Top Five Allergan Execs Could Get $300 Million Golden Parachutes Plus Another $86 Million Tax Break If They Lose Jobs

March 15, 2016
By Mark Terry, BioSpace.com Breaking News Staff

In a recent proxy filing, Dublin-based Allergan agreed to not only cough up a potential $300 million in executive severance packages, if necessary, it agreed to pay its five top managers as much as $86 million in severance taxes.

Allergan agreed to exit packages for five of its top executive totaling $300 million if any of them should not be given a position after the company merges with Pfizer . Allergan’s chief executive officer, Brent Saunders, will be president and chief operating officer of the newly merged company. Allergan’s executive vice president, Bill Meury, is expected to be group president of global specialty and consumer brands in Pfizer plc.

If, for some reason, those positions don’t materialize, they not only get a big golden parachute, but Allergan agreed to pay the typical 20 percent excise tax that generally is applied to certain types of executive exit packages. For example, Saunders’ exit package is worth about $140 million. Should his position at Pfizer plc fall through, he would not only pick up $140 million, but instead of paying the 20 percent excise tax himself, Allergan would pay it, bringing his overall package close to the $170 million range. The proxy filing indicates he would actually be reimbursed $55.1 million to cover excise taxes, which would appear to be closer to 40 percent of the stated $140.7 million, depending entirely on which monies were being taxed.

This also applies to Meury, although his exit package is around the range of $30 million. Executive Chairman Paul Bisaro last year received $19 million in compensation. BloombergBusiness indicates although he would be eligible for an exit package approaching $80 million, the company does not plan on reimbursing him for the excise tax.

Robert Stewart, executive vice president and president of generic and global operations, is eligible for a golden parachute of about $25 million, and is eligible for the excise tax reimbursement. Maria Hilado, executive vice president and chief financial officer, is eligible for an exit package worth about $22 million and is also eligible for the excise tax reimbursement.

These types of excise tax reimbursements used to be common, but have become more rare as investors pushed back on them, viewing than as excessive perks.

In 2015, the Allergan board made early payouts of a portion of a bonus program created for executives in 2014 after Actavis merged with Forest Laboratories . Saunders, for example, received $14.3 million in cash. The board argued that it was accelerating the bonus program which was originally scheduled for 2017, to “mitigate the potential impact” from excise taxes they might be hit by if they lost their jobs as a result of the Pfizer deal.

The issue of corporate tax breaks, in this case, takes on a peculiar sort of synergy because one of the primary inducements for Pfizer to merge with Allergan is to shift its corporate domicile to Ireland. As a result, its corporate tax rate will drop from 35 percent in the U.S. to 12.5 percent in Ireland.

These tax inversion deals are fairly controversial among politicians and the public, especially during an election year. An advocacy group called Americans for Tax Fairness (ATF) published a report that estimated Pfizer would avoid paying about $35 billion in taxes as the result of the merger. These were primarily deferred tax monies being held in overseas accounts.

Several tax experts, however, note that ATF is putting a negative spin on its interpretation of the numbers. Robert Willens, a tax and accounting consultant in New York, told The Sydney Morning Herald that the $35 billion figure was “probably a little misleading.” His rationale is that it was extremely unlikely that Pfizer would ever bring that $74 billion in offshore earnings to the U.S. So the tax earnings were fairly hypothetical.

Probably a similar argument could be made about the excise tax deal the Allergan executives are getting. First, it’s unlikely that Saunders’ deal is going to fall through. Secondly, it’s possible to argue that they are merely getting a larger tax-free exit package, rather than an exit package and their taxes paid along with it. It might be a semantics issue rather separate from whether or not the size of the exit packages themselves are excessive.