Deal-making Vermont-style…

June 1, 2011

In terms of size, the $930 million deal that Fortis (FTS) announced yesterday to acquire Central Vermont Public Service Corp. (CV) is relatively small, even if Central Vermont’s stock soared 40% on the news. After all, it’s Vermont. Land of Cabot Cheese, those cutesy Teddy Bears and those lovely covered bridges. But when we started to look at some of Central Vermont’s recent filings, we couldn’t help but notice how while the hills of Vermont may be over 200 miles away from the canyons of Wall Street, many things are the same in that a few key people at the top seemed to get out-sized benefits.

Just to recap: it was Feb. 17 when Central Vermont announced that longtime CEO Bob Young would be stepping down as president and CEO and retiring from the company. The same press release that announced Young’s departure effective May 3 also announced that Larry Reilly, a 55 year-old newcomer to Central Vermont, would be taking over as president and CEO on March 1. Between March and May, Young was to serve as executive chairman, with Reilly reporting to Young, which the release noted “would allow for an orderly transition”. Here’s a snip from the Feb. 17 release:

—CVPS is somewhat of an anomaly in the utility business, Reilly said. —It’s a small company that has managed to provide a solid economic value to shareholders and customers, even as it has gone beyond the expected to protect the environment, treat customers well, and provide exceptional service. My task will be to build on the legacy Bob Young and CVPS’s 517 employees have created.

Of course, legacies tend to go out the window when someone is offering you a 40% premium to your current stock price. A quick scan of Central Vermont’s five-year chart shows that the last time that the stock was trading in the mid-30s was back in 2007.

But that wasn’t the only thing that caught our attention. The 8-K that included the press release announcing Young’s imminent departure and Reilly’s appointment also noted that Reilly would be “entitled to receive” a change in control benefit equal to two times his salary and bonus. The 8-K also noted that Reilly would receive stock worth $100,000 (the proxy says he owns 4,699 shares) and a $75,000 relocation bonus, bringing the whole kit and kaboodle up to around $1 million for a few months worth of work. While we can’t find an actual copy of Reilly’s employment agreement (or the change in control agreement), we’re quite sure that it had to be part of the discussion leading up to the announcement of the deal.

Finally, there was also this consulting agreement that Central Vermont inked with Young. The date on that filing? Good Friday, when the markets were closed, but the SEC was open. Under the agreement, Young will be paid $20,000 a month “regardless of the hours actually worked” (here’s where it’s time to wonder how you too can get this kind of job). While there’s no language that specifies what happens if Central Vermont is acquired, the agreement does specify that the term is through May 2012, so our best guess is that Young will continue to collect that $20K a month.

So while the deal may be small in terms of the larger M&A universe, there’s still many of the bells and whistles one has come to expect from other, much larger deals.

Image source: Bennington Chamber of Commerce

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