Merger mania pays off for execs
NEW YORK — Most workers just hope to keep their jobs when their companies are bought. But for some executives, those buyouts trigger multimillion-dollar payouts that should keep them rich for life.
Look at the potential takeaway for Toys R Us Inc.’s top brass: seven current executives will split $123 million if shareholders approve a pending buyout offer from a group of private investors. Officers at other companies, including May Department Stores Co. and Maytag Corp., could leave with sacks of cash, too.
Quite a deal, if you can get it. And many executives these days are, thanks to the booming merger market in corporate America.
“Executives keep finding way to reward themselves, even when shareholders or their workers might not be getting the best deal,” said Michelle Leder, editor of the financial blog www.footnoted.org that tracks corporate securities filings.
Such generous provisions are usually part of executives’ contracts, presumably signed well before their companies are bought. But they still raise potential conflicts of interest when executives are weighing buyout offers for their companies: Are corporate leaders thinking “Make this happen, and then I’ll profit big?”
The hope is that they don’t think that way, especially after recent corporate scandals.
The good news is that companies have become more upfront about the size of such potential payouts, a change from the recent past when disclosures about severance or “change in control” policies weren’t necessarily common in financial filings.
Most companies still leave lots of loose ends — including issues like pension and benefit costs that could add millions of dollars to executives’ takeaway — that are nearly impossible for the average investor to figure out.
“Stockholders really have no idea what the true embedded costs of these packages” are, said Paul Hodgson, who analyzes executive pay for The Corporate Library, a governance watchdog group. “These golden parachutes are fundamentally flawed because they provide such excessive compensation.”
At Toys R Us, for instance, the company has accepted a $6.6 billion buyout offer from two private equity firms, Bain Capital Partners and Kohlberg Kravis Roberts & Co., and a real estate developer, Vornado Realty Trust. The new owners may sell off unprofitable stores and operations, which would likely mean layoffs.
Shareholders must decide in the coming weeks whether to accept $26.75 a share, more than double where the stock was last year when the company announced that it was exploring the sale of its global toy business.
But the real winners will undoubtedly be the seven current top officers, who will collectively be paid $53.4 million for the cancellation of their stock options, $15.6 million for their restricted stock, $32.3 million in severance and $21.9 million in tax payments. Nearly half of that money is going to CEO John Eyler. And there are millions of dollars more going to the company’s directors and former officers.
Toys R Us management signed off on an agreement that makes it tough for the shareholders to vote down the deal. Should the merger not go through, the company would have to pay the buyout group up to $30 million to cover expenses.
Such super-sized merger-related executive pay is also showing up in the $11 billion acquisition of May Department Stores Co. by rival retailer Federated Department Stores Inc. May’s 12 highest-ranking executives could collect $44.6 million in cash for severance and “non-compete” payments as well as get all of their stock options and restricted stock immediately vested.
At Maytag, its three executives are expected to stay on after the appliance manufacturer is bought by an investment group led by Ripplewood Holdings LLC for $1.31 billion. But should their employment be terminated, they would be entitled to two to three times their average annual base salaries and bonuses as well as certain health and retirement benefits.