Blackberry - Who Benefits From A Control Change?

Updated November 4, 2013

It has been announced that Thorsten Heins has left Blackberry and will be replaced by former Sybase AG CEO John Chen as Executive Chairman.  That said, Mr. Heins should now find that his golden parachute, as outlined below, will kick in.

With RIM/Blackberry certainly taking on the appearance of a company painfully circling the white porcelain bowl, I thought that the time was right to take a look at how the company's CEO, Thorsten Heins was compensated in 2013 and how he will benefit from a change in ownership, a scenario that is extremely likely with the announcement of the signing of a letter of intent with Prem Watsa's Fairfax Financial Holdings.

Mr. Heins took over as President and CEO in January 2012 after serving as Chief Operating Officer of Product Engineering.  Interestingly, according to the 2013 Proxy Statement, Mr. Heins received 85.15 percent approval of the company's shareholders with a significant 14.85 percent of shareholders withholding their votes, the only way that shareholders of Canadian companies can express dissatisfaction with a Board Member.

Let's start by looking at Mr. Heins' compensation (and that of the other Named Executive Officers or NEOs) for 2013 and the previous two years to put things into perspective:

Mr. Heins' base salary was $1,000,974 and he also received long-term incentive awards (LTIP) totalling $6,190,833 in "recognition of his outstanding performance in Fiscal 2013.".  His LTIP consists of 381,679 shares at a grant price of $7.86 (restricted stock units) and 763,358 shares at a grant price of $7.86 (stock options) as shown on this chart:

Including Mr. Heins' non-equity annual incentive payment (AIP) of $1,717,295 (172 percent of his annual base salary), granted because he exceeded targets set by the Board , his total compensation package for fiscal 2013 was $9,065,077, down from $10,274,324 in fiscal 2013.  Poor fellow indeed.  I do find all of this compensation information fascinating given that this is what happened to both net income and the value of the company's handset sales over the past three years:

Now, let's get to the meat of the matter, the golden parachute that Mr. Heins will receive if there is a change of control of the company.  If Mr. Heins is terminated before or within 24 months following a change of control, he will receive:

1.) A lump sum equal to twice his annual base salary (currently $1,000,974).

2.) Contributions to continue all non-equity benefits including extended health and dental coverage for 24 months.

3.) An annual incentive amount equal to two times base salary multiplied by the current AIP target percentage.  Based on the current base salary AIP target of 1.5, the payment would be $4.5 million.

4.) All stock options and RSUs are immediately vested and can be exercised over the next year or the applicable time remaining on the grant agreement, whichever is shorter.

5.) If the termination date occurs before the Grant Date, the company will pay Mr. Heins $33.75 million.

Apparently, there are very strong personal reasons why the current executive team would be looking for a change in control since all of the NEOs have similar agreements.  

Now, for comparison's sake, let's see how the company compensated the "sweaty masses" that were turfed in 2012.  The company's "2012 Cost Optimization Program" that saw the layoffs of approximately 2000 employees or 10 percent of the total workforce cost the company $125 million on a pre-tax basis in fiscal 2012.  During 2013, the company made cash payments of $10 million to terminated employees and paid an additional $24 million toward facilities costs.

I realize that this isn't directly related to the subject of this posting but, as a Blackberry owner that had my first phone crash within the first week that I owned it, I found this information interesting noting that the numbers are in millions of dollars:

Basically, since fiscal 2011, Blackberry has spent $1.816 billion settling warranty issues on their products.  While I don't have comparable data from other smartphone manufacturers, that may explain some of the issues facing the company.

Lastly, if you want to see who got screwed in this whole debacle, this graph explains it all in a nutshell:

Shareholders saw an investment of $100 in March 2008 plummet to a value of $12.77 in March 2013 at the same time as total Named Executive Officer compensation rose from $15,544,628 to $25,044,614.  Granted, from 2012 to 2013, NEO compensation dropped from just under $31.7 million to its current level, but that's small compensation for the company's much beleaguered shareholders.

Once the market sees a company as weak and vulnerable, perception becomes reality and there is very little chance of recovery.  Such is the case for RIM/Blackberry and this year's rebranding did nothing to change the company's plunging fortunes.  Fortunately, for the company's NEOs, they get paid handsomely either way.  Unfortunately, long-term shareholders do not.