After The Talbots, Inc. finally agreed to a lower acquisition bid from the private equity firm Sycamore Partners, the struggling women’s clothing store said its executives will get millions if the deal closes and shareholders approve the farewell packages.
Sycamore made a $3.00 per share bid on December 6, 2011. Talbots nonetheless refused within weeks, explaining that the proposal “substantially” undervalued it. Sycamore came back with a $3.05 per share offer in early May, only to later walk away from the negotiations. Weeks later, Talbots accepted a $2.75 per share bid from the private equity firm.
Talbots’ CEO Trudy Sullivan’s exposure to the company’s stock price arguably wasn’t enough to incentivize her to drive a better deal for shareholders. Under the current closing price, her restricted stock was worth only $44,548 less than it would have been under Sycamore’s highest offering and her owned stock just over $1.5 million less.
Meanwhile, Sycamore will pay her more than $6.21 million upon her leaving, according to a document the company filed late Thursday. (This assumes the shareholders won’t object to a deal that nearly doubled the value of their holdings on announcement.)
Of course all is not rosy for Sullivan, who had agreed on December 4, 2011 to step down, and will stay on until the merger is completed and no later than Feb 2, 2013. But that’s not the point. The money spent on the Talbots management team is significant, albeit not impressive by Corporate America’s inflated standards. CFO and COO Michael Scarpa could potentially get nearly $3.36 million, the executive vp in real estate, legal, store planning & design Richard T. O’Connell nearly $3.3 million, chief supply chain officer Gregory I. Poole nearly $1.84 million, and chief marketing officer Lori Wagner nearly $1.38 million if they’re terminated immediately following a change in control.
These managers steered Talbots into recasting itself as a place for women over 35, despite its legacy of serving an older, conservative crowd with items such as brass buttoned blazers, cabled sweaters and spectator pumps. The company’s stock price has plunged more than 34% in the past year to trade at $2.51 per share intra-day on Thursday.
As its sales dwindled, Talbots underwent organizational upheaval and its earnings became tougher to predict, something GMI had commented on in late May. In connection with its merger deal, Talbots has had eight class action lawsuits filed in the Delaware Court of Chancery against it between May 10 and June 22 generally alleging that it failed to maximize the company’s value. Talbots said in its filing that it would “vigorously defend” the claims made against it.
With investors pursuing and the company flailing, Talbot’s managers stand to get better severance than most of the 9% of corporate headcount that they said in December they’d have to let go as part of their $50 million annualized cost reduction effort. While it’s commendable that Talbots is asking its shareholders to approve the most senior managers’ farewell gift, its size is also a reminder that many executives in the U.S. can fail their staff and their investors in exchange for a tidy sum.