With the $3.9 billion merger of IberiaBank into First Horizon in Tennessee now a done deal, the Lafayette-based bank's top five executives are in line for payouts totaling $75.8 million in cash and other benefits known as golden parachutes.
About $34.4 million of the payout to top IberiaBank executives is cash, with the rest as other compensation, according to U.S. Securities and Exchange Commission records filed as part of the merger agreement.
The purchase of IberiaBank, billed as a merger of equals, makes First Horizon one of the largest financial services companies across the South and among the top 25 banks in the U.S. when ranked by deposits at $60 billion, with 460 banking centers across 11 states. The combined entity has $79 billion in assets. Most of First Horizon’s branch presence is in Tennessee, North Carolina and South Carolina. IberiaBank is primarily in Gulf Coast states from Texas to Florida and in Arkansas, and its name will change to First Horizon by mid-2021.
IberiaBank CEO Daryl Byrd, who has become executive chairman of First Horizon's board with the merger, could take home more than 10 times the value of his annual base salary in cash — $14 million. Byrd, who has been at IberiaBank's helm for nearly two decades and is credited with growing it into a regional bank, is eligible to earn at least $48.6 million in total compensation in the next few years, some of which would be tied to consulting fees he'd receive after he steps down as First Horizon's chairman in two years, records show.
Likewise, executives of First Horizon, which will be headquarters to the combined company in Memphis, also are getting their own golden parachutes worth $44.1 million — $25.2 million of that amount in cash.
First Horizon CEO D. Bryan Jordan, who gave up the chairman title and will reclaim the position in two years from Byrd, is expected to earn $18.1 million — about $6.8 million of that in cash. Four other top executives at First Horizon would earn $26 million total, with $18.4 million of that in cash, according to the golden parachute section of the merger documents.
Golden parachutes are commonly provided to top executives to give them a "soft landing" in case they lose their jobs or to ensure they remain on board as key employees during a merger. The term also has evolved to generally describe merger-related compensation.
Corporate governance experts are often wary of golden parachutes if they are heavier on cash than such things as stock options and other incentives designed to get executives to stay with the combined business in the long run.
When provided the U.S. Securities and Exchange Commission filings ahead of the merger, Marcia Narine Weldon, an attorney and lecturer in law at the University of Miami School of Law who specializes in corporate securities and was not involved in the merger deal, noted that for the size of the IberiaBank-First Horizon deal, the executives may be taking home big checks, but that the ratio is not egregious compared to other deals of publicly traded institutions.
"For a deal of this size, this does not seem unusual," Weldon said. "The consulting agreement, that seems a little bit long," she said.
Records show Byrd's executive compensation tied to the IberiaBank-First Horizon merger is $14 million in cash, $8.5 million in equity, and another $10 million in benefits and tax reimbursements for a total of $32.6 million in executive compensation.
For scope, Byrd's annual base salary between 2016 and 2018 ranged from $1 million to $1.25 million. Byrd's total compensation in 2018 was nearly $5.3 million, which includes about $2 million in stock awards and another $1.5 million in non-equity compensation. That's down slightly from $7.6 million in total compensation during 2017, when the executive had a higher equity stake in the business with $4.9 million in stock awards.
Byrd is expected to serve only a two-year term as First Horizon's executive chairman. For the first two years after that, Byrd would be a consultant paid $3.75 million a year, then for the third year $3.5 million. The compensation is in addition to a $5 million one-time "cash integration and continuity award" for the longtime executive.
IberiaBank’s legacy in Louisiana goes back 133 years, but the modern IberiaBank that employs more than 3,000 and spans 12 Southern states, has been built by about two dozen acquisitions under Byrd, who is often credited with steering the bank from obscurity to a major regional player. Byrd, who was an executive with former New Orleans-based First Commerce Corp., joined IberiaBank in 1999.
IberiaBank's chief financial officer, Anthony Restel, is expected to take home $5.1 million in cash out of a total of $12.1 million in executive compensation. Director of Corporate Strategy Fernando Perez-Hickman is slated to earn $3.3 million in cash out of a total of $6.3 million in compensation. Jefferson Parker, director of capital markets and energy lending, would earn $5.5 million in cash out of a total $10.1 million in compensation.
Michael Brown, the chief operating officer who is tasked to lead the New Orleans regional office for First Horizon, would take home $6.4 million in cash out of a total $14.4 million in compensation.
Each of these corporate executives earned between $518,000 and $650,000 in 2018 as base salaries and between $1.6 million and $2.1 million in total compensation that year.
"A buyout 10 times their salary, is pretty rich as a percentage of their annual compensation,” Timothy Swift, an associate professor at St. Joseph's University in Philadelphia who specializes in corporate governance and management issues, said before the merger.
One reason these executives are expected to earn a generous golden parachute could be due to its corporate governance structure, said Swift, who worked in the corporate world as a senior executive for technology and telecommunications businesses before entering academia.
He noted that IberiaBank was not sold at a premium for shareholders, and said generous terms provided by the board to executives could be viewed as a business with weaker shareholder rights.
"What you've got in this situation is a board that is friendly to management, and when we look at this from a shareholder perspective (appearing to have) close social and political ties to management isn't necessarily a good thing," Swift said.
Sometimes, companies won't sell at a premium because the current owners are not "trying to hold on to their shares because they're not sure what they would do with them, so they are looking to liquidate and get out of the business," Swift said.
But it's possible that IberiaBank was trying to hold out for a premium, he said. Records show IberiaBank had another undisclosed company it was discussing a potential acquisition or merger with while it was considering its options with First Horizon. The third party ultimately decided to drop out of the competition in late August 2019 due to "internal considerations," documents show.
There were 16 banks contacted by or who reached out to IberiaBank management or its financial advisers in the past year, only six of which were considered the "most attractive potential transaction opportunities."
“The fact that the first bidder walked away is insightful," Swift said.
Byrd, in a previous interview, said that the lack of a premium reflected then-current market realities.
Swift also noted that IberiaBank shareholders would see their dividends increasing by more than 40% when they converted into shares in the new combined bank. IberiaBank shareholders would receive 4.584 shares of First Horizon stock. Shares would vest right away.
“On the one hand, I’m not giving you a premium (on the deal) but I’m letting you (as a shareholder) get rid of shares right away without having to hold on to them,” Swift said.
"Often, there's a premium paid if there's a competition for the bank," said Weldon, the law lecturer at the University of Miami School of Law who earned a law degree from Harvard.
"It looks like the two banks are selling this to investors as a merger of equals and thus they may not believe there's a need for a premium," she said. "You probably would have seen a premium if the other party was in the picture. If there was no doubt that the company would be sold and there were multiple bidders, the board would have a duty to get the best price for shareholders."
Sometimes it's a more complicated story than, "Oh, any company ought to get a premium," said Lawrence White, professor of economics at New York University at the Stern School of Business.
“When Company A wants to buy Company B, almost always there will be a premium that Company A offers over the pre-announcement share price,” said White, who has been in academia for more than 40 years. “That premium is partly determined how well Company A thinks Company B will fit in its operations; partly there is just a premium for the ability to have unilateral control over operations of Company B … and partly the amount of the premium will be determined by has there been leakage of the information, have there been rumors floating around. If there had been rumors then there would have been anticipation.”
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