Merger compensation
You may love Ralph Nader or loathe him. (or a little of both), but he's a keen observer. In an opinion piece in Fast Company online, he points at one of the key factors in mergers and acquisitions. A factor often overlooked when these deals are announced. That is the opportunity for a handful of individuals to make a lot of money real fast.
He writes, "Look at the compensation that CEOs receive as a result of megamergers - severance agreements or stock-option packages worth tens of millions of dollars. Don't tell me that payoffs this huge don't factor into the nonmeritorious calculations behind these deals."
You don't have to agree with Nader's views that most execs are greedy villains to appreciate the correctness of what he says. The prospect of a big payday is not the exclusive, or often the principal reason, for any merger and/or acquisition. But the available money can lubricate a lot of anxieties. Whether the mergers succeed or not, the principals in the deal make out very well. There is no need to cry for Ted Turner, Compaq's Michael Capellas, AOL's Steve Case, or any other top exec after they lose their jobs after the buyout. Their egos may be bruised, but they won't have to depend on unemployment checks. For example, Capellas was rumored to be compensated by over $30 million after the HP merger.
This is explained in an article by New York Times reporter Andrew Ross Sorkin:
Some compensation lawyers who often help negotiate merger-related bonuses early in takeover talks say the payments can play a vital role. "I have had a number of situations where we've gone to management looking to do a deal and been stopped at the door until a compensation arrangement was signed, sealed and delivered," said a prominent lawyer in New York who spoke on condition of anonymity, for fear of losing clients. Another well-known merger lawyer, also speaking on condition of anonymity, put it this way: "Publicly, we have to call these things retention bonuses. Privately, sometimes it's the only way we would have got the deal done. It's a kickback. And sometimes it's my job to negotiate the kickback. Unless you want to put me into early retirement, please don't use my name."
And it's not just the CEOs. With every merger there's good pickings for the lawyers, accountants, investment bankers, and other enablers who nurse the process along. There's a whole industry busy cheering on M&A's of any kind, no matter how dubious. And while stockholders after may benefit, at least in the short run, it's even more likely that most board members with have any negative opinions assuaged by additional fees and options.
As Sorkin points out, Tyco International disclosed in 2002 that "it paid board member, Frank E. Walsh Jr., $10 million in cash and donated $10 million to a charity on his behalf to compensate him for his role in arranging Tyco's $9.5 billion acquisition of the CIT Group, a financial services firm, last year." Apparently, public outcry since this came out has tended to stop some of the worst abuses, at least for now.
Of course, most mergers and acquisitions make apparent business sense independent of the personal profits of the principals. But the best interests of the company are not always served when making a deal can be so rewarding to so many of the people involved, regardless of whether it is a good or bad fundamental decision.
5:36:35 PM 
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