The Answer is Always Synergy

All the way back in 2004, there was a moment in the movie In Good Company where the CEO, played brilliantly by Malcolm McDowell, talks about synergy and the young boss, played by Topher Grace, parrots those words with a hand signal.

I thought about that when I was reading this press release earlier this week about the $21 billion “merger of equals” between Healthpeak Properties (PEAK) and Physicians’ Realty Trust (DOC).

In a relatively short press release, the word synergy is used four times to describe the $40m-$60m cost savings expected as a result of the merger. The company doesn’t translate that into headcount, but that’s often the biggest cost savings by taking two HR departments, for example, and turning it into one.

But here’s one place the expenses will be higher than expected: payments to Physicians’ Realty Trust executives. That’s because 10 days before the deal was announced, the company made several key changes to its severance policies. We highlighted those changes for subscribers to our Friday Night Dump last week and several clients even asked me if I thought a deal was imminent. As I told them at the time: the short answer was maybe.

Sometimes you see signals like this – in this case, it was extra padding in the severance package for 10 top executives as you can see in the filing — and it seems so blatant that you can’t imagine a company, or at least the attorneys who draft this sort of stuff, being this obvious. But that’s exactly what happened here. The company made numerous changes to its severance policies days before a deal was announced.

Unfortunately in this case, DOC stock didn’t exactly jump on the news. So to recap: you have stockholders and employees not benefiting from this transaction, but senior executives walking away with extra goodies. Cue the plaintiffs bar!