More details bubble up on XTO Energy merger…

May 24, 2010

On June 25, 2010, the shareholders of XTO Energy, Inc. (XTO) will decide at a special shareholders— meeting whether or not XTO should become a wholly owned subsidiary of ExxonMobil Corp. (XOM).

When Michelle wrote about the deal last December, she noted at the time that XTO’s senior executives had agreed to take consulting agreements rather than the larger sums they could have received under their employment agreements— change in control (CIC) terms. But it wasn—t until XTO filed its merger proxy last Friday afternoon that we learned just how lucrative those consulting deals will be.

In all, the five NEOs would have received an aggregate $114.35 million more if they had stuck with the CIC provisions in their employment agreements. But the money that they—ll get from the consulting jobs are a lot higher than one might have assumed after reading the 8-K that XTO filed last December. As a group, they’re still getting approximately $190,340,000 in cash and stock if the deal goes through.

The merger proxy also shows that some NEOs are sacrificing a lot more than others. For Bob Simpson, the company’s founder and Chairman of the Board of Directors, the difference is relatively small – $1.65 million. Simpson will receive $84.42 million under the consulting agreement instead of the $86.07 million he would have received per his employment agreement. But for the other NEOs, the difference between what they—ll get from the consulting agreements — compared to what they would have received from the employment agreements — is a lot more dramatic:

Executive Title Consulting agreement

(in Millions)

Employment agreement

(in Millions)

Keith Hutton CEO $48.09 $99.89
Vaughn Vennerberg II President $37.14 $70.71
Louis Baldwin EVP/CFO $11.92 $24.13
Timothy Petrus EVP-Acquisitions $8.77 $23.89

According to the chart on p. 108 of the merger proxy, the lion’s share of those payments will come from stock grants and retention payments, although the salaries and bonuses also pay very well. The consulting agreements will end on the first anniversary after the merger is completed; however, the parties can renew them for another year by agreement.

The proxy also discloses that director Jack Randall’s employer, Jefferies & Company, Inc., which provided merger-related financial advice to XTO, will get a transaction fee of $24 million if the merger goes through, plus out-of-pocket expenses, legal fees, and indemnification from “certain liabilities.” According to the filing, Randall participated in the directors— merger deliberations, but he abstained from voting on the merger ——to avoid any perception of a potential conflict of interest arising out of his employment with Jefferies.

We’ll see what the shareholders think when they vote next month. But the company’s top executives certainly have millions of reasons to hope that the merger goes through.

Image source: blmurch via Flickr.

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