Facts behind the fury: Why the board was so angry with Merrill''s O''Neal

27 October 2007

But another reason behind the board''s fury (which should cost O''Neal his job) is that if Merrill undergoes a change in control through a merger or takeover, O''Neal would be entitled to a highly lucrative severance package valued at over $200 million, comprising mostly options and restricted shares.

However, if he has to step down in ''normal'' circumstances, the size of his severance package would be completely at the discretion of the Merrill board compensation committee, according to the company''s annual report.

Merger confers major benefits
Merrill doesn''t have agreements that provide for severance unless there''s been a change of control. As a result, for executives whose employment is terminated in the normal course of business, severance benefits are purely at the discretion of Merrill''s compensation committee, headed by private equity firm Brera Capital Partners LLC founder Alberto Cribiore, formerly co-president of the buyout firm Clayton, Dubilier & Rice Inc.

This means that after plunging the USA''s biggest brokerage into a $2.24 billion quarterly loss - the biggest in company history and a figure that was six times larger than the firm had forecast just three weeks earlier - the board members were furious that the CEO appeared to be trying to create a gold plated exit corridor for himself at shareholder expense, by trying for a merger with Wachovia.

It seems quite obvious that board members and shareholders are very unlikely to be pleased by something like that. And it showed; Merrill Lynch shares surged $5.19 (8.5 per cent) to $66.09 on the New York Stock Exchange (NYSE) on speculation that O''Neal would be forced to leave.

A matter of millions
According to the annual report, seven top Merrill executives, including O''Neal, have agreements that provide them with severance should they lose their jobs after an investor or company acquires at least 30 per cent of Merrill''s voting securities.