Success all around at SuccessFactors…

December 5, 2011

We’ll keep this short and sweet: On August 12, we sent footnotedPro subscribers a two-page report [PDF, subscribers only] with the headline, “Is SuccessFactors contemplating a deal?” The stock was trading just over $25 a share.

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 us.

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