Medco CEO Could Get $31M Bonus Despite SEC Kickback Subpoena
I seriously doubt that Medco (MHS) CEO David Snow took much persuading to sell his company to Express Scripts (ESRX), even though Express CEO George Paz says they've been talking about it for "years and years." That's because a federal subpoena from the SEC landed on Snow's desk in March -- one that sought documents linked to a meeting at which a $4 million kickback was allegedly arranged. That alleged payment allegedly won Snow's company a $48 million contract to manage health benefits for the California California Public Employees' Retirement System, according to Medco's Q1 2011 earnings disclosure.
Snow has another incentive to say yes to Express' $29.1 billion, $73.64-a-share offer: He will receive nearly $31 million in compensation if Medco is bought (that's on top of $16.4 million he earned last year as CEO), according to his company's proxy form.
Medco first received an inquiry from the SEC in February. Since then, it has been "providing various documents and making certain current and former employees available for depositions." It also received a subpoena for documents regarding CalPERS in March.
In that fiasco, CalPERS discovered in an internal probe that Snow attended a 2004 meeting with a former board member turned consultant to CalPERS. Shortly after, Medco hired the consultant for $4 million. And after that, by amazing coincidence, CalPERS awarded Medco its massive pharmacy benefit management contract.
Wave goodbye to the private jet
Snow is not accused of wrongdoing. He is merely accused of being in a meeting at which a bunch of other people arranged some wrongdoing, and then benefiting from that.
If the FTC allows the massive merger to go through -- it would leave the PBM marketplace to just two companies, Express and CVS -- Snow will receive a set of "change of control" payments in the form of cash and immediate vesting of stock and bonuses. It will add up to $30.6 million (click to enlarge):
The only downside for Snow is that he will lose access to Medco's private jet, which he uses for business reasons (even though he didn't disclose how much time or money was spent on it in 2010).
Medco says it is cooperating with the SEC and the California attorney general's probe into its relationship to CalPERS. Those investigators may want to speed things up before any documents get lost as Snow closes his office.
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