The M&A market in U.S. pharmaceuticals is currently quiet but if you had to place bets on which companies are open to being bought out you could do worse than put your money on Amgen (AMGN) and Allergan (AGN).
Neither company is entertaining offers from suitors (as far as I know) but the way management's compensation is structured sure makes it look like their CEOs would love to be taken over by another company. At Amgen, CEO Kevin Sharer could get $37 million in change of control and termination payments if his company is bought. At Allergan, CEO David Pyott would make nearly $32 million in the same scenario. Both companies have been the subject of buyout rumors in recent years.
Here's a ranking of 10 American drug companies based on the change of control payments their CEOs would receive in the event they were bought. The numbers are based on the company's most recent proxy filing with the SEC:
- Amgen's Kevin Sharer: $37,581,279*
- Allergan's David Pyott: $31,711,255
- Eli Lilly's John Lechleiter: $25,865,712
- Cephalon's Frank Baldino Jr.* $22,820,596
- Biogen's George Scangos: $15,844,998
- Pfizer's Ian Read: $14,789,275
- BMS's Lamberto Andreotti $11,770,880
- Merck's Richard Clark: $11,546,903
- J&J's William Weldon: $0**
- Abbott Labs' Miles White: $0**
**Has no COC agreement.
Change of control payments are to be taken seriously. When Sanofi-Aventis (SNY) first approached Genzyme, CEO Henri Termeer initially said he wasn't interested in being bought. But Termeer had a $22 million termination package that would be triggered by a buyout. Lo and behold, the deal got done, and Termeer may have walked off with up to $300 million in cash and stock.
It's noteworthy that neither Abbott Labs (ABT) nor Johnson & Johnson (JNJ) compensate their bosses for yielding to an M&A transaction. J&J is probably too big to be bought by anyone else; Abbott, while smaller, would still be a deal so large that it's difficult to see who could swallow the company.
The same might be said of Pfizer (PFE), the largest drug company in the world, which has a market cap of nearly $160 billion, a tad smaller than J&J's. Yet CEO Ian Read stands to make $15 million if someone merges with the firm. A buyout of Pfizer would be a deal so colossal it would be impossible to imagine ... unless Pfizer suddenly got a lot smaller by divesting a bunch of its non-core divisions. Which, by amazing coincidence, is Read's plan for the company.
*Correction: This amount represents what Sharer would have gotten in 2009, the last time Amgen filed a proxy disclosure detailing this issue. Amgen notes that: "In December of last year the company amended its Change and Control Severance Plan to, among other things, reduce the multiple used to determine the lump sum cash severance payment ... from 3Xs annual base salary to 2Xs annual base salary." The company did not immediately respond to a request for a more current recalculation of Sharer's buyout package.
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