Twin Cities medical devicemaker St. Jude Medical recently told shareholders it was stripping away an executive perk called a tax "gross-up," but company CEO Michael Rousseau may get one anyway as part of his potential $29 million golden parachute package.
In March, Little Canada-based St. Jude said in a securities filing that it had implemented an industry "best practice" by rescinding executive gross-ups, which happen when a company agrees to pay the special federal taxes on golden parachute pay after a big merger.
Since then, St. Jude has announced a big merger — a $25 billion proposed tie-up with Chicago's Abbott Laboratories, which is expected to close by year's end. As part of the deal, Rousseau, CEO since Jan. 1, may see nearly $5 million in payments to cover the tax on the part of his compensation package that would be accelerated if he left the company under certain circumstances after the deal, securities filings say.
St. Jude could be on the hook for $18 million worth of gross-up payments for its executives, including $3.3 million for Group President Dr. Eric C. Fain and $2.5 million for Chief Financial Officer Donald Zurbay, according to records filed with the Securities and Exchange Commission.
The gross-ups would only apply if the executives leave the company in the wake of Abbott's acquisition of St. Jude, and Abbott has yet to announce its plans for who will run the combined company. The payments are available to executives who are terminated without cause or leave for "good reason."
The promised paydays have become an issue in a federal class-action lawsuit filed by a New York shareholder who wants to block the St. Jude-Abbott deal or force the company to pay damages. The lawsuit, revealed in a St. Jude securities filing last week, accuses St. Jude executives of failing to provide all the material facts proving that Abbott is the best buyer for St. Jude with its $25 billion bid.
"While St. Jude's public shareholders are being cashed out for an inadequate price … the Company's directors and officers will achieve a substantial payday," says the lawsuit, filed in U.S. District Court in the Twin Cities by New Yorker Chaim Rosenfeld. Two similar shareholder lawsuits have been filed in Ramsey County.
Almost every major merger or acquisition faces some type of legal challenge over the deal price and terms, corporate attorneys say. Many of the cases are dismissed by judges.
