Dr Michael Smurfit has agreed a €16.5 million salary package with Madison Dearborn Partners (MDP), the US group bidding to take over Jefferson Smurfit Group. The MDP offer document released yesterday shows Dr Smurfit will become chairman of MDCP Acquisitions, the company that will take over Smurfit if the €3.4 billion-plus bid is successful. His salary will be €2.75 million a year and his contract will be for six years.
Dr Smurfit will relinquish the role of chief executive on November as was planned before the MDP bid. The offer document confirms that Dr Smurfit will be the biggest non-institutional beneficiary of the deal. Along with other members of the senior management, he will have any shares or share options due to him under Smurfit incentive schemes "accelerated" ahead of the takeover.
In Dr Smurfit's case, this means he will receive just over four million shares due to him under the company employee-benefit plan. These are worth €8.6 million, based on the €2.15 per share being offered by MDP. In addition Dr Smurfit will get a €1.27 million payment under the Management Incentive Plan.
Dr Smurfit's biggest payout will come through the sale of his 74 million Smurfit shares, representing 6.66 per cent of the company. The sale of the shares will raise some €159 million, of which he has agreed to re-invest $54 million (€55 million). He will also receive about €70 million of shares in the group's US associate Smurfit Stone Container Corporation. This is his share of the company's 29.3 per cent stake in Smurfit Stone, which is being spun off to shareholders as part of the deal. Shareholder will get one Smurfit Stone share, worth around €15, for every 16 Smurfit shares.
In return for his re-investment, Dr Smurfit will get a 7.38 per cent stake in the group. The three other executive directors of the company backing the MDP bid will also get equity in the company going forward. Mr Gary McGann, the chief executive designate, will get 0.2 per cent, as will Mr Ian Curley, the chief financial offer, and Mr Anthony Smurfit, who is chief operations officer-designate and also Dr Smurfit's son.
The three men will also benefit from having their share options accelerated. Mr McGann will get 1.4 million shares exercisable at an average price of €1.46. These options are worth around €2.5 million based on the MDP offer price and spin-off. He also gets 1.7 million shares under the employee-benefit plan
Mr Curley will get 172,500 shares exercisable at an average price of €2.19, plus 1.17 million shares under the employee-benefit plan. Mr Anthony Smurfit has option over 167,000 shares exercisable at €1.97 and an entitlement to 350,765 shares under the employee benefit plan.
The support of Dr Smurfit and the other three executives was a condition of the MDP bid. Dr Smurfit's two brothers, Alan and Dermot, will also benefit from the the accelerated options and employee-benefit schemes. Both men are executive directors but are not participating in the MDP bid. They hold 4.1 million and 5.6 million shares respectively in the company.
The offer document acknowledges that "certain officers and directors of Jefferson Smurfit Group (JSG) have interests in the offer that are different from or in addition to the interests of JSG security-holders in general".
The document also details the advice received by the group of independent directors who considered the MDP offer before recommending it. Dr Smurfit and the other "participating directors" were excluded from the process of considering the bid.
The independent directors took advice from UBS Warburg and IBI Corporate Finance. They concluded that the offer represented a "high premium" to the core Smurfit share price. They also noted the uncertain market conditions and the "continuing undervaluation" of the group.
Shareholders have three weeks to accept the offer, unless a rival bid materialises.
