* Reward translates to 12.2 pct of deal value
* WH Group, shareholders seeking $5.3 bln in Hong Kong IPO
* Incentive unusually high for M&A, analysts say
(Adds breakdown of payout, deal details, comments from CFO,
By Elzio Barreto
HONG KONG, April 14 Two senior executives of
China's biggest pork producer WH Group Ltd received a combined
$600 million payout for helping the Chinese company seal last
year's record $4.9 billion takeover of U.S.-based Smithfield
Foods Inc, an unusually high incentive for an acquisition.
The bonus, disclosed in a public filing, is equivalent to
just over 12 percent of the amount WH Group paid for Smithfield,
a purchase that was key to turning it into the world's largest
pork company. The deal had initially faced stiff political
opposition in the United States.
"This is very unusual - normally you would incentivise
management for overall long term performance and not simply for
executing a transaction- which is part of their job," said
David Webb, a Hong Kong-based corporate governance advocate.
"Especially given there's no evidence yet that the
transaction is value accreting," he added. "Let's hope they
don't continue that kind of remuneration policy after they go
WH Group, previously known as Shuanghui International
Holdings, is preparing for a Hong Kong initial public offering
(IPO) that could raise up to $5.3 billion in what is set to be
the second-biggest ever listing by a food and beverage company.
The rewards were disclosed in the IPO prospectus.
Stock-based payments are often used to retain top talent and
reward senior employees for executing large and complicated
mergers or purchases.
REWARDING THE "CHIEF BUTCHER"
The filing shows that WH Group issued its chief executive
and an executive in charge of its mergers and acquisitions a
combined 818.7 million shares worth $597 million. That works out
to 5.6 percent of WH Group's expanded capital.
Wan Long, the company's 73-year-old chief executive and
chairman who is also known as China's "Chief Butcher", was
issued 573.1 million new ordinary shares in October 2013, the
Yang Zhijun, an executive director in charge of investment,
mergers and acquisitions and financing for WH Group, was issued
another 245.6 million ordinary shares. The combined share awards
to the two executives had an estimated fair value at the time of
their granting of $597 million, the filing showed.
In three decades, Wan has turned WH Group from a small,
loss-making meat processor into the world's biggest pork
producer. Wan, who also sits on China's parliament, is known to
be a tough negotiator who has had the backing of Goldman Sachs
, Singapore state investor Temasek Holdings and
Wen Yunsong, or Winston Wen, son of former Premier Wen Jiabao,
among others, Reuters has previously reported.
The bonus to Wan and Yang "represents recognition and reward
for the contribution to the acquisition of Smithfield by the
directors," WH Group said in the filing.
When asked about the reward, Chief Financial Officer Guo
Lijun said on Monday it would have no impact on WH Group's
operations or financial results after the IPO.
"It's a non-cash expense," he told a media briefing to
outline the IPO plans. "It was made in order to reward the
management, who have made significant contribution in the
company's operations, development and acquisitions."
WH Group and shareholders are offering 3.65 billion shares
in an indicative range of HK$8.00 to HK$11.25 each, according to
a term sheet of the IPO seen by Reuters. At the top end of the
range, it would be nearly double the price for the October 2013
awards to Wan and Yang.
Yang, who is 40 years old according to the latest
prospectus, has spent more than 17 years with the company,
joining WH Group straight out of Sichuan University, where he
graduated with a degree in Russian literature and language.
(Additional reporting by Lawrence White; Editing by Denny
Thomas and Miral Fahmy)