Change of Control – More on Director Pay

March 8, 2006

There are a number of 13G filers of Dover Motorsports (DVD), most of whom have been waiting a very long time for a change of control transaction.  DVD and its sister company, Dover Downs Gaming and Entertainment (DDE) are public entities whose largest shareholder is the Estate of John W. Rollins.  Rollins was an extremely successful entrepreneur (Rollins Truck Leasing, Rollins Inc) who died almost 6 years ago.  His long time buddy Henry Tippie, age 79, is the executor of Rollins’ estate and has voting control of both DVD and DDE.

DVD and DDE have had management change of control provisions for a number of years which were reiterated last month.  In the event of a change of control, the CEO would get a $500,000 one time fee and a likely continuation of his bonus and salary (DVD – $589,000; DDE – $250,000) for 5 years.  Since the CEO is the same person at both companies, in the event of a change of control of both concerns, he’d have plenty of cash to wager at the Dover Downs casino and track.  But what has had the 13G filers drooling is that some of the directors stand to earn sizeable fees from a change of control which would seem to incentivize them to move things along.  As outlined in the proxy statements, in the case of DDE, one director would get a $100,000 fee; another director would get a $150,000 fee from each company.  And topping the cake, Chairman of the Board, Henry Tippie, would be paid $750,000 by each company.  The droolers don’t seem to be asking why in the heck directors should be paid change of control fees, particularly to a 79 year old who had the University of Iowa business school named after him because of a $30 million donation.  Maybe it’s schadenfreude, but I can’t help pointing out that those who have a position in DVD have so far, drawn the wrong conclusion from the existence of those agreements.  DVD bought in some stock last fall at $7 but the price is now around $5 (DDE bought in stock in December at $14.50 and its price has risen to $17).

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