But shareholders aren’t the only ones who will benefit from the acquisition, as the Schedule 14D-9 shows. The officers and directors of the company will come into some even bigger bucks, thanks to the fact that the change in control clause will accelerate the vesting of their currently-unvested stock options. They’ll also get pro-rata bonuses and severance (plus ongoing benefits) if they are terminated within 18 months after a change in control occurs.

The biggest check, by far, will go to Pharmasset’s President and Chief Executive, P. Schaefer Price. If he’s terminated within 18 months after Gilead acquires Pharmasset (assuming the deal goes through), he could end up with more than $36.43 million. Most of that will be in exchange for the cancellation of his 399,950 unvested stock options and a pro-rated bonus. But if he’s terminated within 18 months after the deal closes, he will get more than $1.74 million in severance and $61,714 to pay for benefits. But that’s actually small when compared to the stock that Price holds. Update: As the WSJ’s Scott Thurm pointed out in this post shortly after the deal was announced, Price stands to make $255 million once the deal closes.

Other named executive officers will also become instantly richer if the deal goes through: CFO Kurt Leutzinger will get more than $13.18 million for his unvested options and bonus (plus $357,000 more if he’s terminated); Chief Medical Officer M. Michelle Berrey will get more than $13.5 million for her unvested options and bonus (and $354,000 more if she gets the axe); Chief Scientific Officer Michael J. Otto will get nearly $11.25 million for his unvested options and bonus (and another $317,000 if he loses his job); and Chief Development Officer Michael D. Rogers is in line for more than $10.29 million for his options and bonus (plus close to $326,000 if he’s canned).

And then there’s Pharmasset’s non-employee directors, who will receive a collective $11.6 million for their restricted shares of stock if the deal goes through. The filing notes that “None of the Company’s executive officers (including Mr. Price, who is also a member of the Board) held any Company Restricted Shares as of December 1, 2011.”

According to this Bloomberg article from yesterday, Pharmasset’s stock dipped last week after some investors “grew concerned that Gilead will walk away from the takeover if Pharmasset faces delays in the development of its oral drug for hepatitis C.” Yet most of the sources reporter Tara Lachapelle cited predicted that the odds of Gilead walking away from the deal are low. We bet that Pharmasset’s officers and directors – even more than the company’s shareholders – are counting on those odds to pay off in a big way.

Image source: Colorful pills via Shutterstock

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In 2011, we told our footnotedPro subscribers that SuccessFactors (SFSF),  Smurfit-Stone Container (the former SSCC), Pride International (PDE), and Lawson Software (LWSN) were all prime targets for M&A. We plan to put out another report early next year with a new set of top potential targets. For more information or to inquire about a trial subscription to footnotedPro, please contact Todd Serpico.

Over the weekend, SuccessFactors (SFSF) and SAP (SAP) announced that SAP would acquire the smaller company for $40 a share in cash, and SuccessFactors’ shares opened this morning at almost that level. That would have been a 59% gain in just under four months for anyone who bought in mid-August.

But this isn’t just about footnotedPro: There’s also a good, old-fashioned footnoted story to tell here, because part of what caught our attention back in August came down to compensation. We saw a pattern playing out over more than a year in which executives and the board seemed unusually preoccupied by the potential for a change in control of the company (ie, a deal).

There was a new change-in-control severance plan in July 2010, where the company never seemed to feel the need for one before, with beefed-up payouts in the event of a deal. Just one example: Under that new plan, CEO Lars Dalgaard stood to receive double his salary and target bonus if he loses his job after a deal, as opposed to just one times his salary and bonus previously. CFO Bruce Felt stood to have all his outstanding equity awards vest, as opposed to just half of it.

Meantime, a new employment agreement for Dalgaard last spring boosted his salary and bonus, plus a hefty fistful of new equity — $6 million, a little over half performance-restricted stock and the rest regular restricted stock, but all of it vests in full (as if performance targets have all been met) if a deal happened. Even if Dalgaard keeps his job, he gets the payout, albeit spread out over several years instead of all at once.

These developments fit into the broader mosaic that we like to talk about here at footnoted: It’s rare that a single filing tells the full story, so we take the time to spot patterns and put together clues across multiple disclosures (and sometimes multiple companies).

We’ll have a more precise idea of what Dalgaard’s final haul is, along with the payouts for the rest of the company’s top brass, when the SAP-SuccessFactors merger proxy comes out. But according to the proxy, filed in April, Dalgaard could collect $16.8 million if he’s let go after the deal announcement, while other executives could see payouts of between $2.4 million and $5.5 million.

