Dex One CEO in line for $6.7 million golden parachute

dranii@newsobserver.comFebruary 11, 2013 

Dex One CEO Alfred Mockett.

DEX ONE

Dex One CEO Alfred Mockett will depart $6.7 million richer after the Cary-based yellow pages company merges with SuperMedia.

The two companies also announced Monday that they each will conduct shareholder votes on their merger proposal on March 13. Dex One’s meeting is scheduled for 1 p.m. at its Cary headquarters.

The golden-parachute payment to Mockett, which includes $6.6 million in cash and $115,000 in stock, is outlined in a proxy statement filed by Dex One that makes the case for the merger and outlines how it came about. The transaction history shows that Dex’s board had initially proposed that Mockett remain as CEO of the combined company. That would have led to SuperMedia CEO Peter McDonald, rather than Mockett, anticipating a golden-parachute payment.

Dex’s proposal died after a hedge fund that is a major investor in both companies backed McDonald to become CEO of the combined business.

Mockett, an industry outsider who joined the company as CEO in the fall of 2010, is entitled to receive the payout because his contract calls for him to receive three times his salary and three times his performance-based bonus for 2012 if he loses his job due to a change in control.

Mockett joined Dex post-bankruptcy and “has put the company on a transformational path back to growth,” said spokesman Tyler Gronbach. He added that the company’s digital advertising business has been growing at a 30-percent-a-year clip and is expected to reach the $300 million mark when full-year results for 2012 are released.

Gronbach said Dex also has retired $1.7 billion in debt since it emerged from bankruptcy in February 2010.

The merger agreement calls for Dex shareholders to own 60 percent of DexMedia – the name of the combined company – with SuperMedia shareholders owning the rest.

Nevertheless, the deal also calls for McDonald, who was president and chief operating of what is now Dex from October 2004 until September 2008, to become CEO of the combined company. McDonald became CEO of SuperMedia in 2010.

Dealing with debt

The yellow pages industry has struggled because of the economic downturn and a seismic shift of advertisers from print to digital media. Both Dex and SuperMedia entered bankruptcy in the wake of the recession and emerged with lower, but still considerable, debt.

The companies say the deal would enhance their growth prospects and enable them to better pay off their debts thanks to $150 million to $175 million in expected cost savings and increased cash flow.

In addition to shareholder approval, the companies need 100 percent of their lenders to agree to restructure their credit agreements, pushing out the maturity dates on their debt by two years to December 2016, to complete the deal. They have the support of a steering committee representing senior lenders and could complete the deal via a prepackaged bankruptcy if they fail to win over all their lenders.

“We remain confident we are going to complete the transaction in the first half of this year,” Gronbach said.

The deal would mean the loss of a corporate headquarters for the Triangle. The companies announced in September that DexMedia would be based at SuperMedia’s current headquarters complex in Dallas.

When the deal was announced, Mockett said he expected the merger to result in job cuts amounting to 10 percent to 15 percent of the company’s workforce.

Dex currently has 230 workers in the Triangle, down from 300 when the deal was announced in August, with the vast majority of the decline due to attrition, said Dex spokesman Chris Hardman. Company-wide, Dex has 2,250 workers, down from 2,600 in August.

“There have been isolated cases where individual departments have reduced the size of their groups,” he said.

Merger talks

The proxy statement describes how industry woes led SuperMedia to contact Dex about a merger or joint venture in February 2011, a move that triggered months of talks.

On Aug. 23 of that year, Dex proposed a merger that would have put the Cary company in the driver’s seat. In addition to Dex shareholders owning 62.2 percent of the combined company, its term sheet called for retaining Dex’s management.

The Dex board of directors also would remain intact, supplemented by several Dex directors.

Six days later, SuperMedia submitted a counterproposal that called for SuperMedia to own at least 40 percent of the combined business, with the board of directors and management reflecting a “merger-of-equals structure.”

On the same day, a representative of Paulson & Co., a New York hedge fund, sent a letter to Dex’s chairman supporting McDonald as the CEO of the combined company.

Paulson owns nearly 17 percent of SuperMedia and more than 7 percent of Dex shares.

After considerable back-and-forth and additional proposals, those talks collapsed without a deal in November 2011.

Talks were revived in 2012, with a phone call by McDonald to a Dex director, Alan Schultz, now the company’s chairman, setting the wheels slowly in motion in January.

When Dex submitted a proposal at the end of May, it called for Dex shareholders to own 60 percent of the company and a management team that would be “determined jointly by the two companies.”

It also called for a nine-person board of director with a majority – five – from Dex.

After another round of back-and-forth, however, the deal announced in August named McDonald and SuperMedia executive Samuel “Dee” Jones, currently SuperMedia’s chief financial officer, as CFO of the combined business.

Dex’s CFO, Gregory Freiberg, is in line for a $1.7 million golden-parachute payment, according to the proxy.

Ranii: 919-829-4877

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