Airvana and the “Mergerwocky”

While we haven—t yet seen the new movie Alice in Wonderland, we definitely felt like we had fallen down a rabbit hole when we read Airvana, Inc.—s (AIRV) recent merger proxy.

The Chelmsford, Mass-based company, which sells network infrastructure products to the wireless companies that provide mobile broadband services, announced last December that it planned to go private. The list of high-profile players involved in this deal included SAC Private Capital, Zelnick Media, Goldman Sachs (GS), which served as Airvana’s financial advisor, and Boston law firm Ropes & Gray.

But what really caught our attention in the filing was some of the giant-sized paydays that Airvana executives will receive post-deal. In addition to vested stock options and equity shares, the merger will accelerate the vesting of currently unvested stock options. Page 59 of the filing states what each director and executive officer would receive if a —Total Cash Payment is made (based on assets owned as of Jan. 3, 2010).

The biggest recipient, by far, is Paul Ferri, an Airvana director since 2000, who will get $ 117,335,080 (yes, $117.3 million). The proxy notes that Ferri is —a founding partner of Matrix Partners, a venture capital firm, where he has been a General Partner since February 1982. Keep in mind that the size of the deal is valued at around $530 million and it’s still pretty rare to see so much go to one person. But others will benefit too including director Gururaj Deshpande, who stands to collect nearly $66 million.

Several other executive officers will also see big paydays, though not nearly as big as Ferri’s and Deshpande’s. They include VP/Chief Technical Officer Vedat Eyuboglu – $7,696,237; VP/CFO Jeffrey Glidden – $5,250,414; Luis Pajares (who was VP/North American Sales and Services until he resigned on December 31, 2009) – $3,910,866; and VP/Engineering Mark Rau – $3,472,904.

Battat, Verma, and Eyuboglu are —Rollover Stockholders who will exchange 60% of their common shares of Airvana for equity interests of the new parent company. (The exchange helps them defer paying taxes.) However, p. 57 notes that they —will be paid merger consideration for [the remaining] approximately 40% of the shares of Airvana common stock that they hold. Each man will also be an executive officer and a director of the new parent company.

But whereas some of the executive officers are retaining an equity interest in the surviving company, it appears that the directors such as Ferri are completely cashing out their interests. The proxy says they will collectively receive $607,394 for their options; and “[a]dditionally, these directors will receive an aggregate cash payment in respect of their other beneficially owned shares of Airvana common stock in the amount of $184,118,232. It continues on p. 61:

“The members of the board of directors (excluding Messrs. Battat and Verma) are independent of and have no economic interest or expectancy of an economic interest in Parent or its affiliates, and will not retain an economic interest in the surviving corporation or Parent following the merger.”

According to pp. 33-34 of the proxy, the board of directors (excluding Battat and Verma, who abstained from voting), and Goldman Sachs, which was hired to advise the Board’s special committee, concluded that the offer to pay $7.65 per share for common stock, was —advisable, fair to and in the best interests of the Company and our unaffiliated stockholders. [Several law firms that filed suit to oppose the merger apparently disagree.] Page 6 states that Goldman Sachs will be paid —a transaction fee equal to approximately $6.3 million, $5.8 million of which is contingent upon consummation of the merger.

These sorts of big numbers always make us wonder what the purpose of a deal like this is, other than to enrich a few people. Yet, the deal seems inevitable. Page 68 of the filing notes that as of Feb. 23, 2010, directors and executive officers owned about 48.6% of Airvana’s common stock, and they intend to vote all of their shares in favor of the merger agreement at the upcoming April 9 special shareholders’ meeting.

All this brings to mind another of Lewis Carroll’s well-known works. Except, perhaps, it’s the —Mergerwock of which we should really take heed.

Image source: sammydavisdog via Flickr