Warner Music CEO Edgar Bronfman Jr. l (William Farrington)
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Warner Music boss Edgar Bronfman Jr. is set for a $21.7 million payday — including a $16.8 million “golden parachute” — as a result of the company’s pending $3.3 billion sale to Russian-born billionaire Len Blavatnik.
The parachute, which is subject to shareholder approval, consists of unvested stock options and restricted stock valued at $3.3 million and $13.6 million, respectively, that will vest as a result of the proposed sale.
Bronfman will also pocket $4.88 million in vested stock options, which, along with the $3.3 million in unvested options, will net him $8.1 million in stock-option pay.
On July 6, shareholders will vote on Bronfman’s $16.8 million parachute and a similar $10 million payout to Lyor Cohen, vice chairman and CEO of recorded music.
Bronfman owes a special thanks to the Warner board for the $13 million in restricted stock, which he was only able to cash in because of the board’s well-timed decision earlier this year to lower the price hurdle for the stock to vest.
Under the original deal, Bronfman’s restricted stock vested at prices at $10 and higher. That was well above Warner’s stock price of $4.90 on Jan. 19, when the board reduced the vesting price to as low as $7.
The next day, on Jan. 20, news broke that Warner Music had put itself up for sale, sending the shares up 27 percent. In May, Blavatnik struck a deal to acquire the company for $8.25 a share.
The result is that Bronfman will be able to cash in 1.65 million restricted shares worth $13.6 million.
Paul Hodgson, a compensation expert with Governance Metrics International, said the timing of the board’s decision to lower the vesting price was “extremely unusual and something we look out for carefully.”
In general, corporate governance experts take a dim view of companies altering pay plans in advance of market-moving events like a sale. Hodgson added that Warner’s board lowered the price knowing that Bronfman would meet the lower hurdle — not through a turnaround of the company, but through an acquisition.
“It was tied to performance, and he didn’t achieve the performance,” he said.
In addition, Bronfman’s family trusts have benefited from the recent sale of 2.1 million shares, totaling $18 million, at prices ranging from $8.17 to $8.22 a share. Bronfman owns 6.5 percent of the company directly and through family trusts.
While Bronfman is set to reap a windfall as a savvy dealmaker, the shareholders haven’t been nearly as fortunate. With the music business suffering from declining CD sales and rising piracy, Warner has lost money in five of its six years as a publicly traded company.
The stock, which made its debut at $17 in May 2005, hit a high of $29.08 in July 2006. Since then, it has been on pretty much a downward slide. Warner, which bottomed out at $1.68 in March 2009, barely budged last year.
Bronfman and a trio of private-equity firms acquired Warner Music Group from Time Warner for $2.6 billion in 2004.
—with reporting by Kaja Whitehouse