This isn’t the first acquisition target we’ve flagged this year at footnotedPro: We also gave subscribers a heads-up for Smurfit-Stone Container (the former SSCC), Pride International (PDE), and Lawson Software (LWSN), all of which were in our beginning-of-year report detailing our top M&A picks for 2011. We plan to put out another report early next year with a new set of top potential targets. For more information or to inquire about a trial subscription to footnotedPro, please contact Todd Serpico.

The disclosures come in the “Golden Parachute Compensation” section of the filing, on page 182, just in case you didn’t make it that far. The numbers used are just an estimate, based on the hypothetical scenario that the merger had been approved, and that Medco’s named executive officers had been terminated on October 31, 2011.

Medco’s Chairman and CEO, David B. Snow, Jr., stands to gain more than $38.96 million if he is terminated within a year after the merger closes. Of that sum, $12.6 million would be paid as cash severance and more than $26.34 million for Snow’s equity interests.

Other top executives would also get nice payouts: President and Chief Operating Officer, Kenneth O. Klepper stands to get more than $15. 7 million; Senior Vice President, Finance and CFO, Richard J. Rubino, could receive nearly $10.33 million; General Counsel, Secretary and President, Global Pharmaceutical Strategies, Thomas M. Moriarty, could get more than $9.76 million; and Group President, Employer/Key Accounts, Timothy C. Wentworth, may receive more than $9.12 million.

But whereas Snow’s entitlement to the money (per his employment agreement) is conditioned upon the merger closing and him being terminated within a year, the other four executives’ rights come from the Change in Control Severance Plan; thus, they are protected if a qualifying termination occurs within two years following the Medco merger.

These numbers could “materially differ” from amounts that may actually be paid, but – based on the explanation in the merger proxy – it seems far more likely that the payout numbers would go up, not down:

“The amounts reported below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described in this joint proxy statement/prospectus, and do not reflect certain compensation actions occurring before completion of the Medco merger (such as the grant of stock options and RSUs in respect of 2011 performance and payment of 2011 bonuses)….”

Express Scripts and Medco are independently holding special shareholders’ meetings at the same time on December 21, and it remains to be seen whether their shareholders will approve the deal. The filing also disclosed that both companies are currently working on their responses to the Federal Trade Commission’s Request for Additional Information and Documentary Material. After that, the DOJ, the FTC, state attorneys general, and possibly others could file suit to block or restrict the merger. But it seems clear that Medco’s top executives don’t have to worry about missing their mortgage payments if the merger goes through and they subsequently find themselves out of work.

Meanwhile, Medco employees continue to have questions about the deal, judging by this 8-K that the company filed late Friday. One of the first questions had to do with which executives plan to stick around post-deal. We thought the answer, which of course relates to the pay-outs, was worth including here:

“The complete and extended leadership team for the new organization is still under review and has not been decided. Medco’s senior executives remain committed to ensuring the merger is completed and that the transition positions the new entity for its continuing success.”

Suffice it to say that that sounds like a lot of fancy words to not really answer the question on whether the executives are staying or leaving.

Image source: e-MagineArt.com

Data source: Morningstar Document Research

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And then CenturyLink has to go and ruin it by filing this 10-Q earlier this week. There on page 12, under the section “Acquisition of Qwest” was this tasty pearl:

We retrospectively adjusted our previously reported preliminary assignment of the aggregate Qwest consideration for changes to our original estimates of the fair value of certain items at the acquisition date. Identifiable intangible assets—other decreased $179 million due to a decreased tradename valuation and accounts receivable and other current assets increased by $88 million primarily due to a change in deferred income taxes and an insurance reimbursement related to a litigation settlement. Deferred credits and other liabilities increased by $40 million primarily from a change in deferred income taxes and a revision to our pension and post retirement asset valuation. Goodwill increased by $130 million as an offset to the above mentioned changes.

Making these sorts of adjustments post-acquisition isn’t really all that unusual. After all, it usually takes a few months to really get your hands around a situation post-acquisition. Still, adding $130 million in goodwill seems like more than a rounding error to us.

Indeed, if you poke around the filing a bit more, you see that CenturyTel’s goodwill on its balance sheet has blossomed from $8.7 billion at the end of last year to a whopping $19.2 billion, most of that directly tied to the acquisition of Qwest.

We’re sure hoping that this really is our last post on Qwest.

