Monday, July 16, 2007
Footnoted.org has a nice post today on Playtex's change in control agreements for its executives. Last Thursday, Energizer announced that it will acquire Playtex for $18.30 per share in cash plus the assumption of Playtex debt. The total enterprise value of the transaction is approximately $1.9 billion.
Playtex only updated its change of control agreements on the date of announcement. And, as footnoted.org details:
“Tier One” employees, defined by the contract as anyone reporting to the CEO or anyone designated Tier One by the CEO, get some pretty generous benefits. According to the agreement the top tier executives get two years worth of base salary and bonus. They also get medical and dental coverage for themselves and their family for two years, or until they find another job. Then there are those other perks. Like use of the company car, the value of financial planning services and the value of a health club membership. And of course the company will foot the bill for gross up payments. Tier Two and Tier Three employees don’t fare quite as well. They only get a portion of their salary, bonuses, profit sharing contributions and outplacement services. And unlike the big bunnies, they have to pay their own taxes.
Energizer presumably signed off on the revisions, but Playtex shareholders will ultimately foot the bill for these payouts. Having retained a good investment bank, Energizer merely adjusted the consideration it was willing to pay for Playtex downward to account for these expenses. Disputes over change-of-control payments date from the 1980s and for those who want more on the theoretical justifications for these arrangements, I'll refer you to the following excellent comment from those days, Kenneth Johnson, Golden Parachutes and the Business Judgment Rule: Toward a Proper Standard of Review, 94 Yale L.J. 909 (1985) (there hasn't been much legal scholarship on this issue since then). But, I'll also close by linking to a recent study which found that target shareholders tend to receive lower acquisition premia in transactions that involve extraordinary change of control payments for the CEO.