Yamana Gold's executive chairman Peter Marrone.MIKE CASSESE/Reuters
Yamana Gold Inc. YRI-T executives and board members are in line for more than US$100-million in cash payments for their shares and severance packages if the proposed acquisition of the Canadian gold miner by South Africa’s Gold Fields Ltd. GFI-N succeeds.
The figure is based on disclosures by Toronto-based Yamana in a proxy circular to shareholders released in advance of its shareholder vote on the deal on Nov. 21. Yamana declined to comment on the payouts.
Johannesburg-based Gold Fields in May reached a friendly agreement to acquire Yamana for a 42-per-cent premium to its market price in an all-stock deal worth US$6.7-billion. Gold Fields said combining the two precious metals companies will result in synergies of US$40-million a year through greater supply chain efficiencies and savings on general and administrative expenses.
Josh Wolfson, analyst with RBC Dominion Securities, wrote in a note to clients the proposed compensation payouts to Yamana’s people, in combination with added transactions costs Yamana and Gold Fields are both paying, will wipe out three years’ worth of the promised synergies.
John Malloy, co-head of the emerging and frontier markets team at RWC Partners Ltd., known as Redwheel, which is a major Gold Fields shareholder and is opposed to the deal, said in an interview Tuesday the Yamana payouts are excessive.
“This looks like a really good deal for Yamana executives and board members, but not a good deal for Gold Fields shareholders,” Mr. Malloy said.
Redwheel in June criticized the proposed acquisition as risky and expensive. The London-based institutional investment firm owns 19.9 million Gold Fields shares, and is the second-biggest holder of its U.S.-listed shares.
Yamana’s biggest growth property is MARA in Argentina, a copper and gold project Mr. Malloy says is fraught with risk because of the difficulties of operating in Argentina. He argues that part of the compensation to be paid to Yamana’s people should be contingent on the success of MARA.
Yamana will only pay severance after the merger if an executive loses their job or resigns after getting a lesser position or pay in the combined company. This kind of “double trigger” severance is an improvement over past practices in corporate compensation, in which an executive might get a big payout simply because their company was acquired, whether they lost their job or not. Gold Fields has indicated no current Yamana managers or directors will join the combined company if the acquisition closes.
The severance packages are equal to two times the sum of an executive’s salary and previous cash bonus, a multiplier that is common in today’s golden parachute structures.
Gold Fields and Yamana say the five best-paid Yamana executives, including executive chairman Peter Marrone and chief executive officer Daniel Racine, would get a total of US$24.7-million in severance if they left after the merger. While the companies don’t break out the numbers for individuals in the latest disclosure, Mr. Marrone is in line for a payment of more than US$13-million based on Yamana’s past pay disclosures.
Yamana Gold's Jacobina operation in northern Brazil.Handout
The next five best-paid executives would receive US$9-million in severance. And all 10 would receive a total of US$4.9-million in payments in lieu of pension and other benefits, according to the disclosures from the latest circular.
Gold Fields intends to pay for the acquisition by issuing stock to Yamana shareholders. However, Yamana will pay out two of its three stock-based compensation plans in cash, rather than convert the holdings into Gold Fields shares.
The companies say the 10 members of the executive team own 7.8 million shares, including shares they may have purchased on the open market. At US$4.50 for each Yamana share listed on the New York Stock Exchange, they’ll receive a total of US$35.2-million for their stock.
The bulk of that will go to Mr. Marrone, who owns nearly 5.9 million shares, worth about US$26.5-million at current prices. Insider-transaction records filed with Canadian securities regulators show Mr. Marrone purchased more than 1.8 million shares on the open market over the past five years.
Yamana’s seven non-employee directors will get a total of US$10.7-million for their deferred share units, or an average of US$1.53-million apiece. Every director will get at least US$1-million, based on the number of shares disclosed and the current stock price. Yamana awarded the deferred share units to directors each year as part of their compensation.
And Yamana will pay out cash for its performance share-unit program, which grants employees shares and then pays out after three years based on Yamana’s performance versus the S&P/TSX Global Gold Index. The payout can be as much as two times the original grant.
At a 100-per-cent payout, the 10 executives would get US$12.9-million in cash, including US$4.26-million for Mr. Marrone, based on the number of shares disclosed and the current stock price.
However, Yamana’s share price, boosted by the Gold Fields acquisition, has currently outperformed the S&P industry index by anywhere from 20 to 45 percentage points over the various measurement periods, meaning the payout could ultimately range from 140 per cent to as much as 200 per cent. A 200-per-cent payout in the program would be worth US$25.9-million to the executives.
Mr. Marrone has been criticized in the past for excessive compensation. In 2015, he lost a say-on-pay vote by Yamana shareholders. In 2019, proxy advisory service Glass Lewis gave Yamana a grade of F for compensation, and wrote the company had “a history of misaligning pay and performance.”
However, in 2020, Yamana received 92.5 per cent support from shareholders in its annual shareholder advisory vote on compensation, known as say on pay, followed by 92.2 per cent support in 2021 and 93 per cent in 2022.
David Milstead
Niall McGee