Image source: Redhouse Developments

The SEC is closed today in observance of Veteran’s Day and the footnoted team is taking a well-deserved day off after sifting through over hundreds and hundreds of Qs in the past week. We continue to post our best finds over on  footnotedPro, where we highlight unusual opportunities and potential problems well in advance of the market. For more information or to inquire about a trial subscription, contact Todd Serpico.

A quick scan of the 13F that Icahn filed on Aug. 15 for the quarter ended June 30 shows that El Paso was not among his holdings, which means that entire position was probably accumulated somewhere between July 1 and Aug. 15. We say probably because our friend Ben Silverman over at InsiderScore.com, who knows 13Gs and 13Fs much better than we do, told us that Icahn is one of those brand-name investors who sometimes gets a waiver from the SEC to report individual positions, because so many people keep an eye on him and what he does.

But if we go with the July 1 to Aug. 15 dates,  El Paso stock declined by just over 5% and was trading in a range from just under $21 a share to just under $17. Once people noticed the Icahn filing on Aug. 15, the stock traded up a bit, before falling again. Today, it’s up about 24% on the news of the deal.

Of course, one of the problems with parsing 13Gs and 13Ds (not to mention 13Fs) is that those forms really only give you part of the story. Short of asking Icahn, there’s no way that I know of to really figure out exactly when those 58.2 million shares of El Paso were purchased, which means there’s no way to figure out just how well Icahn did on the acquisition news. There were certainly days, like Aug. 2 and Aug. 8 when trading volume was significantly higher than it normally was. But the bottom line is that we don’t know and may never really know.

The best we can say is that assuming Icahn bought all his shares between July 1 and Aug. 15, he’s up somewhere between 20% and 45% on this one position, which, given the current market, seems like a pretty sweet outcome.

Image source: solarnavigator.net via Wikimedia Commons

Then again, it was just a few short weeks ago that PPDI announced the appointment of Hill as the company’s CEO via this 8-K that was filed on Sept. 22. We didn’t pick Hill or PPDI out of the blue. Yesterday, the company announced that it was being taken private in a $3.9 billion deal by private equity firms, The Carlyle Group and Hellman & Friedman. If you read the press release carefully, you’ll notice that there was no mention of Hill at all, which seems kind of odd to us, given that he is the company’s CEO. We think it’s a pretty safe bet that some PR person would have whipped up a nice quote for Hill if he was planning on sticking around.

Because the Sept. 22 filing did not include Hill’s employment contract, we only have the broad-brush outline to try and parse. Still, it looks like his 2 1/2 weeks on the job could be one of the most lucrative (not to mention shortest) stints we’ve seen here in 8 years of footnoted. As spelled out in the 8-K, Hill’s salary was set at $575,000. In addition, he received 30,000 RSUs and 150,000 options. While this Form 4 notes that the 150,000 options vest in three equal increments starting next year, the Sept. 22 filing seems to indicate that the options vest immediately upon a change in control. Doing some quick back-of-envelope math, we calculate that Hill stands to make over $5 million just on the stock and options. Did we mention that this was for 2 1/2 weeks of work?

There’s also 2.99 times his salary, or $1.7 million, and two years of benefits, if he is let go after the deal. Granted, the numbers may change a bit once the contract is actually filed. But it appears that Hill’s 2 1/2 week stint as CEO could be worth close to $8 million. With that kind of money, Hill should be able to hire one of the many LinkedIn service companies that offer to update the profiles of busy, but social-media conscious executives, including CEOs looking for their next lucrative gig.

Image source: Inkwell Bookstore

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As always with deal payouts, there are various assumptions and conditions. Some of the money comes through if the deal is consummated; some of it only kicks in if a given executive loses his job within a couple years after the deal. Still, a lot of money hangs in the balance for top executives of Temple-Inland, to judge from the preliminary merger proxy, or PREM14A, that the company filed on Friday (at 5:29 p.m., just before the SEC’s electronic window closed for the week).

A big chunk of the payday would be in cash, since outstanding unvested options and restricted stock would be cashed out based on the deal price. For Temple-Inland’s chairman and chief executive, Doyle R. Simons, the cash-out value of his unvested options, restricted stock and related awards, plus associated dividends, works out to $29.6 million. Not bad for a guy who got those titles in late 2007, though he joined the company in 1992. (Curiously, we note he worked his way up by way of running the investor-relations office — not sure we’ve ever noticed someone anyone going that route before.)

