The boss of defence giant BAE Systems stands to make £18million almost overnight if the firm’s controversial merger goes through.Chief executive Ian King is sitting on millions of lucrative share options which would usually take years to mature.
But in what critics branded a ‘scandalous’ twist, they would pay him the giant windfall straight away if the £30billion deal to combine forces with the French and German-controlled aerospace conglomerate EADS is approved.
Profit: CEO Ian King stands to make millions from the possible merger with European company EADSDetails of Mr King’s potential payday are now likely to be probed by the House of Commons Defence Select Committee, which is holding an inquiry into the proposed merger.
It strengthens the claims of critics that a charmed circle of ministers, company bosses, senior mandarins and former civil servants is engaged in a stitch-up to push through the deal behind closed doors.
Former MI6 boss Sir John Scarlett is lobbying the Government on behalf of Morgan Stanley, the investment bank which is expected to share in a multi-million pound payout for advising BAE on the deal.Officials have also been forced to deny that Cabinet Secretary Sir Jeremy Heywood, who used to work for Morgan Stanley and has helped persuade David Cameron to support the deal, has any conflict of interest.Money merger:
The possible merger of BAE Systems and European aerospace conglomerate EADS is a £30 million deal from which Mr King is set to make £17.8 million
Contractors: BAE Systems is one of the world's largest deference contractors making fighter jets, defence systems and aircraft carriers, such as these two Queen Elizabeth-class aircraft carriersIn addition, Liberal Democrat leader Nick Clegg is also said to be supportive of the takeover which has come under fierce criticism from senior backbenchers including Tory grandee David Davis.
Tory MPs oppose the deal because they believe handing defence secrets to a company partly controlled by the governments of France and Germany will undermine national security, destroy the intelligence-sharing relationship with the United States and cost British jobs.Opponents point to recent reports from Paris and Berlin as proof that both France and Germany are keen to retain a substantial stake of anything up to 27 per cent between them in the proposed merged defence giant.
Both companies are working towards an October 10 deadline for the submission of formal proposals for the deal.
After 36 years in the company, Mr King has built up extensive holdings of shares and options through a web of executive reward schemes.He has more than one million BAE shares in his portfolio, worth more than £3.36million at the current price. In a merger, he would either receive at least that amount in cash or the equivalent value in new shares in the combined group.
Mr King has also amassed options on around 4.5million shares in executive reward schemes set to bear fruit over a number of years.
But a deal with EADS could trigger a ‘change of control’ clause set out in the company’s annual report, meaning that they all pay out at once when the merger goes through. This would hand him an instant jackpot of £14.5millon, taking his grand total to £17.8million.It is not clear at this stage whether any or all of these sums will be paid out.
Critics last night called on Mr King to waive the potential payouts.
Jim Moohan, of the GMB union, which represents the engineering and shipbuilding industry in Scotland, said it was ‘scandalous’ that the chief executive could receive the rewards.He said: ‘From a moral position he must certainly give them up. I’m surprised the political parties don’t come forward to stop these rewards.’
He added: ‘This is a deal where people risk losing their jobs and their skills, and we can ill afford to go down this route.
‘We don’t want to be just a French player in two years’ time. This will be a backward step.’Mr Moohan also warned that the deal was like a ‘runaway train’ and was out of the Government’s control.
Mr King’s future has not officially been decided because the two companies are still working on details of the merger and have not yet made a formal announcement on their top management team.
But well-placed sources say the boss of EADS, former German paratrooper Tom Enders, is virtually certain to be shoe-horned in as chief executive, leaving Mr King to play second fiddle.
Mr King, who has been chief executive of BAE since 2008, is said to be likely to stay on as head of a British-based defence division. In that case he may decide not to cash in on his lavish pile of shares and options.
Nevertheless, he is still likely to be a big winnerBig benefit: During his 36 years Mr King has amassed options in an estimated 4.5 million shares in BAE Systems which means that he stands to make an instant profit of £14.5 million from the mergerIn similar situations, other bosses involved in mega-mergers have tried instead to negotiate ‘retention deals’ granting them lucrative options to stay on.
Mr King last year took home a basic salary and bonus of £2.4million, and benefited from maturing share options worth almost £700,000 awarded in earlier years.He is also on course for a feather-bedded retirement, regardless of whether he remains in post until the company’s normal pension age of 62 or steps down earlier.He has accumulated a pension pot worth more than £11.6million, which will pay him an income of just under £680,000 a year for the rest of his life.
As part of a rolling programme of rewards, he was handed share options currently worth around £2.3million in 2011, which are included in those that might pay out in the EADS takeover.
His long-term incentives for this year have been boosted to 300 per cent of his salary, after a pay review deemed his package fell significantly short of his peer group in the US.BAE refused to comment.