The Idaho Statesman reports that Frank Nordby, a California man who works (for the moment, anyway) as a clerk for an Albertsons store, has filed a lawsuit against the company demanding that CEO Larry Johnston “be denied his golden parachute if the company's sale is approved by shareholders” today. The essence of Nordby’s position is that “the board breached their duty to shareholders by giving Johnston an $8 million raise last year that will boost his golden parachute — the severance package he will receive if the company is sold.” The raise granted Johnston last year doubled his annual compensation to $16.4 million.
The suit also charges that the Albertsons board violated its fiduciary duty by not accepting an offer for the company from an unnamed suitor that was 14 percent higher than the deal ultimately accepted, a deal the company said was too risky. However, this spurned offer has garnered a fair amount of sympathy in Boise, Idaho, where Albertsons has been based; while Supervalu has said it will maintain a Boise presence, it plans to run the retailing business from its Minnesota headquarters. The spurned deal reportedly came from an entity that would have maintained the company’s Boise base of operations.
While analysts seem to agree that the legal challenge wouldn’t be enough to cancel out the sale of various parts of the company to Supervalu, CVS, and an investment group headed by Cerberus Capital Management LP and Kimco Realty Corp. The total value of the sale is estimated to be about $9.8 billion.
Johnston’s total compensation package as he departs the company is about $120 million, including more than $8 million in severance, use of the corporate jet for three years worth the equivalent of $3 million, and more than $50 million in stock and stock options.
According to the Statesman, the lawsuit is seeking an investigation into the sales and compensation agreement, not for cash damages. Tom Banducci, the lawyer representing Nordby, tells the paper, "We're not trying to get any money for Mr. Nordby's pocket. What we ask is that the transaction be stopped ... so that it can be re-examined.”
The suit also charges that the Albertsons board violated its fiduciary duty by not accepting an offer for the company from an unnamed suitor that was 14 percent higher than the deal ultimately accepted, a deal the company said was too risky. However, this spurned offer has garnered a fair amount of sympathy in Boise, Idaho, where Albertsons has been based; while Supervalu has said it will maintain a Boise presence, it plans to run the retailing business from its Minnesota headquarters. The spurned deal reportedly came from an entity that would have maintained the company’s Boise base of operations.
While analysts seem to agree that the legal challenge wouldn’t be enough to cancel out the sale of various parts of the company to Supervalu, CVS, and an investment group headed by Cerberus Capital Management LP and Kimco Realty Corp. The total value of the sale is estimated to be about $9.8 billion.
Johnston’s total compensation package as he departs the company is about $120 million, including more than $8 million in severance, use of the corporate jet for three years worth the equivalent of $3 million, and more than $50 million in stock and stock options.
According to the Statesman, the lawsuit is seeking an investigation into the sales and compensation agreement, not for cash damages. Tom Banducci, the lawyer representing Nordby, tells the paper, "We're not trying to get any money for Mr. Nordby's pocket. What we ask is that the transaction be stopped ... so that it can be re-examined.”
- KC's View:
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Here’s another irony of which we were made aware last Friday.
We carried a report late last week about how Robert Nardelli – the CEO of Home Depot, and, like Johnston, a former GE executive, was being roundly criticized for what was viewed as arrogant behavior at his company’s annual meeting. Nardelli refused to answer questions at the meeting about his compensation package, which has totaled more than $120 million since December 2000, even though the company’s stock price has dropped nine percent since then. The Home Depot board of directors didn’t even attend the meeting, which lasted only 30 minutes – which sort of limited the ability of shareholders to get answers to their concerns.
One MNB user advised us to look at the members of the Home Depot board – and, go figure, the list includes one Larry Johnston. And what is really extraordinary – though, when you think about it, hardly a surprise – is the fact that Johnston is on the board’s compensation committee.
The only thing that surprises us is the fact that Nardelli isn’t on the Albertsons board, voting on Johnston’s compensation. After all, these modern day robber barons need to stick together.
The whole Albertsons sale has been a study in minimal competence, it seems to us. Even during the negotiations, the deal was on, it was off, and then it was back on again.
Meanwhile, Albertsons is locked in a legal battle with Grocery Outlet over the use of the Lucky brand name. Grocery Outlet has opened a store using the banner, charging that Albertsons legally has no right to use it since it abandoned the name and the brand six years ago when it acquired American Stores, which owned the Lucky name. This could be relevant to the sale since legal papers suggest that when it sold stores to the Cerberus group, it included in the deal use of the Lucky name…which it may have had no right to sell.
While all these various deals and scenarios can be examined and criticized from a variety of perspectives, it seems to us that the central problem is one of arrogance – the people running these companies simply thought they were smarter and better than everyone else, even though they had minimal experience with and understanding of retailing.
We actually feel sort of bad for the companies trying to acquire pieces of Albertsons, since if Nordby’s suit is successful it would put their plans on hold. And it is hard to imagine that their various managements would be any worse for Albertsons’ stores and people that Johnston has.
But we’re rooting, at some level, for Nordby to be successful.
