Sabia and Cope to rake in the cash from BCE

Does Michael Sabia, former CEO of BCE really deserve all that money for selling an under-performing company, resulting in thousands of lost jobs? When the CEO can exercise options worth tens of millions of dollars, happily granted by the board, only to then lay off thousands of employees-- something doesn't quite feel right.

From Geoffrey Laxton...
BCE Inc. insiders stand to reap hundreds of millions of dollars in gains from their stock options and other long-term compensation in the proposed sale of the company to a group led by Ontario Teachers Pension Plan for $42.75 per share.

Information in company filings shows that, as of March 31, an unspecified number of BCE employees had 23-million stock options outstanding, with an average strike price of $33, or the price employees can pay to buy stock during the life of the options.

Since options are expected to automatically vest with the closing of the transaction, the gain will be an average of $9.75 per option, for a total of $224-million. That is a significant improvement over just four months ago, when the stock was trading for $30 and the majority of options held by employees were essentially worthless, after five years of flat performance by the stock.

Other compensation awards will likely be released to employees and directors in the event of a sale. Executives and other key employees held a total of three million "restricted share units," (RSUs) at the end of the last quarter, which should vest into the same number of common shares when the deal closes, at a value of $128-million.

Among top executives, chief executive Michael Sabia and president George Cope stand to gain the most from the sale. Mr. Sabia's 450,000 options granted in March at a strike price of $30.72 in March would deliver a pre-tax gain of $5.4-million at the proposed sale price.

Between Mr. Sabia's 134,124 shares and other compensation awards, he should be able to cash out more than $30-million under the deal announced Saturday. Mr. Cope, meanwhile, is sitting on $10-million in potential gains from the 693,000 options he has been granted since joining the company two years ago.

Mr. Sabia or whoever replaces him should expect to see an even larger portion of pay tied to long-term performance under private ownership. That is because leaders of companies bought out by private equity firms are expected to align their interests with the owners by tying their pay to the achievement of long-term returns leading to a sale or public offering. Based on some estimates by investment bankers, the CEO of BCE could earn hundreds of millions of dollars if the company hits its return targets over a five-year period.

But if Mr. Sabia loses his job within a year of the change of control, he stands to make three year's worth of his salary and target bonus, equal to a severance payment of $8.4-million. BCE directors also stand to gain from the sale. Directors receive their fees in the form of "deferred stock units", which turn into common shares when they leave the board or if the company is sold. Based on information in the company's most recent proxy circular, eight of the company's 15 directors are sitting on more than $1-million worth of deferred units each. In total, the 1.3-million DSUs granted to directors and key executives would be worth $55-million at the sale price. The biggest gainer on the board is chairman Dick Currie, who bought about 1-million shares after ascending to that position five years ago. His current stake in the company, including units paid for his services on the board, will be worth $45-million if the deal closes at the sale price.