nightingale Health’s Board of Directors resolved to change the subscription price of shares in the company’s stock option programs that entitle to subscribe for Series B shares. The new subscription price is EUR 2.50 per share, whereas the subscription price prior to the change was EUR 6.75 per share. The key to this change, in our opinion, is the fact that the market capitalization steps entitling to subscribe for shares in the stock option programs remain unchanged. Thus, dilution from options mainly only occurs in a situation where the company's market cap is significantly higher than the current situation (500-5,000 MEUR).

For investors, the lowering of the subscription price may seem unfair, but in all B share option schemes, the right to subscribe for shares is primarily based on an increase in Nightingale’s market cap. In practice, the right to the first tranche of these option schemes will only materialize when Nightingale’s market cap increases above EUR 500 million (currently around 120 MEUR) and the steps continue in principle to EUR 5,000 million. The market capitalization steps entitling to subscribe for shares remain unchanged, which we find important. Thus, the change will not result in further dilution for shareholders, but only increases the potential return on the options and, on the other hand, reduces the capital accumulated from the subscriptions if they are exercised. According to the company, subscription rights based on market capitalization is the key term in all these stock option programs, as an increase in the company’s market cap is in the best interest of the company’s shareholders.

According to the company, the change is made to maintain the purpose of the stock option programs to incentivize the option holders to the economic growth of the company and the development of the company’s share value, as well as create a long-term relationship between the company and the option holders that benefits the company both financially and operationally. It is clear to us that the incentivizing effect of the stock option schemes has reduced when the share price has been far from the subscription price after a strong decline. Similar problems are likely to arise in other companies in the technology sector as the valuation levels have fallen sharply in other companies as well.