For Chief Operating Officer J. Patrick Maley III, the equivalent figure is $23.7 million in cash. Maley actually worked at International Paper for 11 years before joining Temple-Inland in 2003. Other top executives could expect payouts ranging from $7.6 million to $12.1 million.

It’s worth keeping in mind that those equity cash-outs are for unvested stock and options — in other words, equity that the executive wouldn’t have actually earned the rights to yet absent a change of control: The right amount of time hasn’t lapsed, or performance measures haven’t yet been met. We’re sometimes a little puzzled why restricted stock and options — often handed out well before a deal is announced, to entice executives not to leave — should suddenly lose their retention or performance functions and become pure reward when a deal is done, but so it often goes.

Anyone let go after the deal, of course, stands to receive big severance payouts, in cash, stock and benefits. For Simons, the total comes out to $61.4 million, including $29.6 million in equity, $6.2 million in retirement benefits, $8.8 million cash (both severance and a pro-rated bonus for the year of termination), and three years of continued benefits and apparently unspecified perks — plus an estimated $16.6 million that the company would have to pay to cover his taxes on those goodies.

We aren’t the first to note Simons’ big deal payday — MarketWatch’s Bob Tita mentioned it in a piece on Saturday — but a bunch of other top Temple-Inland executives also stand to make a mint. Maley’s take on termination would total $47.8 million, with similar components, and the other top officers would see between $14.9 million and $20.2 million. Total bill for the top five officers in the proxy: more than $162 million.

Certainly, Temple-Inland’s management and board worked hard for at least some of that money. International Paper ultimately agreed to pay $1.40 a share more than its original $30.60 offer, after Temple-Inland dug in its heels and adopted a poison pill, among other measures.

Then again, when executives and directors own a sizable stake in the company — think Warren Buffett or Steve Jobs — that kind of work is its own reward. At Temple-Inland, it’s apparently just the beginning.

 Image source: Jack Spades via Flickr

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It’s fun dissecting merger proxies after the deal’s announced. It’s more profitable to spot deal signals before the market. Check out footnotedPro, where we highlight unusual opportunities and potential problems before other investors. For more information or to inquire about a trial subscription, email us at pro@footnoted.com

But there are other fascinating details about the deal that we discovered after putting on the scuba gear and diving in to the preliminary merger proxy that Motorola Mobility filed late Tuesday. Most of these involve the astronomical fees, for doing what seems like very little work. Let’s just say that there are probably a few I-bankers who are probably buying very nice thank you gifts for all those special people in their lives.

For one, there’s the $2.5 billion reverse termination fee if Google can’t get government approval for the deal. And, on top of that,

“…if Google breached its obligation to use reasonable best efforts to obtain necessary antitrust clearances, Motorola Mobility may be able to seek additional damages from Google in an amount equal to $1 billion, in addition to the reverse termination fee of $2.5 billion.”

If Motorola Mobility doesn’t complete the deal, say, because another suitor comes along, they’re on the hook for $375 million. It’s hard for us to imagine how failing to move forward with this deal is worth $375 million, and certainly not $2.5 billion.

There’s also the Frank Quattrone angle, which DealBook detailed:  The deal got a lot sweeter for Motorola Mobility after it hired Quattrone, whose new firm is called Qatalyst. Quattrone, working with Centerview Partners, seems to have convinced Google to up the ante by more than $3 billion.

But Quattrone likely didn’t do this out of the goodness of his heart. There are some pretty hefty fees involved, especially considering that Motorola Mobility hired Quattrone August 1 (when Google’s offer was $30 per share), and a mere 8 days later, the offer price was $40 per share. According to the proxy, Qatalyst Partners will be paid approximately $40 million if the merger is consummated. It got a $5 million opinion fee upfront, and it will continue to get an advisory fee of $1.25 million per quarter for each quarter before the deal closes. If the deal goes through, those fees “will be fully credited against the total fee.” Did we mention that this is for 8 days of work?

Centerview, meanwhile, got $3 million after it gave Motorola Mobility its fairness opinion, and it will receive another $9.5 million if the deal goes through.

As hard as it is to fathom those breakup fees, it’s even harder for us to figure out what could possibly be done over 8 days that is worth more than $50 million. Perhaps our friend, the Epicurian Dealmaker, can explain some of the math to us.

Image source: Ilse Reijs and Jan-Noud Hutten via flickr

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Risk avoidance is critical in the current market environment. Over on FootnotedPro, we shine a spotlight on potential problems well in advance of the market. For more information or to inquire about a trial subscription, contact Todd Serpico.

