Focus: Mercury Systems rebuffs former CEO's unusual pay demand

Mercury Systems

28/06/2023 20:10

By David  Carnevali
       NEW YORK, June 28 (Reuters) - U.S. military chip maker
Mercury Systems Inc  MRCY.O  is locked in an unusual dispute
with its former chief executive who is demanding a payout, most
recently valued at $33 million, because the company tried to
sell itself, regulatory filings show.
    Mark Aslett, who had served as Mercury's CEO since 2007, is
relying on his so-called change-in-control agreement with the
company to claim the payout, according to one of the filings.
    Change-in-control agreements typically incentivize CEOs to
press on with selling their company when they stand to lose
their job. The dispute with Mercury offers a rare example of
such an agreement giving rise to a big payout claim even when no
deal has been secured, three corporate governance experts
interviewed by Reuters said. 
    "If as CEO you sell your company you typically lose your
job, so change-in-control payouts are there to compensate you if
you have successfully sold your company," said Marc Hodak, a
partner at executive compensation consultant Farient Advisors
LLC.     
    The value of the change-in-control payout hinges on Aslett's
unvested shares and Mercury's stock price. It was worth $33
million in July 2022, according to Mercury's most recent
disclosure on the matter. Mercury's shares have lost about half
their value since then, and the company does not provide enough
information to calculate the current value of the payout.
    Aslett resigned on June 19, four days before the company
said it had concluded a review that included a potential sale of
the company without reaching any deal.
    In his resignation letter, Aslett said he was entitled to
the change-in-control payout even though that change did not
occur. 
    Mercury said its board of directors disputed Aslett's claim
to the change-in-control payout. Without it, Aslett would be
entitled only to a $2.4 million severance package, a Mercury
regulatory filing shows. 
    The three corporate governance experts interviewed by
Reuters said few companies allowed for change-in-control payouts
when that change was explored and did not occur.
    Charles Elson, founding director of the corporate governance
center at the University of Delaware, said the language in
Aslett's agreement with Mercury was unusual. 
    In Aslett's employment contract with Mercury, the company
includes publicly announcing its "intention to take or to
consider taking actions which, if consummated, would constitute
a change in control" as a condition for the associated payout to
the CEO to occur, a regulatory filing shows. 
    But the contract stipulates that to be eligible for the
change-in-control payout, Aslett also needed to resign for "good
reason." It outlines six types of circumstances that would
constitute good reason. They include a reduction in compensation
or benefits or other changes in his employment. 
    Mercury said it objected to Aslett's claim to a
change-in-control payout because it did not agree with his
contention that he resigned for good reason. It did not dispute
that he resigned during a potential change-in-control period.
The filing does not state what explanation Aslett gave to
Mercury as good reason or why the latter disputed it. 
    Aslett and Mercury did not respond to questions about the
dispute and how it may resolved.
    Mercury, which has a market value of $1.9 billion, decided
to end the process to sell itself after just one round of
offers, because the bids assigned it little to no premium to its
share price, a person familiar with the matter said. Mercury
appointed board director William Ballhaus as interim CEO while
it seeks a permanent replacement. 
    
    SUPPLY-CHAIN ISSUES
    The Andover, Massachusetts-based company attracted
acquisition interest in spring 2022, when it was worth double
its current value. Hedge fund Elliott Investment Management
approached it to express acquisition interest, people familiar
with the matter said. Elliott declined to comment.
    From 2014 to 2020 Mercury enjoyed robust growth, aided by
acquisitions, which led to its shares outperforming many of its
peers. But in the past two years it has stumbled, as
supply-chain issues weighed on production of chips, circuits,
computer panels and other components used in the manufacturing
of technology equipment for the military.
    Yet even after its shares had dropped by a third from their
2020 high, Mercury agreed to a big jump in Aslett's pay last
year, granting him stock awards that boosted his total
compensation from $4.9 million in 2021 to $18.6 million in 2022,
a regulatory filing shows.
    "(Aslett) wants a change-in-control payment simply for
saying 'I got the company ready for sale, investment bankers
have been hired and I've done my job so please pay me,'"
consultancy firm Alchemy Strategies Partners' managing partner, 
Francis Byrd, said.
    "I would have certainly found it to be an unusual request."

 (Reporting by David Carnevali in New York
Additional reporting by Svea Herbst-Bayliss in New York
Editing by Greg Roumeliotis and Matthew Lewis)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))