Merrill's Thain, Montag May Get Payouts of $47 Million on Sale
By Jonathan Keehner and Bradley Keoun
Sept. 16 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.
Thain, hired last December following the ouster of Stan O'Neal, stands to collect about $11 million on the vesting of free shares if he doesn't stay after the sale, said Graef Crystal, a Santa Rosa, California-based compensation consultant. Montag, who joined in August and is a former colleague of Thain's from Goldman Sachs Group Inc., would get $30 million in accelerated stock awards and at least $6.4 million in options if he's dismissed or his duties are diminished after a change of control, Crystal said.
While Thain managed to negotiate a merger even as rival Lehman Brothers Holdings Inc. sank into bankruptcy, shareholders may resent the executive payouts. Merrill's stock returned more than 13 percent a year from 2000 through 2006. Since Dec. 1 of last year, Thain's first day, the shares have fallen about 70 percent, as writedowns on devalued mortgage holdings eroded the company's financial results.
``Investors will definitely be disappointed,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co. ``Thain's claim to fame here is that he kept them from going bankrupt.''
Merrill spokesman William Halldin declined to comment.
Under terms of the deal announced yesterday by Charlotte, North Carolina-based Bank America, each Merrill share will be exchanged for 0.8595 shares of Bank of America stock. Based on Bank of America's stock price of $33.74 on Sept. 12, that works out to about $29 a share.
Bonus Payments
Because the payment is in stock, Merrill shareholders would get less if Bank of America's share price falls before the deal's closing date, scheduled for the first quarter of next year.
Any payouts triggered by a change in control are on top of a $15 million signing bonus awarded to Thain last December and a guaranteed $39 million bonus Montag is due to get in January for his work in 2008.
Merrill shares were little changed yesterday in New York. They plunged 36 percent last week as investors speculated that the New York-based firm might suffer the fate of Lehman.
At a press conference yesterday, Thain, 53, acknowledged that he wanted a better result.
``This isn't necessarily the outcome I would have expected when I took this job,'' Thain said. He said his future role at the combined company hasn't been decided.
`Mr. Fixit'
Thain earned the moniker ``Mr. Fixit'' for his stewardship of the New York Stock Exchange for four years beginning in January 2004. Before that, he was president and chief operating officer at New York-based Goldman, where he served under then-CEO Henry Paulson. Now U.S. Treasury secretary, Paulson helped to lead a weekend of discussions during which Bank of America initially weighed a bid for Lehman.
Thain said Merrill's talks with Bank of America began on the morning of Sept. 13. The deal was done by nightfall the next day.
Writedowns on mortgage-linked investments have stuck Merrill with almost $19 billion of net losses over the past year, and Oppenheimer & Co. analyst Meredith Whitney predicted last week that Merrill would post a $6.87 billion deficit in the current quarter.
``I doubt Thain understood the magnitude of risk and exposure on the Merrill's balance sheet,'' Bove said. ``I don't think anyone could have done a whole lot.''
If Thain leaves the newly merged company, he will get 379,637 shares, worth $11 million at the $29 per share offering price, according to Crystal.
Magnitude, Risk
The payouts wouldn't be much of a raise compared with the $20.2 million Thain got during his last year at Goldman Sachs in 2003.
``Thain wasn't at Merrill for very long,'' said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. ``My sense is he isn't coming out ahead relative to where he was.''
As January of this year, Thain began recruiting Montag, who agreed in April to join as head of trading and sales with a start date of Aug. 4. In addition to the $39 million 2008 bonus, Montag got 1.05 million shares subject to vesting over three years, according to regulatory filings, awarded to replace stock grants from his prior employer that he forfeited by joining Merrill.
Montag, 51, also has 10-year options on 2.4 million shares of Merrill Lynch stock carrying a strike price of $26.40, Crystal said. Those options, which would fully vest if he left the combined company, would be worth a minimum of $6.4 million at the $29 per share offer price, according to Crystal, and could be worth far more.
Direct Report
Montag's contract states that his stock automatically vests after a change of control if there's a ``qualifying employment termination,'' including a reduction in his responsibilities or a decrease in pay that is not in line with what's ``experienced generally by other employees of Merrill.'' Another triggering condition is being required to report to ``someone other than the CEO.'' Currently, Montag reports directly to Thain.
Another Thain recruit, Peter Kraus, joined one week ago and spent the past weekend helping to negotiate the Bank of America deal. Merrill's contract with Kraus, also a former colleague of Thain's from Goldman Sachs, hasn't been disclosed.
``That Thain was able to pull off any sort of deal in this market may be sufficient for investors,'' said John Challenger, chief executive officer of Chicago-based outplacement firm Challenger, Gray & Christmas Inc. ``Just ask a Lehman shareholder.''
Lehman shares dropped to 20 cents in New York trading yesterday, down 99.7 percent this year.
To contact the reporter on this story: Jonathan Keehner in New York [email protected].
