Office Depot CEO Could Walk Away With $39M After Sale to Staples.

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Office Depot CEO Could Walk Away With $39M After Sale to Staples.

 news 2015-02-12 at 11:53:28 am Views: 272
  • #41979

    Office Depot CEO Could Walk Away With $39M After Sale to Staples.
    By Shaun Bevan

    FORT LAUDERDALE, Fla. — After less than two years on the job, Office Depot CEO Roland Smith could receive $39 million if the Staples-Office Depot merger is approved and Smith isn’t retained by the combined company, executive pay experts say.

    Smith, 60, would leave with a $7 million severance, roughly twice his salary and annual bonus, said pay-tracking firm Equilar, in an analysis of Smith’s employment agreement and terms of the merger. He also would receive cash and shares, including unvested options, restricted stock and shares tied to Office Depot’s performance, estimated at $32 million.

    Smith Roland Arbys Wendys Office Depot
    Roland Smith, Office Depot CEO

    Staples chief executive Ron Sargent has already been named to lead the combined office-supply retail company, Staples said last week in announcing a $6.3 billion merger with Boca Raton-based Office Depot. The merger would create the largest office-supply retailer in the nation.

    Smith’s stock payout would be calculated using Staples’ offering of $7.25 a share for Office Depot’s stock, plus the value of Staples shares, Equilar said.

    Karen Denning, spokeswoman for Office Depot, said if the transaction closes, Smith would receive what is outlined in his employment agreement. “The exact amount is dependent on the share price at the time of the close and is impossible to determine at this time,” she said.

    She said Office Depot’s price has risen dramatically during the CEO’s tenure, taking the company’s market capitalization from about $2 billion to more than $5 billion.

    Office Depot’s stock has ranged in price from $3.84 to $9.77 in the past 52 weeks, seeing a climb with merger speculation and the announcement on Feb. 4.

    Smith’s severance payment is “pretty typical,” said Aaron Boyd, director of governance research for California-based Equilar. The equity amount Smith ends up receiving will depend on what he currently owns and Staples’ stock price when the deal closes, he said.

    Ric Marshall, corporate governance expert for MSCI ESG Research’s U.S. operations, agrees that Smith’s golden parachute is not out of the ordinary.

    Still, he said golden parachutes — or payments to top executives following a company’s change of control — continue to be controversial.

    “Some researchers have found the larger the golden parachute, the less attractive the share price,” Marshall said. “From the shareholders perspective, the basic question is, ‘what’s in it for me?’”

    Corporate compensation abuse led to a mandated shareholder vote on executive pay and golden parachute packages in 2011, part of the Dodd-Frank financial regulation overhaul.

    “Unfortunately, as is often the case with shareholder votes, these are advisory-only,” Marshall said. “It often means nothing.”

    In the 10 biggest U.S. deals in 2014, CEOs whose companies were slated to be acquired were promised payouts from $22 million to $100 million, according to a study by Equilar for The Associated Press. They include Allergan’s David Pyott, $100 million; Time Warner Cable’s Robert Marcus, $80 million; Covidien’s Jose Almeida, $49 million; Biomet’s Jeffrey Binder, $45 million; and Lorillard’s Murray Kessler, $45 million, AP reported.

    The corporate payout wouldn’t be the first for Smith, who reportedly received $11.5 million as the outgoing CEO of Wendy’s, when the company moved back to Ohio, after being part of the Wendy’s/ Arby’s Group in Atlanta.

    Smith was hired for the top job at Office Depot in November 2013 with a mission to integrate recently acquired OfficeMax, then the No. 3 office-supply retailer, and turn around the struggling combined retailers.

    Office Depot’s former CEO Neil Austrian was given a send-off package of about $16 million following the $1.2 billion merger in 2013.

    Staples’ merger with Office Depot for $6.3 billion in cash and stock still has to be approved by Office Depot shareholders and is likely to be reviewed by the Federal Trade Commission and other antitrust regulators. The companies said they hope to close the transaction by year-end.

    Marshall said CEOs of companies being acquired often get the promised payout whether or not the merger closes or they stay on with the company as a consultant or in another capacity.

    Smith received a $2.35 million bonus early last year — three months after taking the job — for selecting a corporate headquarters and restructuring senior management.

    “The Office Depot board of directors determined that Roland exceeded the expectations set forth in his employment agreement,” said Nigel Travis, Office Depot’s lead director, in March 2014.

    Spokeswoman Karen Denning noted at the time that Smith didn’t receive a sign-on bonus when he took the job.

    Smith draws an annual salary of $1.4 million a year, but the total value of his compensation package was nearly $20 million in 2014, including bonuses and stock awards, according to Equilar. That made Smith the most highly paid CEO in South Florida in 2014, according to an analysis published last year by The Miami Herald.

    Another cost of the merger could be severance payments to an unknown number of Boca Raton-based employees. Staples CEO Sargent said last week that the combined company’s headquarters would be in Massachusetts and Staples would “evaluate maintaining a presence in Boca Raton.”

    More than 1,700 people work at Office Depot’s headquarters. After OfficeMax was acquired by Office Depot in 2013, the combined company notified 1,600 Illinois workers they would be laid off.

    Some OfficeMax employees did relocate to Boca Raton. Office Depot has said that one-third of its middle- to senior managers were hired from OfficeMax.