Allergan Completes Acquisition of ZELTIQ Aesthetics

April 28, 2017 – Allergan completed their acquisition of medical technology company ZELTIQ Aesthetics (ZA).  The $2.4 billion deal, announced in February 2017, offered $56.50 in cash for each ZA share held.

 

So what? In my release on April 27, I mentioned that many deals in which shareholders didn’t approve the compensation element of the merger were because of Single-Trigger cash payments and Gross-Up payment.* 

Case-in-point.  ZA shareholders voted 99.94% in favor of the deal.  The compensation vote only received 48.81% approval.  Why?  Shareholders received 29.9% and 36.8% premiums for the 30 and 90-day stock prices, respectively.  To show their appreciation, they overwhelmingly approved the deal.

However, looking at the compensation data, we see that all four named executives are receiving some form of single-trigger cash payment.  Additionally, two execs are eligible for Gross-Up payments of up to $1.3 mil and $828k.  Shareholders don't like these shenanigans and they voted accordingly.  

To beat this dead horse, the compensation vote is a non-binding, advisory vote.  In other words, “thanks for the advice ZA voters, but we’ll take our pay and be on our way.”

Only a completely different not, over the last 6 years, Health Care Equipment deals averaged 99.8 days to complete.  This one only took 74 days.  Interesting…or just me showing off? 

*A Gross-Up payment is made by the company to make the executive whole in the amount of compensation he/she receives.  If the executive receives an ‘excess parachute payment they will be charged with a 20% excise tax.  The company says, “we don’t want you to pay that, so we’ll pay it for you.”  This is an oversimplification, obviously.  See my Journal of Business & Finance Librarianship article for a more detailed account.

Stillwater Mining Shareholders Not Happy with Merger Compensation

On April 25, Stillwater Mining (SM) issued a press release stating that shareholders had approved the merger between the company and Sibanye Gold, a South African company.  According to Michael McMullen, SM’s President and CEO, “We are pleased with the tremendous shareholder support for the Sibanye transaction.”

This press release was issued and accepted by the SEC 5:05pm.  The following day, the company filed an 8-K with their 5.07 at 11:44am.  For those not familiar, the 5.07 contains the actual votes ‘for’ and ‘against’ the merger.  No press release was issued to highlight these results.

Using the percentage of ‘For’ by ‘votes cast’, shareholders approved the merger by 94.45%.  Nice Job!

When Mike, took over the company on Dec 3, 2013, Stillwater stock closed at $11.03.  Since then, it spent 532 days above that value and 228 days below it.  Pressures in the platinum and precious metals industry played a big role in dragging down the price to abysmal lows of $5 and change in Jan 2016.  But, since then prices were on the rise and shareholders were getting $18/share in the deal.  That’s a nearly 33% 90-day premium; not as well as Metal/Mining peer transactions which had an average 44.46% for the 90-day premium.  But, still pretty good overall.

What was swept under the rug was the overwhelming rejection by shareholders of the payments to executives because of the merger.  That only received 36.79% acceptance.

So why were voters so pissed?  Cash payments to all executives are double trigger (they must be fired after the deal in order to receive it) – no red flags there.  The Equity payment is a combination of single trigger acceleration (payment once the deal completes, regardless of employment status) and double trigger (71%-77% of accelerated equity falls into the single trigger category).  This isn’t out of the ordinary, as a majority of equity payments are single-trigger.

The outlier is the $400,000 Perquisite which the CEO will receive (albeit if he is fired).  Back in December 2016, the company issued a side letter to Mike’s revised employment agreement.  This said that he would be paid up to $400,000 for any loss on the sale of his house in Denver.  Additionally, if unable to sell the house within 6 months of being terminated, the company would buy it at ‘fair market value’ and reimburse that $400k.

Deals that don’t receive shareholder support for the compensation vote are typically due to Single Trigger cash payments, Gross-Up payments and the unjustified Other payments.  SM were not happy with the ‘Other’ nonsense.  

Congratulations to Stillwater Mining, you are now #13 on the list of Transactions with Worst Executive Pay Approval.