The merger inheritance…

When MGI Pharma (MOGN) announced on July 21 that it was acquiring Guilford Pharmaceuticals (GLFD) for $178 million, Guilford’s stock shot up by over 50% that day.

But an even bigger winner is Guilford’s former Chairman and CEO, Dr. Craig Smith, who stepped down last December. Not only did he benefit from the stock surge since he owns or has options to buy approximately 1 million shares of Guilford. MGI also agreed to assume Smith’s consulting/severance contract, which pays him $560K a year for the next three years according to the S-4 filed by MGI earlier this week. From the filing, it’s not immediately clear what services Smith is expected to provide or how much time he’s required to devote to MGI in exchange. Though he retired last year, he remained a director of Guilford. What is clear, after a brief review of MGI’s proxy, is that it’s roughly 40% more than MGI’s current president and CEO, Leon Moulder, is making for his full-time job.

As a result of the merger, MGI also has to assume another consulting contract with another director, Solomon Snyder, that pays him $22.5K a month and has been in place for the past 10 years.

Finally, Guilford’s newly appointed CEO, Dean Mitchell, who took over for Smith when he stepped down, will receive nearly $2 million in various payments due to change-in-control agreements he signed when he came on board. Not a bad deal for less than a year on the job!