Last Updated: September 16, 2008 00:01 EDT
By Jonathan Keehner and Bradley Keoun
Sept. 16 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.
Thain, hired last December following the ouster of Stan O'Neal, stands to collect about $11 million on the vesting of free shares if he doesn't stay after the sale, said Graef Crystal, a Santa Rosa, California-based compensation consultant. Montag, who joined in August and is a former colleague of Thain's from Goldman Sachs Group Inc., would get $30 million in accelerated stock awards and at least $6.4 million in options if he's dismissed or his duties are diminished after a change of control, Crystal said.
While Thain managed to negotiate a merger even as rival Lehman Brothers Holdings Inc. sank into bankruptcy, shareholders may resent the executive payouts. Merrill's stock returned more than 13 percent a year from 2000 through 2006. Since Dec. 1 of last year, Thain's first day, the shares have fallen about 70 percent, as writedowns on devalued mortgage holdings eroded the company's financial results.
``Investors will definitely be disappointed,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co. ``Thain's claim to fame here is that he kept them from going bankrupt.''
Merrill spokesman William Halldin declined to comment.
Under terms of the deal announced yesterday by Charlotte, North Carolina-based Bank America, each Merrill share will be exchanged for 0.8595 shares of Bank of America stock. Based on Bank of America's stock price of $33.74 on Sept. 12, that works out to about $29 a share.
Bonus Payments
Because the payment is in stock, Merrill shareholders would get less if Bank of America's share price falls before the deal's closing date, scheduled for the first quarter of next year.
Any payouts triggered by a change in control are on top of a $15 million signing bonus awarded to Thain last December and a guaranteed $39 million bonus Montag is due to get in January for his work in 2008.
Merrill shares were little changed yesterday in New York. They plunged 36 percent last week as investors speculated that the New York-based firm might suffer the fate of Lehman.
At a press conference yesterday, Thain, 53, acknowledged that he wanted a better result.
``This isn't necessarily the outcome I would have expected when I took this job,'' Thain said. He said his future role at the combined company hasn't been decided.
`Mr. Fixit'
Thain earned the moniker ``Mr. Fixit'' for his stewardship of the New York Stock Exchange for four years beginning in January 2004. Before that, he was president and chief operating officer at New York-based Goldman, where he served under then-CEO Henry Paulson. Now U.S. Treasury secretary, Paulson helped to lead a weekend of discussions during which Bank of America initially weighed a bid for Lehman.
Thain said Merrill's talks with Bank of America began on the morning of Sept. 13. The deal was done by nightfall the next day.
Writedowns on mortgage-linked investments have stuck Merrill with almost $19 billion of net losses over the past year, and Oppenheimer & Co. analyst Meredith Whitney predicted last week that Merrill would post a $6.87 billion deficit in the current quarter.
``I doubt Thain understood the magnitude of risk and exposure on the Merrill's balance sheet,'' Bove said. ``I don't think anyone could have done a whole lot.''
If Thain leaves the newly merged company, he will get 379,637 shares, worth $11 million at the $29 per share offering price, according to Crystal.
Magnitude, Risk
The payouts wouldn't be much of a raise compared with the $20.2 million Thain got during his last year at Goldman Sachs in 2003.
``Thain wasn't at Merrill for very long,'' said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. ``My sense is he isn't coming out ahead relative to where he was.''
As January of this year, Thain began recruiting Montag, who agreed in April to join as head of trading and sales with a start date of Aug. 4. In addition to the $39 million 2008 bonus, Montag got 1.05 million shares subject to vesting over three years, according to regulatory filings, awarded to replace stock grants from his prior employer that he forfeited by joining Merrill.
Montag, 51, also has 10-year options on 2.4 million shares of Merrill Lynch stock carrying a strike price of $26.40, Crystal said. Those options, which would fully vest if he left the combined company, would be worth a minimum of $6.4 million at the $29 per share offer price, according to Crystal, and could be worth far more.
Direct Report
Montag's contract states that his stock automatically vests after a change of control if there's a ``qualifying employment termination,'' including a reduction in his responsibilities or a decrease in pay that is not in line with what's ``experienced generally by other employees of Merrill.'' Another triggering condition is being required to report to ``someone other than the CEO.'' Currently, Montag reports directly to Thain.
Another Thain recruit, Peter Kraus, joined one week ago and spent the past weekend helping to negotiate the Bank of America deal. Merrill's contract with Kraus, also a former colleague of Thain's from Goldman Sachs, hasn't been disclosed.
``That Thain was able to pull off any sort of deal in this market may be sufficient for investors,'' said John Challenger, chief executive officer of Chicago-based outplacement firm Challenger, Gray & Christmas Inc. ``Just ask a Lehman shareholder.''
Lehman shares dropped to 20 cents in New York trading yesterday, down 99.7 percent this year.
To contact the reporter on this story: Jonathan Keehner in New York [email protected].
Last Updated: September 16, 2008 00:01 EDT
