Tronc Awards Potential Millions to Two Top Execs; CEO, CFO Could Get Last Tronc Laugh if Gannett Buys the Company
In a move of perhaps canny timing, two top Tronc executives are now enjoying enhanced pay packages – ones that will pay out millions of dollars should Tronc be sold to Gannett or another bidder.
Further, the possibility of sale – still a quite live one this summer – could be on the table again as soon as today.
First published at Politico Media
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Tronc financial advisers Goldman Sachs and Lazard Frères will help lead a meeting in Los Angeles, involving Tronc board chairman Michael Ferro and his top Tronc C-suite level executives, as well as possibly board members. While Gannett has been publicly quiet about a third acquisition offer, after having been unceremoniously rebuffed twice in the spring, the company could well offer $18-20 per share for the company, though the timing of such an offer isn’t clear.
Tronc’s recent share price – on the anticipation of a Gannett sale – has hovered in the $15 range, the last price Gannett had offered for the company.
In an Aug. 3 Securities and Exchange Commission filing, Tronc disclosed the granting of additional restricted stock units for both CEO Justin Dearborn and CFO Terry Jimenez. The executives, who joined the company six and three months ago respectively, have been granted bundles of Tronc common shares, scheduled to vest in three equal installments on Aug. 2, 2017, 2018 and 2019. The key phrase in the grant filing has tongues privately wagging around the country, italics mine:
“The vesting of each executive’s awards will accelerate upon termination of his employment for any reason (including a resignation for good reason) other than cause, death or disability (as such terms are defined in such executive’s employment agreement) if such termination takes place upon or within two years following a change in control (as defined in such executive’s employment agreement) that occurs during the term of his employment agreement and such executive signs a general waiver and release that has become effective.”
Simple translation: If Gannett, or another company, buys Tronc, the two new executives cash out in the millions.
While such change of control clauses are not uncommon, the timing of the grant – with Tronc directly in play — is bound to further anger investors. Some of them have already publicly complained and filed lawsuits claiming poor governance and alleging company executives had illegally put their own interests before that of shareholders.
Further, Tribune–Tronc’s value has been diluted twice by board-approved private sales this year. The main case, filed in Delaware’s Chancery Court, is heading toward resolution; plaintiffs may try to add this latest stock grant to the bill of particulars.
In a statement to me today, Tronc explained the timing of last week’s grants.
“When Mr. Dearborn and Mr. Jimenez joined, the Company did not have any equity to grant top executives. In June, our shareholders approved an additional grant of our equity and a new compensation committee was formed. The compensation committee, and their independent consultant Willis Towers Watson, granted these shares to align executive interest with shareholders. The grants, which our independent consultant found were still below market median for executives, incentivize Mr. Dearborn and Mr. Jimenez to continue putting a clear strategic plan in place and to lead the organization to execute that plan.”
How much could Dearborn and Jimenez clear, in addition to the their regular compensation (salary plus bonus) that could reach $750,000 and $735,000, respectively?
Dearborn receives 375,000 shares and an additional 225,000 shares in stock options. Jimenez receives 187,500 shares and 112,500 shares in stock options. .
Consequently, Dearborn would net $5.6 million, if Gannett paid $15 a share for his “restricted shares.” If it paid $20 a share, he would net $7.5 million. In addition, for every dollar per share over $15 that Gannett paid, Dearborn would gain $225,000 for the stock options. At a $20 sales prices, those options would be worth $1.125 million.
The math for Jimenez’s payout would total half those amounts. They show a possible restricted share gain of $3.75 million, at a $20 sales price, plus an additional $562,000 for the options.
In the filing (italics mine), Tronc noted that “Messrs. Dearborn and Jimenez joined the Company earlier this year after resigning from their then-current positions with, and forgoing equity grants and greater annual cash compensation packages from, their previous employers, on the expectation and understanding of receiving compensating equity awards from the Company.”
What the filing suggests is that two were hired away from lucrative positions, and had to give up similar stock grants. If new lawsuits do eventually fly, attorneys may well compare what the executives gave up at their former employers to what the Tronc board has now granted them. The question for shareholders: How justifiable – at this time, for those two executives, one, CEO Dearborn, with no media business experience – are these grants?
The timing of the board approval is sure to win notice as well by dissenters, as the filing reports: “The awarding of the equity grants described in this Item 8.01 was delayed until stockholder approval of the Amended Plan was received at the 2016 annual meeting of stockholders. Why was it “delayed”? No reason is given in the filing.
The level of disclosure to the previous board of the compensation promise to the two executives, as they were hired isn’t clear. That board, which was newly elected in a highly Gannett-contested vote in June, had included a member or two who had questioned some of Michael Ferro’s plans.
Both executives joined Tronc (then named Tribune Publishing) after stints at IBM. IBM bought Merge Healthcare from sellers that included an investment group, headed by Michael Ferro, who now heads the Tronc board of directors.
Both Dearborn and Jimenez had previously worked for Ferro. Dearborn is a long-time Ferro associate, dating back to at least 1997.
Jimenez worked as a consultant for Wrapports, the holding company that controls the Chicago Sun-Times, which Ferro had led before buying his controlling interest in Tribune Publishing in January.
Jimenez serves as the company’s third CFO since its split from the Tribune Company two years ago. He replaced Sandy Martin, who was terminated, on short notice, by the company, after I reported the company’s legal acknowledgment of “material weaknesses” in its accounting practices in two consecutive years [“Fixing the financials at Tribune Publishing”].
These stock grants aren’t the only recent actions that have attracted the attention of Tronc shareholders and employees. Recently, Michael Ferro hosted a pricey company conclave at Lake Geneva, Wis. and threw himself a July 11 50th birthday party at the Chicago Cut Steakhouse. To fete himself, he gave guests a “Ferro-designed poker set featuring 24-carat gold cards, gold dice and gold U.S. $1 coins.”
Further, the Tronc chairman’s penchant for the better things at life, even at corporate expense, is displayed in his travel habits. According to reliable sources, a recent invoice for Ferro’s use of a corporate jet amounted to $400,000.
Then, finally, there’s the public ridicule of the Tronc name – as the company dropped long-time “Tribune” in June. In the weeks after the renaming, the web had been alive with satire of the name and the promotional videos that accompanied them. That outrage had died down – until Sunday.
On HBO’s Last Week Tonight with John Oliver, the host press [“Newsonomics: After John Oliver, the you-get-what-you-pay-for imperative has never been clearer”] he made a special point of Tronc, its renaming and its silly videos, saying he could go on for more minutes about the company, but wouldn’t.
On YouTube, his Tronc-ridiculing show has already racked up almost four million page views, still adding more than ten thousand an hour four days after the HBO airing. What’s still left to wonder about: who will have the last laugh at Tronc?
