USF&G chief may get $44 million in buyout pay Package awaits Blake in sale to Minn. firm, but 2,000 may lose jobs

March 06, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Norman P. Blake Jr., chairman and chief executive of USF&G Corp., stands to receive a $44 million financial package while up to 2,000 employees could lose their jobs after completion of the sale of the insurance firm to St. Paul Cos.

Blake's package was revealed in a document filed with the Securities and Exchange Commission by the two insurance companies.

In an interview yesterday, Blake said, "I am embarrassed about the amount because it is a lot. I can sincerely tell you my intentions were to serve the shareholders and to serve the employees. The merger with St. Paul, I promise you, it was never to do with my financial gain."

The document filed with the SEC shows that Blake, 56, stands to receive $11.2 million in severance pay shortly after completion of the merger with the Minnesota-based St. Paul.

In addition, if the merger is approved on April 7 when shareholders vote, he would receive:

A $15 million lump sum payment.

$9.6 million to pay the special excise tax on the severance package.

Stock options worth $4 million that become exercisable due to the consummation of the merger.

A $2.1 million deferred cash award payment.

A $1 million annual bonus.

And $725,000 in consulting fees through Dec. 31, 1998, with medical benefits.

USF&G also has approved severance arrangements with 11 other executives who could share a total of at least $37 million in cash severance and other payments.

Analysts said Blake deserves the hefty package because he saved USF&G from near failure in the early 1990s, and restructured it so it once again became a profitable company.

"Is Cal Ripken worth it? I don't know," said Ira Zuckerman, an insurance analyst at Nutmeg Securities Ltd., a Westport, Conn.-based brokerage firm. "I think he [Blake] did everything he could. He made the money for shareholders. The shareholders come out OK, which is better than him going along for three, four or five years and things getting tougher and tougher."

Conflicting interests

Others disagreed, and said that executives such as Blake have conflicting interests because they are paid huge sums to sell the company, while employees are left to fight for jobs.

"He [Blake] is a multiple looter of shareholder assets," said Ralph Nader, the Washington-based consumer advocate. "When a chief executive officer gets paid that much to quit, then the question is: 'Is he doing it for his own personal enrichment, or for the best interest of the company and its shareholders?' "

Blake and USF&G's board of directors struck a deal on Jan. 19, to sell the 102-year-old Baltimore-based insurer to St. Paul Cos. in a deal valued at $3.5 billion.

After the acquisition, St. Paul will be the country's eighth largest property and casualty insurer, with $36 billion in total assets and market capitalization of $10 billion.

But as many as 2,000 employees from both companies could lose their jobs in the transaction, which is expected to be completed by the middle of the year.

Industry rate

Blake said his financial package is not extraordinary when looking at what other insurance executives are getting. "As I look at this thing, the structure of my compensation seems to be very much in line with the industry."

Blake believes he has succeeded at USF&G. When he joined the company in November 1990, it was struggling, and its stock was trading around $8 a share, down from the $30 range. the stock closed yesterday at $24.125, down 6.25 cents.

The company's market capitalization -- the price of the stock multiplied by the shares outstanding -- has increased by about $2 billion since 1991. And total shareholder return (stock plus dividends) has increased 228 percent on cumulative basis from 1991 through 1997.

"I don't know how they [shareholders] can take issue with my compensation," Blake said.

Incentive-laden severance

The severance provisions for Blake and other top executives were changed a year ago to provide more incentives to get them to remain with the company at a time when when it was the subject of takeover rumors, said Jay Huber, deputy general counsel at USF&G.

Huber said Blake entered into an agreement with his former employer, Chicago-based Heller International, for a $15 million lump sum payment, and USF&G honored it because he was taking on a large risk coming to the troubled company.

"This is something that has been around all along," Huber said. "It is important to recognize that he would have gotten it transaction or no transaction."

Huber said Blake took a pay cut of $1.5 million over five years in exchange for bonuses and stock options tied to USF&G's performance. The aggregate value of Blake's stock options are $4 million, according to the document filed with the SEC.

USF&G also has severance agreements with 11 other executives, including Dan L. Hale, the chief financial officer, who is expected to leave the company, Blake said.

Hale has an estimated cash severance of $3.8 million, according to the document.

The other executives include John A. MacColl, general counsel, $2.3 million; Harry N. Stout, president of F&G Life, $2.2 million; and John C. Sweeney, chief investment officer, $1 million.

Seven other USF&G executives have severance arrangements totaling $13.9 million. In addition, as of Feb. 25, 1998, directors who are not employed by the company held 143,065 vested stock units with a value of about $12.5 million.

Golden parachutes for USF&G brass

Norman P. Blake Jr. (above), chairman and chief executive, will receive $44 million if the merger with St. Paul Cos. is approved on April 7.

Dan L. Hale, the chief financial officer, $3.8 million

John A. MacColl, general counsel, $2.3 million

Harry N. Stout, president of F&G Life, $2.2 million

John C. Sweeney, chief investment officer, $1 million.

Pub Date: 3/06/98

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