Merc executives awarded $3.5 million

December 14, 2006|By Laura Smitherman | Laura Smitherman,sun reporter

Mercantile Bankshares Corp., the Baltimore-based bank that has agreed to be acquired by PNC Financial Services Group, awarded a total of $3.5 million in bonuses this month to Chairman and Chief Executive Officer Edward J. "Ned" Kelly III and five other top executives.

The payouts were made in lieu of any regular annual bonuses and were largely the same amount as the 2005 bonuses to those executives, according to a regulatory filing this week. Mercantile disclosed recently that it has set aside a pool of up to $39 million for bonuses and for retention payments to ensure that certain employees stay at least through completion of the deal.

Mercantile, the largest independent bank in Maryland, agreed in October to be acquired by Pittsburgh-based PNC for about $6 billion in stock and cash. The deal is expected to close in the first quarter of next year, at which time Kelly will be appointed a PNC vice chairman.

Executive compensation can become a sore point when mergers take place, and Kelly took care this year to separate his personal interests from any potential sale of the bank by relinquishing his "golden parachute." At the time, Kelly played down a possible sale and said that ending the arrangement, which would have entitled him to millions in cash payments upon a change of control at the bank, was the right thing to do.

According to a filing with the Securities and Exchange Commission, Kelly was approached months later by two financial institutions interested in exploring an acquisition of Mercantile. He and other senior managers decided to pursue the idea with one of the suitors, which were unnamed. Then in September, Kelly and PNC's Chairman and CEO James E. Rohr agreed to meet to discuss a possible combination. In considering such a merger, Mercantile officials noted that PNC and Mercantile "enjoyed similar cultures and business philosophies," and that Mercantile shareholders, customers and employees could benefit. Discussions with the other suitor were dropped.

Industry observers say Mercantile would have been hard-pressed to turn away from the price PNC offered to Mercantile shareholders, which valued the stock at a 28 percent premium when the deal was announced.

The shares have gained since then, hitting a 52-week high during trading yesterday and rising 8 cents, or less than 1 percent, for the day to $46.63 on the Nasdaq stock market.

"Kelly did a pretty good job of getting a nice price for shareholders; that's for sure," said Adam Barkstrom, a banking analyst at Stifel Nicolaus.

Michael Paese, chief administrative officer at Mercantile, declined to comment yesterday.

Mercantile directors approved the bonuses to executives this month. All of the executives except Vice Chairman Jay M. Wilson received the same bonus as last year. The board's compensation committee more than doubled Wilson's bonus to $750,000 and granted him about 10,500 restricted shares, whose vesting would be accelerated when the deal with PNC goes through. Kelly and other executives also will be able to exchange options for cash and restricted stock for cash and PNC shares.

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