A taste of the Savvis merger pudding…

June 14, 2011

Merger mania continues, and yesterday’s headlines were chock full of new deals, including the much-ballyhooed announcement that Wendy’s/Arby’s Group, Inc. (WEN) is selling the Arby’s brand to PE firm, Roark Capital Group, in a deal that’s worth an estimated $430 million. (We’ve been expecting that for nearly a year, having written a footnotedPro piece last August which examined how badly Arby’s was dragging down the company’s profits.)

But yesterday also brought some other deal-related documents including the merger proxy that Savvis, Inc. (SVVS) filed to disclose the details of its acquisition by CenturyLink, Inc. (CTL). The transaction, which is expected to close in the second half of 2011, would give Savvis’s shareholders $30.00 in cash and $10.00 in CenturyLink stock for each share of stock they own, according to an 8-K that was filed back when the proposed $2.5 billion deal was announced in late April.

The eye popping moment came on page 59 of the DEFM 14A, though, when we got to the part of the filing that relates to what the future holds for Savvis’s executive officers. According to the document, the parties had discussions during the negotiations

“…concerning the possible continued employment of Messrs. Ousley, Fathers, Doerr and Von Deylen following the closing of the merger. CenturyLink proposed entering into new employment agreements that were substantially similar to their existing employment agreements with Savvis and the parties discussed providing such executive officers with retention awards either pursuant to the new employment agreements or as stand-alone arrangements. No such employment agreements or arrangements have been entered into, although discussions on these matters are ongoing. CenturyLink anticipates finalizing these arrangements prior to the closing of the merger, but cannot assure that these arrangements will be finalized by that time.”

So what happens if, for example, Chairman/CEO James Ousley is unceremoniously shown to the door without cause, or if he resigns “for good reason” within 12 months after the Change in Control occurs?

Well, depending on how it happens, he could get as much as $28.8 million. The cash severance component is actually rather small, “only” $825,000. But he could get $23.5 million for the value of his stock options and RSUs, which vest immediately once the deal closes. There’s also a nearly $4 million tax gross-up.

For the other NEOs, the money is quite a bit lower, but it’s certainly nothing to sneeze at. President William Fathers, for example, could receive more than $9.33 million if he loses his job within 12 months after the change in control; and Senior VP Global Operations and Client Services Jeffrey H. Von Deylen would get nearly $3.85 million. The others fall somewhere in between.

Of course, the executives might all keep their jobs, in which case they don’t get the severance and some of the other payments, but they still get the benefit of accelerated vesting on their equity interests, which include hundreds of thousands of stock options and RSUs, and those are still worth millions.

Either way, for the Named Executive Officers, this looks like a win-win. As for the company and the shareholders, as is always the case in this type of deal, the proof will be in the pudding.

Image source: mroach via flickr

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