Not so coincidental at Global Crossing…
In mid-April, around the time Global Crossing (GLBC) said it would be acquired by Level 3 Communications (LVLT), we footnoted a serendipitous development for Global Crossing’s senior management: a “Special Rewards Program” established in January that gave the top brass thousands of additional shares, theirs to keep “in full upon a Change in Control.”
At the time, it wasn’t clear just how much the board and management knew about the deal that would be announced a couple months after they doled out those “special rewards”: Was the program established, as the company’s 10-K suggested, simply “to retain and motivate certain employees” whatever may come? Or was it more specifically intended to reward those who stuck around in the face of a deal everyone involved knew was in the works?
Now we know, and it looks like the top brass, and the board, knew exactly what was going on, according to the Background of the Amalgamation section of the merger proxy that Global Crossing filed late on Friday. (As Michelle said Monday, we love this section of merger proxies precisely because it tends to lay bare who knew and did what with whom, and when.)
It turns out that the initial approach came from Level 3 back in early 2010, with negotiations getting underway “[t]hroughout March and April of 2010” — including the exchange of “drafts of an amalgamation agreement”. (Another brief aside: very few companies call it an amalgamation, instead preferring to call it a merger, based on our review of filings.)
Granted, those talks, as serious as they seem to have been, broke down on April 21, with an impasse “regarding valuation and governance and shareholder issues, as well as other transaction terms” (which pretty much covers the gamut, as far as we can tell). But as often happens in negotiations of all kinds, one moment’s impasse is merely hindsight’s temporary lull in the proceedings: In July, Level 3 began talking with STT Crossing, a unit of Singapore Technologies Telemedia Pte Ltd that controlled some 60% of Global Crossing’s shares and would become a big minority shareholder of Level 3 if a deal took place.
Those talks appear to have proceeded more smoothly, and in the run-up to Global Crossing’s January 21, 2011, board meeting, an STT official “periodically updated” Global Crossing CEO John J. Legere about the talks. The merger proxy notes that Legere explicitly updated at least two of the other executives who would benefit from the Special Rewards Program.
On January 21, Global Crossing Chairman Lodewijk Christiaan van Wachem, the proxy notes, told his board that he knew about the STT-Level 3 discussions and that he’d convene another board meeting on the topic when appropriate. That conversation, incidentally, happened on the same day the board adopted the Special Rewards Program; it’s hard to tell just which came first. Due diligence began on March 11. It’s worth noting that a key STT executive in the talks was also on Global Crossing’s executive committee.
So. Mystery solved: Key members of the board and management had good reason to think a deal might be in the offing when Global Crossing adopted its Special Rewards Program. Thus, the official 2014 vesting date was largely theoretical for those shares, and for others awarded the same day — from the beginning, it seemed pretty likely that the shares could vest much sooner, with a deal.
In the end, of course, this Special Rewards Program is but a pimple on the payout that Legere & co. stand to get. According to an incomplete tally in Friday’s proxy, the top five Global Crossing execs stand to receive almost $77 million, plus up to another $12.6 million in severance if they’re fired. Legere alone stands to collect as much as $48.7 million in cash, accelerated equity, perks and other payments once the deal goes through — only about $6.6 million of which is severance (meaning he’d have to lose his job to get it). And again, all of that is incomplete — among other things, it doesn’t include the value of Legere’s tax gross-up.
You have to wonder about the system that leads a company — and its shareholders’ fiduciaries — to do things in such a convoluted way. Presumably the legal acumen (not to mention fees) that went into drafting these plans could instead have gone to something more useful, like the company’s operations.
That might have yielded a more valuable company, and thus a still better acquisition price. But more to the point, then the board could have just written the executives some nice fat checks once a deal rolled around, and ended up in pretty much the same place with a lot less bother.
It might not be attractive, but at least it’s straightforward.