And now, the closing bonus…
The other day, when we announced our own M&A news with Morningstar (MORN), we poked at some of the crazy things we’ve seen over the years in other M&A deals. Well, we’ve just stumbled across a new one at tiny Home Diagnostics (HDIX), which announced its own deal last week to be acquired for $11.50 a share by the Japanese-based Nipro Corp.
Now normally we don’t spend a lot of time looking at companies this small. But we couldn’t help it when we stumbled across what appears to be a new M&A perk: the closing bonus. In both the 8-K that was filed last week and another filing from yesterday, the company disclosed that six of its top executives would receive hefty closing bonuses. In most cases, these closing bonuses exceed the annual salaries that the executives made. For example, President and CEO Joseph Capper’s closing bonus was set at $489K, just shy of his $500K salary. All told, the closing bonuses for the six executives add up to nearly $2 million.
The language the company used to describe these bonuses seemed particularly amusing to us. And the timing — just a day before the deal was announced — was interesting too. Here’s a snip:
On February 2, 2010, to compensate the below-named officers of the Company for the additional services provided by such officers in connection with the due diligence process relating to the Offer and Merger and to provide certain incentives to such officers of the Company to continue to facilitate the transactions contemplated by the Merger Agreement
That’s a fancy way of saying that they’re getting paid extra money to basically do their jobs.
Just to make sure we were right in our hunch that this was a new perk, we decided to search through all filings for the words “closing bonus” and largely came up empty-handed. There were a few examples at mostly smaller companies, including Friend Finder Networks, the online dating site, which scrubbed its IPO last week due to lack of interest. But it’s clearly not a typical part of most deals.
To be fair, Home Diagnostics stock jumped sharply on the news of the deal, nearly doubling. Still, that hasn’t stopped several law firms — we counted at least four — who have announced plans to investigate this deal on behalf of shareholders. Perhaps, they’re also wondering about this new M&A perk.
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Posted in Tags: M&A, new disclosures |
 6 Comments » |
February 12th, 2010 at 11:26 am
That’s surely one ugly new perk! Come on, any decent outfit uses third party research like accountants, lawyers or CIA moonlighters to get arm’s length, honest
opinions. Shares doubling hints at the takeover firm having bought in early as a
perk to the deal. Only 17M OS and 15K bagholders. Also its a south FL company,
nuf said!
Insiders past 6 months.
Number of Buys 2 Shares Bought 12,000
Number of Sells 4 Shares Sold 463,500
February 13th, 2010 at 5:43 pm
Are these in place of change of control bonuses?
February 15th, 2010 at 11:51 am
Just some thoughts on what the “closing bonus” might mean:
1. Something sinister–basically a way for diverting purchase price consideration from shareholders to senior management. This is a common problem with closely-held corporations are held and senior management holds a substantial chunk of stock.
2. Something practical — perhaps the company is in California or another state with strong right to work legal protections. Accordingly there might be a need to dress up substantial non-compete provisions with additional cash. Admittedly, there is a provision in California common law (I think it’s non-statutory) which allows for the enforcement of non-compete provisions in the context of a sale.
3. This is really no different than a golden parachute. Query whether it makes sense to give golden parachutes.
February 15th, 2010 at 11:56 am
I think this one just sticks in my craw because I just went through an M&A process and there was lots of extra work involved. But I didn’t sign an agreement with myself the day before the deal was announced to pay me a bonus for the extra hours that I put in.
So whether this is the same thing as a stay bonus or some of the other goodies we’ve seen before around M&A, it just comes across as being tacky — plain and simple!
February 15th, 2010 at 8:44 pm
I don’t know about the term “closing bonus,” but executives have been given special bonuses in the past for their work on mergers. For example, Exxon handed out bonuses to its executives (totaling millions of dollars) when the merger with Mobil closed specifically rewarding their work on the process. (I don’t know about Mobil; I didn’t work there or own its stock.) As with you, I wonder why they needed to be paid extra for doing their basic job.
February 17th, 2010 at 7:37 pm
Actually, these are quite typical and are usually called “stay” or “retention” bonuses. First, the amount of work required to get an M&A deal done can be amazing. Lots of long hours, hard decisions, negotiations, etc. Part of the job? Sure, but it’s beyond routine.
Second, the company needs to retain management to make sure there isn’t a brain drain before closing. What if the merger doesn’t close?? Stay bonuses are typical to address this issue (though less so if the executives have CIC agreements).