St. Jude Medical reverses course on covering top execs’ tax tabs

St. Jude Medical (NYSE:STJ) reversed course on a pledge it made earlier this year not to cover some of tax tab its senior executives could incur after its $25 billion merger with Abbott (NYSE:ABT).

St. Jude’s board last year voted to do away with a “gross-up” provision that would have covered the 15% excise tax imposed by U.S. tax laws on stock owned by executives and directors for the 6 months before and after a merger transaction.

But after inking an $85-per-share deal in April to be acquired by Abbott, St. Jude moved to reinstate the gross-up provision, which could reportedly relieve CEO Michael Rousseau and other executives of $18 million in tax payments if they leave Abbott after the deal closes, expected by year-end.

The provision would save $5 million for Rousseau, according to the Minneapolis Star Tribune, plus a $3.3 million tab for president Dr. Eric Fain and $2.5 million for CFO Donald Zurbay. The benefit only applies if the executives are terminated without cause or leave for good reason after the deal closes, the newspaper reported; Abbott hasn’t publicly outlined its post-merger leadership plans

The gross-ups for executives aroused the ire of Medtronic shareholders who were exposed to capital gains taxes after its $50 billion deal to acquire Covidien closed last year (a federal judge in Minnesota later declined to bar the reimbursement plan). St. Jude’s shareholders are no exception, having filed at least 3 lawsuits seeking to block the deal in part over the proposed gross-ups, the paper reported.

Former CEO Dan Starks, who is still chairman and the company’s largest individual shareholder, is not eligible for the gross-up provision as the $18 million he set to pull down from the deal is not subject to the excise tax, according to the Star Tribune.

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