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Schering CEO Hassan's Merck Payout Is Millions Greater Than WSJ Thinks It Is

The Wall Street Journal notes today that in the merger of Merck and Schering-Plough, CEO Fred Hassan "would receive an exit payout of $17.7 million, pension benefits of $13.2 million and medical benefits valued at $130,750." That's a total of about $31 million. But a closer look at the SEC filing shows that Hassan could walk away with much, much more than that: as much as $77 million by one calculation.

Just yesterday, BNET reminded readers that according to Schering's 2008 proxy statement, Hassan stands to get $51 million if a "change of control" occurs at Schering. So why does the WSJ put Hassan's payments at a mere $31 million and change? Because the WSJ isn't counting all the stock and other benefits that Hassan and his crew will gain in the merger. Let's crunch some numbers:

Page 90 of the S-4 filing dated May 20 states:

Hassan's agreement has not been amended since he joined Schering-Plough in 2003 other than as required by changes to income tax regulations.
So his most recent contract outlined in the 2008 proxy -- the one where he gets $51 million for signing Merck's papers -- is still in effect.

The S-4 then details these payouts and benefits to the top five execs:

  • Cash
  • Bertolini, $7,122,000
  • Cox, $8,106,000
  • Hassan, $17,736,000
  • Koestler, $4,922,348
  • Sabatino, $5,595,300
  • "Enhanced medical and other welfare benefits"
  • Bertolini, $218,908
  • Cox, $269,930
  • Hassan, $130,750
  • Koestler $182,050
  • Sabatino $211,831
  • "Unvested stock options" at prices between $18.85 to $31.57
  • Bertolini, 552,932
  • Cox, 577,934
  • Hassan, 1,818,966
  • Koestler, 436,366
  • Sabatino, 370,332
  • "Unvested deferred stock"
  • Koestler 325,000 (None of the others get any, apparently)
  • "Performance shares":
  • Bertolini, 185,510
  • Cox, 207,766
  • Hassan, 626,156
  • Koestler, 134,415
  • Sabatino, 125,862
  • "Enhanced pension benefits":
  • Bertolini, $13,905,200
  • Cox, $7,664,200
  • Hassan, $13,179,700
  • Koestler $5,362,000
  • Sabatino, $3,839,900
Any amounts that have been deferred into a director's deferred compensation account will be paid to the director in a lump sum in cash

Any portion of the director's deferred account that is denominated in Schering-Plough common stock, will be cashed out at the highest price paid...

If you add up all that, and make the assumption that Hassan gains all his unvested shares at the lower end of Schering's price range ($18.85), then Hassan could potentially walk away with $77 million.

Shearlings Got Plowed also disagrees with the WSJ's reading of the numbers, and has a scenario in which Hassan gets $173 million, largely based on stock.

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