St. Jude Medical shareholders grudgingly approve executive tax breaks ahead of Abbott merger

Shareholders in St. Jude Medical (NYSE:STJ), who this week voted to approve its pending, $25 billion merger with Abbott (NYSE:ABT), grudgingly approved a measure to give tax breaks to its senior executives if the deal goes through.

Little Canada, Minn.-based 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 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, a $3.3 million hit 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. 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.

In a regulatory filing yesterday, the company detailed the shareholder votes for the merger, the gross-ups and for its executives’ compensation plans. Although the stockowners overwhelmingly approved the Abbot merger (casting nearly 212.2 million of 239.6 million votes, or 88.5%, in favor), only 52.3% approved the gross-up plan (125.3 million votes for). Only 53.5% of shareholders voted for the executive compensation plan, casting 128.3 million “aye” votes, according to the filing.

St. Jude and Abbott still plan to close the deal, which must still pass reviews by anti-trust regulators in the U.S. and Europe, by the end of the year. In July, the Federal Trade Commission asked for more information about the merger; the European Commission is slated to decide by Nov. 9 whether to bless the union.

Earlier this month, the duo agreed to divest some of their vascular access products, likely aiming to appease the anti-monopoly agencies. Japan’s Terumo Corp. (TYO:4543) paid $1.12 billion for St. Jude’s Angio-Seal and Femoseal vascular closure devices and Abbott’s Vado steerable sheath, but Abbott said it would retain its overall vascular closure business.

Abbott CEO Miles White last week praised St. Jude’s handling of claims by short-seller Muddy Waters that its implantable heart devices pose cybersecurity risks and said he’s still planning to close the sale by the end of year.

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