Are Financial Fed execs jumping the gun on deal?
Back in November, Financial Federal (FIF) announced that People’s United Financial (PBCT), a bank I used to cover very closely when I worked in New Haven, was buying the financing company for around $738 million. The deal caused a nice pop in Financial Federal’s stock after the news was announced.
But it was this 8-K filed yesterday that really caught my eye. While it’s pretty normal for shares — options, RSUs, whatever — to vest immediately once a deal closes, I honestly can’t recall a lot of situations where the shares vest “in anticipation of the pending merger” as the filing notes. Maybe I just haven’t stumbled on this before, but a quick scan of filings shows that this does seem very rare.
The amounts — as outlined in the 8K — are not insignificant. Chairman and CEO Paul Sinsheimer saw over 440,000 restricted shares vest immediately, which was worth $12.1 million. The Form 4, which was also filed yesterday, shows that Sinsheimer sold about 160,000 shares on Dec. 30. Seven other executives also sold shares on Dec. 30, according to a series of other Form 4s filed yesterday. The 8K shows that the shares were worth just shy of $30 million.
The 8-K explains the reasoning behind the early vesting as helping the executives avoid the excess parachute payment tax — known as 280G in tax lingo — and to eliminate the tax gross-up that People’s United would have been on the hook for post-deal. The filing also notes that Peoples United agreed to the accelerated vesting.
Still, given how some deals fall apart at the last minute, the whole thing still seems a bit unusual.
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Posted in Tags: 8Ks, Form 4s, M&A |
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January 5th, 2010 at 11:42 am
Last time I remembered seeing options vest on announcement was the Sprint-MCI deal. That sure worked out well.
I very much doubt there a recapture clause in this amendment to the original agreement in case the deal does not close.
As to triggering these early to avoid taxes, this is just another reason to ban gross ups. If you are fortunate enough to be in a position to earn performance based equity bonuses and option awards, pay your own taxes!
January 5th, 2010 at 11:50 am
@JR: I couldn’t agree with you more. Hire the best accountant/tax attorney that you can afford and use whatever legal tricks you can to reduce your tax burden. But it still amazes me that so many executives expect someone else to pay their taxes just because their company is acquired.
January 5th, 2010 at 12:37 pm
While I have actually seen clauses like this several times, I have only seen them enacted a couple of times. In my experience early vesting clauses have been but in place to help defend against unwanted acquisition. Upon a potential acquisition, enough shares vest to allow the holders to regain some level of ownership control of the company.
When I have seen these clauses that have generally been at very small, non-public companies who were trying to build a foundation before a big growth spurt. Pretty odd in a company the size of FF.