But we thought it was more interesting to dive into Motorola Mobility’s filings. As footnoted regulars know, we like to plunge head-first into the filings, especially following a big deal. And it didn’t take us long to find this severance plan that was attached to the 10-Q that Motorola filed just over two weeks ago. Of course, it’s really only with the benefit of today’s news that the agreement stands out at all. As is the case with most of these, the attorneys who write this stuff seem to go out of their way to scream “ignore me” with their overly soporific prose. Here’s a snip from the very beginning. Be sure to have coffee in hand as you read this:

The Board of Directors of Motorola Mobility Holdings, Inc. considers the maintenance of a sound management to be essential to protecting and enhancing the best interests of the Company (as hereinafter defined) and its stockholders. In this connection, the Company recognizes that the possibility of a Change in Control (as hereinafter defined) may exist from time to time, and that this possibility, and the uncertainty and questions it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Accordingly, the Board (as hereinafter defined) has determined that appropriate steps should be taken to encourage the continued attention and dedication of members of the Company’s management to their assigned duties without the distraction which may arise from the possibility of a Change in Control.

The rest of the agreement seems pretty routine too. The only thing that sort of sticks out to us is the timing, since it was effective Feb. 15. But the actual plan was not filed until the July 29 Q. The 10-K that MMI filed back on Feb. 18 had a lot of other employment-related agreements attached to and the company also filed this 10-Q back on April 26, which was well-after the effective date of the agreement. There was a brief description of the details of the severance plan in the proxy that the company filed on March 15, which makes the timing seem all the more odd.

Diving into the proxy, the amount that Chairman and CEO Sanjay Jha stands to make is pretty eye-popping: over $90 million, although that number includes a $22 million gross-up for taxes — something that Jha and other Motorola executives apparently agreed to give up earlier this year.

Of course, finding these sort of nuances in advance is what really counts since the company’s stock is up nearly 60% on news of the deal. Indeed that was the main focus of our  Jan. 14 footnotedPro report on 2011 M&A targets and we’re pretty pleased that three of those deals have been announced, leaving seven more to go. Motorola Mobility wasn’t on that list — or even the updated list we put out in late March. But in hindsight, it was clearly an interesting signal that we often look for as we’re doing our diving.

For more information or to inquire about a subscription to footnotedPro, please contact Todd Serpico.

Image source: Aixcracker

We don’t know whether that’s true or not, but the 8-K that Petrohawk filed July 20 reveals that BHP Billiton has given lucrative Retention Agreements to several of Petrohawk’s top executives as an inducement to stay with the company for a period of time after the deal closes, assuming that it does close.

As one might expect, Chairman of the Board and Chief Executive Floyd Wilson got the most generous Retention Agreement, a document that ensures him a minimum of $6 million, and very likely quite a bit more. And that’s on top of the money Wilson will get for his equity interests and other sources, although it’s too early to know how much he will get for those.

Most interestingly, Wilson agreed to become a consultant for the company for 6 months; the agreement states that

“…Mr. Wilson will provide services to the Company (which shall be no more than 20% of the average level of services performed by Mr. Wilson for the Company over the 36-month period immediately preceding the effective date of the Consulting Agreement).”

For putting in no more than a 20% work week for those few months, the company will pay Wilson a cool $3 million, even if the arrangement ends early.

But there’s more. In addition to keeping Wilson’s base salary at its current rate of “at least” $1 million, he is poised to get a $2 million retention payment. The company also agreed to give him a prorated portion of his 2010 bonus for the bonus year ending on December 31, 2011. (He got $2.5 million as a 2010 bonus, but since it’s going to be prorated for this year, this is the number we can’t estimate).

The 8-K then discloses that Petrohawk has divided other executives into four categories covered by as many varieties of Retention Agreements: 90-day executives, 180-day executives, 2014 executives, and 2012 executives. For the six individuals protected by these agreements – all at the level of Executive Vice President or above – the money varies from several hundred thousand (for those at the low end) to a few million (at the high end). Since the exhibits are actually just forms, the 8-K provides the best clue as to who is getting how much.

And then there are three other lucky executives who aren’t quite at the EVP level who also got retention agreements, but the company only states they will get “lower payments” without disclosing how much lower that means.

We’ll keep an eye open for the Merger Proxy when it’s filed and hopefully get some more insights into the deal when that happens.

Image source: Petrohawk Energy Corp. Investor Conference

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