Such sweet sorrow at Massey Energy (part 2)…

December 8, 2010

Yesterday, we predicted that Don Blankenship wouldn’t suffer too badly in the wake of his abrupt decision to retire as chairman and chief executive of Massey Energy (MEE), the beleaguered coal producer. Late in the day, we were proven all too right.

In walking Blankenship to the door, Massey’s board went well beyond a polite handshake and a promise to bring him back for the depositions. Rather, it threw a hearty arm around his shoulder, offered him one of their best cigars to go with a shiny new gold watch, invited him ’round for dinner any time he happened to be in the neighborhood — and, for good measure, wrote him a couple of big fat checks, with the promise of more to come. And that last bit isn’t figurative.

For starters, according to the 8-K that Massey filed after 5 p.m. Eastern time yesterday, Blankenship gets $12 million cash, with $2 million coming on December 31, his last day at work, and the rest on July 1. Massey will also provide Blankenship with health-care coverage for two years, or alternatively reimburse him for it. As we predicted, he’s still eligible for an series of unspecified bonuses and incentive payments for the current fiscal year — under at least five different compensation programs that we could count; those figures won’t be known until at least year’s end, but judging from Blankenship’s payouts last year, it’s likely to be millions more.

Moreover, the retirement agreement inked by Massey and Blankenship is careful to explain that it largely doesn’t alter at least eight other benefit plans to which he’s entitled — including his pension and deferred compensation account; together, those two benefits totaled some $32.9 million as of April. Not bad, even for a guy who made $38.2 million over the last three years alone.

But the smaller details are what really underscore the yawning gulf between the board’s view of Blankenship and the public’s. The company is insisting that he be available for two years to consult on company business; and while it’s only paying him $5,000 a month extra (plus expenses) for this service, it’s also limiting his hours to 32 a month (which guarantees him a minimum of $156.25 an hour).

He gets to keep his office and “standard office equipment,” as well as “secretarial assistance in the form of a single secretary, who will be available to perform reasonable administrative and clerical tasks.” And while the secretary and office are guaranteed for only two years, the board may extend it “in the Company’s sole discretion, during the three subsequent calendar years.” But does anyone think that the board that has rallied around him for this long will really pull the plug before the full five years are up?

In return for all these goodies, Blankenship has to cooperate with the company on litigation, and for two years can’t compete directly with Massey or recruit Massey employees, or badmouth the company. However, there are exceptions to almost all of it: He can work for a smaller coal outfit, or one operating in different states than Massey, for example; and that no-badmouthing provision “shall not be violated by (i) your rebutting factually inaccurate statements made about you or (ii) your making statements regarding actions or events that occurred more than five years prior” to the December 3 retirement agreement. A good lawyer could drive a Caterpillar 797F through that kind of phrasing.

Meantime, for those sifting the tea-leaves for M&A signals — as we did in a FootnotedPro report last month, well before Blankenship’s departure was announced — you might take note of this line in Blankenship’s retirement agreement:

“In addition, you acknowledge and agree that there are no current facts and circumstances that would entitle you to severance payments or benefits under your Change in Control Severance Agreement, as amended and restated, dated October 22, 2010 (your ‘Change in Control Agreement’).”

“No facts” would imply — though not guarantee — that a deal isn’t imminent, since severance provisions usually apply to the few months ahead of a deal as well as the year or two after it.

Finally, there are the kinds of provisions you see only when an imperial CEO is in the house — think Kozlowski’s shower curtain, or Chesapeake Energy’s map collection. In this case, there’s a 1965 truck:

“The Company hereby agrees to provide you by March 15, 2011 with title to the 1965 Blue Chevrolet Truck (VIN xxxxxxxxx555) that you previously transferred to the Company.”

We’re not sure about the terms of the initial transfer, and we certainly aren’t classic car experts. But this online ad suggests the truck could be worth nearly $16,000 in good condition.

There’s also the Blankenship family homestead in Sprigg, West Viringia, to consider. As we noted yesterday, one of Blankenship’s many retirement benefits includes the title to a house (valued in 2006 at $305,000) and enough cash to cover taxes on the gift. The retirement agreement filed yesterday doesn’t appear to affect that — and in fact, offers Blankenship adjacent land “on and inside the fenced-in area surrounding your Sprigg residence” at its appraised value. The agreement also promises the executive an easement across company land, to give access to the property. The access road, however, is only available during Blankenship’s lifetime, and

“shall not benefit your successors or assigns, shall not attach to any property owned by you, including without limitation, the Sprigg property, and shall terminate upon your death or when you no longer own the Sprigg property…”

It’s worth noting that the access road in question has two outlets, one in Kentucky on state Route 292, and the other in West Virginia, on State Route 49. After all, when you’re the controversial head of a controversial company, however much your own board shows you the love, it never hurts to have a couple of ways out.

Image source: Massey Energy Co.

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