ZF chief Stefan Sommer criticises TRW ‘golden parachutes’

[kscarbel2]

The Financial Times / January 14, 2015

ZF Friedrichshafen’s chief executive has criticized the US$130 million of so-called “golden parachute” payouts that executives at TRW Automotive could receive if the German parts supplier completes a US$12.4 billion takeover of its US rival.

While acknowledging that he has no power to change the payouts, Stefan Sommer has told the Financial Times that he believes the potential windfalls for departing TRW executives are too large.

Golden parachutes are so named because they are handed out to executives as a means of softening the impact of leaving a company, following its takeover. They are designed to align management’s interests with those of shareholders in the event of an offer. Opponents argue that executives are already well rewarded for performing their fiduciary duty.

ZF may have to pay them to TRW executives as a result of its acquisition of the Michigan-based company, announced in September — an acquisition that will catapult the combined group into the top-three global automotive suppliers, with about €30bn in annual revenues.

But although large payments to outgoing executives are common after deals in the US, Mr Sommer said: “I have no sympathy for that — for me, it’s also not a reasonable amount. But at the end of the day we have to accept that this is how the American system is and how it functions — it was transparent to us. Before the acquisition we knew what was coming our way and we made a conscious decision [to agree the deal]”

He added: “I can’t change it — these are existing contracts and agreements, it’s the American system, we knew that and accept it, too — but, in terms of the content, I don’t find the magnitude [of the payments] OK.”

In total, TRW board members could receive a maximum of $134 million in merger-related payments, according to regulatory filings. John Plant, a Briton who has served as TRW’s chief executive for more than a decade, is in line to receive most of this: up to $87.7 million, including more than $35,000 to cover future club membership fees. He received $24.5 million in pay and benefits in 2013. By contrast, ZF’s six board members together received total pay of €8m last year.

Mr Sommer emphasised that he respected Mr Plant’s achievements at TRW, in particular the way he guided the company through the financial crisis. TRW’s stock fell to below $2 in 2009 but now trades above $102.

TRW referred the FT to regulatory disclosures but declined to comment further.

Shareholder votes on golden parachutes were made compulsory under the Dodd-Frank financial reform act in 2010 and, last year, ISS, the proxy advisory service, recommended that TRW investors vote against the golden parachutes — partly because of the “quite sizeable” payments due to the CEO.

A majority of TRW shareholders voted against the merger-related compensation in November, but the vote was advisory and non-binding.

TRW’s shareholders still voted to approve the deal by a large majority. ZF’s offer of $105.60 per share represented a premium of 16 per cent on the undisturbed share price, and the deal is expected to complete in the first half of 2015, subject to antitrust authorities’ approval.

Nevertheless, Mr Sommer’s latest comments illustrate the continuing potential for culture clashes in cross-border takeovers. In 2014, the number of German-US deals surged, as cheap financing encouraged German companies to seek mergers and acquisitions that could bring them new technologies and revenue growth outside Europe.

This revival in global dealmaking also sparked a resurgence in large golden parachute payments.

Under the ZF takeover, TRW executives will be granted cash severance payments, accelerated vesting of stock awards and other benefits. In addition, Mr Plant is due payments under his retirement plan.

Like other shareholders, the executives will also be paid for the TRW stock they own. Mr Plant currently holds shares, including underlying stock options, worth $69.8 million based on the $105.60 offer price.

Reference: http://www.bigmacktrucks.com/index.php?/topic/37104-germanys-zf-purchasing-trw-automotive/?hl=trw

[james j neiweem]

Another set of executive traitors being rewarded for selling off another piece of America. When is the dismanteling of Americas industrial base going to stop?

[kscarbel2]

Another set of executive traitors being rewarded for selling off another piece of America. When is the dismantling of Americas industrial base going to stop?

I couldn't agree with you more about these executives selling off yet another US company to overseas aggressors.

When will it end? Frankly, there's no end in sight, so long as the vast majority of the population doesn't care about the dismantling of America's industrial (economic) base.

[gearhead204]

well most 3td.world country's don't produce much, as compared to the superpowers and we cant become a 3td. world country if we still BUILD things. So it fits this country's GREEN agenda to end messy dirty manufactures! The rest of the world must be laughing there asses off at what was once the worlds manufacturing hub and now is dependent on the rest of the world to supply it with what it needs. WHEN things in this world go toes up were SCREWED

[kscarbel2]

well most 3td.world country's don't produce much, as compared to the superpowers and we cant become a 3td. world country if we still BUILD things. So it fits this country's GREEN agenda to end messy dirty manufactures! The rest of the world must be laughing there asses off at what was once the worlds manufacturing hub and now is dependent on the rest of the world to supply it with what it needs. WHEN things in this world go toes up were SCREWED

We're in far, far worse shape than the powers that be want John Q. Public to know.