With takeover, Cabela’s top six executives each would pocket millions in go-away pay

With takeover, Cabela’s top six executives each would pocket millions in go-away pay
Tommy Millner (Photo Courtesy: World-Herald News Service)

The top six Cabela’s executives stand to collect bonuses from the takeover of their company that amount to more than half of the entire city budget of the firm’s western Nebraska hometown.

Chief Executive Tommy Millner and five colleagues who run the outdoor retailer are covered by what Wall Street calls “change-in-control” agreements as part of their employment contracts. That amounts to go-away pay in the case of a company being bought out, as Cabela’s was Monday by Missouri-based rival Bass Pro Shops.

The payouts are common in corporate America, something some business types say are necessary to attract top managers and allow them to do their jobs. But the so-called golden parachutes also have plenty of critics who say they’re just another example of the disconnect between the gilded suites of executives and the everyman worker who can face the ax but won’t enjoy such a financial benefit.

In the case of Cabela’s — a publicly traded company with all the stock, options and perks for top execs common to such businesses — the payouts would amount to $24 million for the top six bosses, as disclosed in filings with the Securities and Exchange Commission.

And that is a little more than half of the annual budget of Sidney, Nebraska, in the last fiscal year — $46 million for the town of about 6,800 people that depends on the sporting-goods retailer for its prosperity.

About 2,000 people in the town work for Cabela’s, and the combination with Bass Pro has left their future in doubt; mergers and acquisitions are almost always predicated upon stripping out costs by eliminating duplicate workers, tasks and locations.

But top executives won’t be worrying about their next paychecks: Cabela’s CEO Millner, according to the company SEC filing, would be entitled to go-away pay of $8 million. Other executives would get payouts ranging between $2.6 million and $3.6 million.

“That’s the business world,” said Sidney Mayor Mark Nienhueser, a former vice president at Cabela’s, on the severance pay. “I don’t know if folks around here know about it, and don’t know what they will think when they do.”

A Cabela’s spokesman said Tuesday that the company had no comment on executive severance pay. A $5.5 billion deal for Bass Pro Shops to acquire the operator of 85 outdoor-sports stores selling gear for hunting and fishing was announced Monday.

There’s a good chance, Wall Street analysts say, that Cabela’s headquarters and other operations will be shut, consolidated or moved to the Bass Pro home in Springfield, Missouri; there is no need for duplicate back-office operations such as clerking, personnel and marketing.

And there is probably no need for duplicate execs. Bass Pro Shops, with 99 stores and annual revenue of about $4.5 billion, is privately held and run by founder Johnny Morris, who says he will run the combined company after buying out the rival firm, which had fiscal 2015 revenue of $4 billion.

And that would trigger the buyout payoffs for the Cabela’s execs, if they wind up terminated or “leaving for good reason.”

Here is how Cabela’s put it in an April filing with the SEC that disclosed just how much the top bosses would get for selling out: “Under these agreements, if any of our named executive officers are terminated without cause or resign for good reason within twenty-four months of certain transactions resulting in a change in control, then they would be entitled to receive severance benefits equal to 2.99 times annual base salary and bonus, payable in a lump sum, and insurance benefits.”

In the end, though, the execs might wind up collecting more. That’s because corporate SEC filings on such matters lag real events. Although filed in April, the document says the change-in-control figures are estimates had a buyout happened on Dec. 31, 2015. Companies getting acquired typically update their filings with shareholders before the deal closes, providing fresh information on a variety of topics, including executive severance packages.

Companies say they enact change-in-control severance pay provisions to give executives the liberty to make decisions that might be in the best interest of shareholders but not in their own best interest — such as selling to a rival at the risk of their own jobs.

“The reasons for the change-in-control provisions are the same for us as in most companies in most industries,” Cabela’s wrote in the SEC filing. “Named executive officers should be free to act in the best interests of shareholders when considering a sale without undue focus on their own job security.”

In other words, in this case, they can feel free to vote themselves out of a job by selling Cabela’s because they know they won’t be missing out on pay — in fact, they’ll be getting windfalls.

The Cabela’s executives, according to the SEC filings, would get payouts in a variety of categories. The first is lump sum in cash equal to about three times the executive’s annual salary. That lump sum varies at Cabela’s from $5.5 million for CEO Millner to $1.8 million for Sean Baker, CEO of the company’s credit-card unit.

Then comes 18 months of paid health and dental insurance for all of the top six execs for 18 months — worth about $31,000 for each, according to the filing. Each exec also qualifies for two years of life and disability insurance, at a cost of about $1,500 apiece.

The final piece is some financial engineering, the “accelerated value” of stock options, restricted stock and performance-based stock awards due the executives — worth at least hundreds of thousands to each executive, sometimes much more.

In the end, the total for all the perks in all categories works out like this, according to the April filing, citing estimates based upon a Dec. 31, 2015, change in control:

» CEO Millner, $8.1 million

» President Scott Williams, $3.4 million

» World’s Foremost Bank CEO Baker, $2.6 million

» Chief Financial Officer Ralph Castner, $3.4 million

» Former Chief Operations Officer Michael Copeland, $3.2 million

» Former Chief Merchandising Officer Brian Linneman, $3.6 million

Copeland and Linneman are no longer executive officers of the company, Cabela’s said in the April filing. Copeland became what the company called a “strategic advisor” in March, while Linneman did the same in 2015.

Executive severance pay agreements are ubiquitous in corporate America, part of the executive pay structure at every or nearly every publicly traded company, said Margaret Black, an expert in such matters with the Los Angeles office of executive compensation consultant Pearl Meyer.

“It is a widespread practice,” she said. “Without it, executives might resist a valid offer out of fear of losing their jobs.”

Also, Black said, in industries prone to frequent mergers and acquisitions, such as the computer and tech industries a few years back, companies had to offer competitive severance pay or they would not be able to attract good talent, which would be put off by the likelihood of losing it all amid the active consolidations of companies.

Black said severance pay is vetted and approved by directors at publicly traded companies — the shareholder-elected representatives who are charged with looking out for the interests of investors — the same way all other material affairs are.

But the so-called golden parachutes aren’t without their critics. Brandon Rees is the deputy director of the AFL-CIO’s investment office, an umbrella organization for union-sponsored pension plans that have about $560 billion of investments designed to create income and assets for member retirement benefits. And Rees is none too pleased with what is going on in corporate boardrooms.

The severance pay “is emblematic of the inequity between executives and the rank-and-file,” he said. “It sends a disparaging message to the people who created the success in the first place.”

Rees also said it is shareholders who wind up paying for the perks, that the acquiring company knows the cost of the severance benefits and factors it into the purchase price by shaving that much off the final offer. He also said it creates improper incentives for mergers and acquisitions that he believes wouldn’t get done minus the golden parachutes.

“It is just essentially looked upon with great disfavor by shareholders,” Rees said.