B/E Aerospace Bosses Stand to Lose $100 Million If Deal ThwartedBy and
Investors push against company’s takeover by Rockwell Collins
Payouts would include severance, bonuses, medical coverage
The compensation may be in jeopardy as Starboard Value LP, Jeff Smith’s activist fund, pressures Rockwell Collins to reconsider the $6.4 billion purchase and explore selling itself. B/E Aerospace had granted the golden parachutes to senior executives for arranging the sale announced Oct. 23, according to a regulatory filing.
Amin Khoury, who co-founded the aerospace supplier in 1987, has the most at stake: at least $38 million in cash and benefits including a five-year consulting contract; an office with assistant; and lifetime medical benefits, according to the Nov. 23 filing. His top lieutenants stand to reap equity awards that’ll pay out in full; deal bonuses; and severance payments worth at least $60 million, according to data compiled by Bloomberg.
The generous exit arrangements, containing perks that have become rare amid closer investor scrutiny of executive compensation, add to a deal that already wasn’t cheap. After an earlier overture was rebuffed, Rockwell Collins agreed to buy B/E Aerospace at a 23 percent premium and assume $1.9 billion of debt.
The compensation arrangements were in place long before the start of merger talks, said Pam Tvrdy, a Rockwell Collins spokeswoman. “All payments that are being made are part of a package that was approved by the B/E Aerospace board of directors,” she said by telephone. “We were not part of approving any of the executives employment agreements or equity compensation.”
A spokesman for B/E Aerospace didn’t return phone calls requesting comment.
Starboard and at least three other Rockwell Collins’ investors are planning to reject the B/E Aerospace deal in favor of a sale, Bloomberg News reported Wednesday.
The bulk of Khoury’s potential windfall comes from $20.4 million in equity awards that’ll settle in cash and a $16.8 million transaction bonus. Rockwell is required to provide lifetime health insurance for his family, including his ex-spouse, pay him $209,400 a year for consulting services and cover his business travel on similar terms as when he was chairman of B/E Aerospace. The filing didn’t specify a dollar value of the benefits.
Chief Executive Officer Werner Lieberherr, who had agreed to stay on as an executive vice president in the combined company, would reap at least $33.7 million including two separate bonuses, severance and equity awards that’ll settle in cash. Merging companies rarely settle equity awards and pay severance to an executive who gets a job in the new entity. Equity outstanding typically is replaced by similar grants from the combined company.
Chief Financial Officer Joseph Lower, and Ryan Patch, Sean Cromie and Tommy Plant, who are vice presidents, would receive between $10.2 million and $3.78 million. The B/E Aerospace board will amend Cromie’s and Plant’s employment agreements to provide severance benefits equal to least two times their annual salaries -- double the sum in their existing contracts.
B/E Aerospace’s board determined in 2013 that it “would favorably consider” transaction bonuses to senior executives in case of a change in control of the company, according to the filing. Rockwell Collins’ board, aware of the largesse, said the “substantial payments” B/E Aerospace’s bosses would receive in connection with the merger were among the potential negative factors considered, the filing shows.
B/E Aerospace’s board hired Golden Parachute Tax Solutions LLC, a tax advisory firm, to advise on adjustments to executives’ exit payments to minimize taxes they’d be due. The company must also pay for such services for Khoury and Lower.
The payouts stand in contrast to the culture of down-to-earth Midwestern Rockwell Collins, where CEO Kelly Ortberg doesn’t have a reserved parking space at the company’s Cedar Rapids, Iowa headquarters.
Ortberg received $7.1 million last year to Khoury’s $9.2 million, although Rockwell Collins has double the enterprise value of the company it is acquiring. Khoury tallied $134,573 in costs for personal use of company aircraft last year. Rockwell Collins allows executives to travel on corporate planes “on a very limited basis” but didn’t list any such expenses for Ortberg in its 2015 proxy statement.
— With assistance by Ed Hammond