Even among the lofty realm of golden parachutes, Warner Bros. Discovery Chief Executive David Zaslav’s proposed payday stands out.
Zaslav, one of the most richly compensated executives in America, is poised to receive as much as $887 million to depart the company once it is absorbed by David Ellison’s Paramount Skydance, Warner Bros. Discovery disclosed in a recent proxy.
That amount “represents one of the highest golden parachute estimates ever observed,” investor advisory firm Institutional Shareholder Services wrote in a report this week. “Support for the golden parachute proposal is not warranted.”
Warner shareholders on April 23 will vote on the company’s $111 billion sale to Ellison’s Paramount — a meaningful mark as Ellison and his team race to line up the approvals for the industry re-shaping deal, which they hope to finalize this summer. That vote is binding.
The acquisition is expected to trigger substantial layoffs and other cost-cuts as the new owners consolidate two legendary studios and TV operations, including dozens of cable channels.
Stockholders also will be asked to weigh in on Zaslav’s compensation package, although that vote is non-binding.
Several factors contributed to largesse for Zaslav, who has been running the debt-laden company for four years.
Warner board’s agreed last month to cover Zaslav’s tax liabilities following the sale to Paramount. Warner approved a provision to pay up to $335 million to reimburse Zaslav for excise taxes he will owe once he cashes out.
Warner sought to justify the arrangement, saying in the proxy that Warner’s initial deal to sell the company to Netflix — which was Zaslav’s favored outcome — would have resulted in less tax liability. Netflix withdrew from the bidding, leaving Paramount to claim the prize.
Tax advisors found that “Mr. Zaslav would be at a substantial disadvantage in terms of excise tax exposure under the PSKY transaction,” Warner’s proxy said. The Netflix deal was more advantageous to Zaslav “due to anticipated closing timing and other factors,” according to the company.
“There are significant concerns raised by an estimated $335 million excise tax gross-up for the CEO,” ISS said in its report, noting that none of the other Warner executives have arrangements to be reimbursed for their tax payments.
According to ISS, another eyebrow-raising element was that the vast majority of Zaslav’s estimated compensation — over 94% — was being derived by the automatic acceleration of stock vesting and the excise tax gross-up payment.
Ellison is gunning to get the deal done before this fall. Should the sales process spill into next year, however, Zaslav’s tax liability picture would improve and the $335 million set-aside would not be needed, according to documents.
The tax reimbursement estimate for Zaslav, who lives in New York, was “calculated based on a 20.00% excise tax rate and an estimated effective tax rate of 54.126% ,” Warner said.
In addition, Zaslav is expected to receive $34.2 million in cash. His stock is worth $517 million.
A Warner spokesperson declined to comment.
Warner shares were trading around $12.50 a share last September before Ellison’s interest in the company became known.
Paramount ultimately agreed to pay $31 a share for the company that includes CNN, HBO, HGTV, Cartoon Network, the Warner Bros. film and TV studios and the storied campus in Burbank. (Warner shares on Thursday closed at $27.53 a share, virtually unchanged)
Should the close date slip beyond September, Paramount agreed to pay Warner investors an extra 25 cents a share for every fiscal quarter until the acquisition is wrapped up.
After absorbing Warner Bros., Paramount will have to contend with an estimated $79 billion in debt, prompting fears about more layoffs to come in an industry already hammered by years of cutbacks. Fitch Ratings has downgraded Paramount’s credit due to concerns about the debt.
Still, investors should approve the transaction, ISS said, noting that it was “the result of a competitive sales process and public bidding war between NFLX and PSKY, which provides shareholders comfort that the proposed deal is the best available.”
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