Grosser than we thought..
Back in March, when Capital One Financial Corp. (COF) announced that it was acquiring North Fork Bancorp (NFB) in a $14.6 billion deal, there was a lot of criticism about the hefty payouts and substantial tax gross-ups going to North Fork’s top three executives. In her column that ran on March 15 in the NY Times, Gretchen Morgenson (story behind wall) poked at Northfork CEO John Kanas for a deal that would pay Kanas about $91 million, not including a $44 million tax gross-up. Over at the WSJ (also behind a wall), Kanas’ deal was valued at "roughly $185 million", which included a gross-up that "could be as much as $111 million". At the time, Kanas told Morgenson that he planned to make "a major donation" to reduce the tax bill. He told the WSJ on March 14, "I know how the story looks, and it’s an egregious amount of money."
Well, it turns out that Kanas’ tax gross-up is grosser than we all thought. According to this amended S-4 filed by Capital One yesterday, Kanas’ tax bill will actually be closer to $122 million. (Hint: do a search for excise tax gross-ups to find it quickly). The tax bills for North Fork’s two other executives’ are significant in their own-right according to the filing: $40 million for Vice Chairman John Bohlsen and $26 million for CFO Daniel Healy.
So between the tax gross-ups and the various other goodies that Kanas is set to receive, his personal piece of the pie works out to around $212 million (based on the numbers provided in the amended filing), which is significantly more than the roughly $185 million James Kilts’ package was worth when he sold Gillette to Proctor & Gamble (PG) in 2005. At the time, that deal was considered the high-water mark when it came to merger piggyness. But now, top executives who really want to prove their worth have a whole new benchmark to shoot for. Do we hear $250 million, anyone?
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June 9th, 2006 at 10:06 am
As always there are two side to the story:
Additionally from Forbes:
Kanas (a guy who has worked at the bank for 35 years):
“It’s very hard to sit here and try to defend that. And of course it’s a large sum of money. There are many sides of this, and most people don’t want to hear it. But one of things that drove up the size is that years ago I and the other two execs opted to put off the vesting of all of our restricted shares until retirement. Everyone else in the bank–and a much more common practice–is to have these shares vest every three or four years. So this money would have come in to these executives and me in much smaller amounts every year as these options vested.
We raised our hands years ago and said, Let’s show the market how dedicated we are to this company–that we’re never going to leave, that were going to stay until retirement. And so we put it off until retirement age, which means that instead of them having vested, as is normally the case with most companies, over the years, they vested all on one day because of change of control.
Up until the time that the change of control took place, those things were at risk. We weren’t sure we were ever going to get them. They were due to vest upon change of control or retirement. This had been disclosed to our shareholders ad nauseum every year in the proxy.
In five more years I’ll be 65, and if I had simply waited to 65, all of my shares would have accelerated, and it would have been a lot quieter and not in the context of a deal. “
June 10th, 2006 at 1:55 pm
Nobody’s arguing that Kanas didn’t put in his time and clearly deserves to be rewarded for the bank’s strong performance. But why are investors getting soaked with a $122 million tax bill? Are we really to believe that Kanas can’t afford to pay his own taxes like everyone else does?