Sprint’s golden parachutes
As Sprint and T-Mobile press toward a merger, their senior executives have donned $358.96 million in golden parachutes ready to deploy at their possible exits from the companies.
Sprint CEO Marcelo Claure could pick up the biggest post-merger payday, $130.87 million worth of cash, stock and benefits, including help finding another job.
His counterpart, T-Mobile CEO John Legere, could collect a similar mix worth more than $58.35 million from a change in control at the company. Parachutes for other executives at the two companies bring the total to $358.96 million in cash, stock and benefits.
Not everyone gets to jump ship and cash out. Someone has to stay behind and run the merged companies.
But it’s likely someone cashes out — if the companies find a way to combine.
A combined wireless carrier would be larger, but it wouldn’t need two CEOs. And each existing CEO can pull the rip cord on his golden parachute if he ends up with a “significant” or “material” reduction in his role after the merger.
Analyst William Ho at 556 Ventures said a post-merger management list likely would lean heavily toward the T-Mobile team. Under Legere, T-Mobile has become the fastest-growing wireless carrier by signing up more than 1 million new subscribers every quarter for four years.
Even if Legere wanted to use his golden parachute, the company may offer him larger retention bonuses to keep him around because investors like what he’s done so far.
“In the investment community, he’s the golden boy,” Ho said of Legere. “He’s in a great spot.”
Golden parachutes have long been a part of the business world. The IRS even updated its “Golden Parachute Payments Guide” in January, providing audit techniques for companies dealing with them.
Last year, Bloomberg compiled a list of golden parachute values on 20 executives that it said were larger than the $54.89 million one Marissa Mayer, the CEO of Yahoo, had as control of the company was in flux. Yahoo has since been acquired by Verizon.
Claure’s $130 million parachute would have made the top 10. That is largely because he was granted a large number of shares of Sprint stock in a turnaround incentive award. Absent a merger, Claure stands to collect only if Sprint’s average stock price stays above certain price levels for 150 days.
A change in control would accelerate that award.
Such parachute deals provide an incentive for executives to push for a deal, regardless of whether it makes sense for the company, said Brandon Rees, deputy director of the AFL-CIO Office of Investment.
Earlier this year, Rees pressed T-Mobile to change its parachute practices to reduce the amount of payments a change in control would trigger. His proposal failed at T-Mobile’s annual meeting in a vote of shareholders.
T-Mobile had defended its parachute practices in a proxy statement to shareholders. It argued that the company has to keep up with the competition or risk “a competitive disadvantage when competing for executive talent.”
The proxy also pointed out that executives don’t choose whether they leave after a merger. The company would have to dismiss them without cause, or put the executive in a lesser role after the deal.
A T-Mobile spokesman said the company would not comment beyond what it reported in its proxy statement to shareholders. Both companies reported the parachutes and their values in their most recent proxy statements.
Sprint’s proxy statement said parachutes protect the company’s owners in exactly the situation the company faces now, a possible change in its control
“We believe it is in our stockholders’ best interest if our named executive officers remain employed and focused on our business through any transition period following a change in control and remain independent and objective when considering possible transactions that may be in stockholders’ best interests but possibly result in the termination of their employment,” the filing said.
Most of the value in the parachutes at Sprint and T-Mobile comes from shares of stock the executives would collect after a change in control at the company. A change could be a merger, a sale of the company or even a change in a majority of the company’s board of directors.
The value of the parachutes changes as the companies’ shares trade. Sprint’s proxy noted that the parachute values it presented to shareholders in the proxy filing Monday were based on the stock’s closing price on March 31, of $8.68. Since then, Sprint shares have cooled, closing Tuesday at $8.14 or down 6 percent.
Shares in T-Mobile, on the other hand, have jumped about 11 percent since the Dec. 31 price used in its proxy to value the parachutes.
How big is your parachute?
Five Sprint executives have large severance deals that could be triggered by a merger with T-Mobile. The values are as presented in the company’s proxy statement to shareholders released Monday.
CEO Marcelo Claure
Kevin Crull, president of omnichannel sales
Tarek Robbiati, chief financial officer
Nestor Cano, chief operating officer
Dow Draper, president of prepaid