Tektronix $2.8 billion sale to D.C. based Danaher Corporation is a dramatic example of top executives marketing a company’s sale to benefit themselves and thereby breaching its duty to shareholders and other stakeholders. According to the WSJ, Merrill Lynch’s CEO has tried the same trick yet the board is now considering firing him over making the overture for a sale.
With the declining dollar and solid industry position, Tektronix is poised to do well over the next decade and this should be managements focus, not leveraging growth in their options to buy more luxurious vacation homes and other perks on the backs of shareholders, pension participants and employees.
Let’s look at some of the revealing specifics:
1) Both Tektronix and Danaher have traditional pension plans, with plan assets of $896 million at Danaher and $655 million at Tek for their respective most recent year ends per SEC 10K filings. Danaher’s shortfall on funding this obligation is, however, a whopping $323 million or 36 percent of plan assets, while Tek’s shortfall is $27 million or 4 percent of plan assets.
2) The right decision for Tek executives is to fully fund the pension plan and then spin it off to be managed by a separate trustee unrelated to Danaher. What other reason could Danaher want the plan for, other than to change plan assumptions and systematically peel off its assets? Especially given that the plan was terminated in the last year with respect to new contributions.
3) Tektronix May 2007 year end 10K filing also reveals that $119M or 18 percent of plan assets are invested in real estate, absolute return and private equity whose fair values are supplied to Tektronix by fund managers and general partners given the absence of publicly traded security valuations. With all the difficulty in subprime lending and related areas, the Pension Benefit Guarantee Corporation, the agency that insures such plans, should require that management provide an expanded commentary outlining the specific investments involved, their indicated market value and how such values were derived.
4) According to an October 25, 2007 Oregonian story, “The same day it OK’s a sale to Danaher Corp., Tek’s board increased seven executives payoffs, including CEO Rick Willis.” Clearly, this is a fiduciary breach to shareholders and these golden parachutes should be rescinded by the SEC due to a proxy violation given that they are material and were never put to a shareholder vote.
One Tektronix board member, Gerry Cameron, should know well the stakes here. Cameron himself got a huge payout as the departing CEO of US Bank when it was sold. I always liked Cameron while an employee there and even told him, upon leaving as takeover rumors swirled, that if US Bank didn’t put him on top within a year it was a lost cause. At the time he was head of US Bank of Washington and openly and genuinely laughed at the thought.
Turns out, he was made CEO within 6 months and the organization bloomed for years. Particularly interesting was that Cameron did the restructuring from the top, noting that many executives “candles had burned out in terms of desire and ability.” He was very popular and even suggested bringing me back to work for his top executive yet I said I was only willing to work directly for him.
It was Gerry Cameron who introduced me to Robert Parry in 1999, the then head of the Federal Reserve Bank of San Francisco, at a breakfast in which I asked a question about the tax accounting treatment for stock options and Parry jokingly replied that he did poorly in his only accounting class and that “accounting issues were not within the purview of the Federal Reserve.” Of course soon after the accounting at Microsoft, Enron, MCI, etc. became rather germane and clearly was and continues to be a structural weakness at the Federal Reserve. My advice to Federal Reserve Chairman Bernakke, hire one accountant for every two economists given the Federal Reserve has the same accounting competency problem now with respect to private equity,hedge funds and derivatives.
5) Danaher’s purchase of Tektronix is a classic leveraged buyout (LBO) in which a large amount of debt is issued to finance the purchase. This will result in dramatic and unnecessary job losses at Tektronix as Danaher’s executives leverage the next round of growth in their own stock options via staffing cuts to make interest payments on the debt. It is almost pathetic that Danaher, a technology company, refers to “headcount” in its SEC filings.
Oregon and the nation have grown many great companies that involved a lot of sweat equity, including Cameron’s over 40 years with US Bank. Sadly, today we have many younger executives masquerading as business leaders, like Tektronix Willis, when in reality they are focused on “deal making” and cryptic legal minutae designed to line their own pockets.
In the old days bank robbers rode horses, carried guns and used explosives to get at a bank’s safe yet today they “book accounting entries” and steal millions from shareholders, pension participants and other employees and get treated as royalty rather than what they are, common ciminals. Those are harsh words for Willis and other Tektronix executives, I’ll save my compassion for the shareholders, pension participants and employees.