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Spartech officials could get golden parachutes after merger with PolyOne

By: Frank Esposito

February 14, 2013

CLAYTON, MO. -- Top officials at Spartech Corp. will receive almost $11 million in golden parachute payments if approved as part of the firm's merger with PolyOne Corp.

More than $5 million of that amount will go to CEO Victoria Holt, according to a prospectus filed by both firms with the Securities and Exchange Commission on Feb. 11. Executive vice president and Chief Financial Officer Randy Martin will receive almost $2 million, Tim Feast and Carol O'Neill each will receive about $1.2 million and Robert Lorah will receive about $1.1 million.

Feast is senior vice president of color and specialty compounds for Clayton, Mo.-based Spartech. O'Neill is senior vice president of packaging, and Lorah is senior vice president and chief human resources officer.

Those totals include cash, equity, pension and benefits. Spartech shareholders will vote on the payments and on the proposed merger March 12 at a shareholders' meeting at the Spartech Technology Center in Maryland Heights, Mo. Separate votes will be taken on those two proposals. Spartech's board has recommended that shareholders approve the proposals.

The merger calls for Avon Lake, Ohio-based PolyOne – which is North America's largest compounder and one of the region's largest resin distributors – to pay about $393 million for Spartech's stock. That price represents a premium of almost 60 percent vs. Spartech's per-share stock price on Oct. 23, when the deal was announced.

Holt had led Spartech since 2010, after serving five years on the firm's board of directors. She had been senior vice president at paint, glass and coatings maker PPG Industries Inc. of Pittsburgh before taking the top spot at Spartech.

Spartech – one of North America's largest plastic sheet makers and one of its 30 largest compounders - had struggled in recent years, posting a combined loss of more than $70 million in its 2010 and 2011 fiscal years. The firm's per-share stock price was above $14 in early 2010 but was around $5.15 when the PolyOne deal was announced.

The prospectus also described how Holt and Spartech board Chairman Ralph Andy first met with PolyOne CEO, President and Chairman Stephen Newlin and other officials in July 2011. Holt and Andy told PolyOne officials there was no interest in a transaction at that time.

But a second contact in March 2012 led to a meeting between Andy and a PolyOne adviser in April and a meeting between Andy and Newlin in May. That meeting led to the eventual deal between the two firms.

Executive pay experts Aaron Boyd and James Reda had slightly different views of the golden parachute payments.

Boyd – research director at executive pay consulting firm Equilar Inc. in Redwood Shores, Calif. – said that Holt's $5 million package was "about right…about standard."

Boyd pointed out that Holt's golden parachute included a doubling of her salary and target bonus. Holt's total compensation for 2011 was just over $890,000, ranking 78th among plastics industry executives at public companies, according to a Plastics News ranking.

"It's the classic situation in executive compensation where you say that these executives make decisions that affect hundreds of millions of dollars, so they should get a few million more [in compensation]," Boyd said in a Feb. 14 phone interview. "But on the other side, shareholders say the company has been losing money for a while and it should be sold for more than what [shareholders] are getting, and they're not happy."

But Reda – managing director of the James F. Reda & Associates LLC consulting firm in New York – said that Holt's 2x salary and bonus level might be on the low side for golden parachutes, many of which triple those payments. The lower level might have been negotiated because Spartech was struggling at the time Holt took the top job, Reda said in a Feb. 14 phone interview.

In that light, Reda said Holt's compensation "sounds reasonable," but he added that the total payout of almost $11 million to the five executives is almost 3 percent of what PolyOne is paying for Spartech.

"That's a high severance-to-sale ratio," Reda said. "Something around 2 percent is more common."

He added that, in general, golden parachute packages have been on the decline in recent years. "Ten years ago, 60 percent of executives had golden parachutes that you could describe as lucrative," Reda said. "Now that number's only 25 percent."

A PolyOne spokesman declined to comment on the payments. Regarding the possibility of the five Spartech executives having any future role with PolyOne, the spokesman said that "it's premature to discuss any potential personnel or integration plans until after the acquisition has been completed."