Sainsbury’s and Asda: The Monopoly That Never Was

CGLytics examines some of the key drivers behind the rejected merger of Asda and Sainsbury’s.

In April 2018, Sainsbury’s and Asda announced that they were planning to join forces and merge into a single entity in a deal worth GBP 7.3 billion (USD 10 billion). If successful, the newly combined entity would have surpassed Tesco as the largest supermarket chain in the United Kingdom.

According to the terms of the agreement, proponents of the merged entity stated that the combined business would have generated at least GBP 500 million (USD 688.62 million) in cost savings and led to a reduction in retail prices of about 10%. Despite these touted benefits, the Competition and Markets Authority (CMA) concluded the merger could lead to a “poorer shopping experience”. In February 2019, the CMA also raised a catalogue of concerns in a very strongly worded report on the potential consequences of the merger, focusing primarily on higher prices and reduced choice for customers.

On April 25, 2019, Asda and Sainsbury’s announced that the proposed merger was formally blocked by the CMA. The CMA rejected the proposed merger following their conclusion that customers would pay higher prices due to the projected dominance of the new entity in the market, as well as significantly increasing pressure on retail suppliers to the proposed entity.

CEO Compensation: Potential Catalyst for Proposed Merger?

In 2017 Sainsbury’s Chief Executive Mike Coup’s total realized compensation grew by 63% compared to financial year 2016. As part of his increase in realised compensation, Mr. Coupe received a cash bonus of GBP 499,428 (USD 678,677), despite Sainsbury’s reporting an almost 19% drop in profits for that same year. Although company profit accounted for 50% of Mr. Coup’s STI performance criteria, he received a bonus award as the company hit the remaining targets linked to the company’s acquisition of Argos, the company’s Nectar loyalty card scheme, as well as a minimum profit target per the company’s remuneration policy. Mr. Coupe was criticised for receiving such a payout while also removing employee benefits, such as paid breaks and bonuses, negatively affecting 9,000 employees.

Most importantly, it could be suggested that the performance criteria for Mr. Coup’s LTI awards may have had a hand in his decision to pursue the merger with Asda. His current LTI performance awards include five performance criteria with weights of 20% each: ROCE, EPS, Cash Flow, Cumulative Strategic Cost Savings, and HRG Acquisition Strategies.

Upon examining Sainsbury’s performance since 2012, we find revenues for Sainsbury’s have remained relatively flat; net income took a dip in 2014, but is slowly bouncing back; and free cash flow appears to have been decreasing slowly since 2012. These three financial performance criteria have a direct impact on the first three previously-mentioned performance criteria for the vesting of Mr. Coup’s outstanding awards. Consequently, we find that the remaining criteria, Cumulative Strategic Cost Savings and HRG Acquisition Strategies, to be the last areas where Mr. Coup would be able to directly influence his ability to exercise his outstanding LTI awards.

Interestingly, the Cumulative Cost Savings performance criterion had a target and maximum goal of GBP 450 million and 550 million, corresponding roughly to the same cost savings that the proposed merger would bring to the combined entity (GBP 500 million). These savings would have potentially resulted in a higher level of vesting of Mr Coup’s Outstanding STI and LTI Awards, as detailed in the graph below generated from the CGLytics’ pay for performance modeler:

Despite Mr. Coup’s public statements that the primary goals of the proposed merger were to reduce prices and provide customers with greater choice, a deeper dive into the performance criteria for his outstanding STI and LTI awards appears to provide a different perspective.

In the Sainsbury’s financial statements for the year ended March 9, 2019, it was revealed that the company had spent GBP 46 million (USD 60.6 million) preparing for the deal. Moreover, on May 1, 2019, Sainsbury announced a drop in pre-tax profit of 41.6% to GBP 239 million (USD 314.8 million), as it counted the cost of restructuring and the failed merger with Asda. Mr. Coup stated recently that he had the full backing of the board for the proposed merger, and current Chairman of the Board, Martin Scicluna, is on record to have said that the attempted merger was “absolutely the right decision”.

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The Top 50 Highest Paid CEOs

As proxy season progresses and companies file their annual reports, CGLytics surveys the world’s highest paid CEOs (so far) and looks at how executive compensation has grown since the last year.

CEO pay and compensation continues to be one of the most hotly debated topics in the 2019 Proxy Season with companies and individuals regularly under scrutiny by investors and the media.

Utilising our deep, global data set, sourced from the filings and published returns of over 5,500 publicly listed companies, CGLytics examines the top 50 highest paid CEOs across the globe to have had their 2018 Total Granted Compensation (TGC)[1] and Total Realized Pay (TRP) published in 2019.

Key findings:

  • Total Granted Compensation for the top 50 CEOs was over $1.82bn, more than the GDP of 21 National Economies.
  • Average Total Granted Compensation for 2018 was $37,030,673.71, an increase of 62% from 2017.
    Average Total Realised Pay was $37,909,498.5, an increase of 4.4% from 2017.
  • The top 5 CEOs accounted for over 27% of the total Total Granted Compensation for 2017.
  • Total Shareholder Return decreased by an average of 6% across the group, indicating that this season, Pay for Performance is going to be a contentious topic as shareholders continue to challenge misaligned compensation packages.

 

This research is updated on a bi-weekly basis, with the latest information taken from May 3, 2019. It will be updated to reflect the top 50 CEOs as companies publish their annual results through to the end of the 2019 Proxy Season.

Trending Top 50 CEOs

 

Ranking

CEO

Company

Change in rank (since 18 April)

Total Granted Compensation

Total Realised Pay

TSR in %

TSR 1YR growth in %point

1

Zaslav, David

Discovery
Communications, Inc.

 

 $129,499,005 (5207%)

 $33,498,259 (662%)

11%

29%

2

Hurd, Mark

Oracle Corporation

 

 $108,295,023 (5165%)

 $26,690,273 (583%)

63%

628%

3

Catz, Safra

Oracle Corporation

 

 $108,282,333 (5166%)

 $162,740,735 (520%)

63%

628%

4

Hodler, Bernhard

Julius Baer Group Ltd.

 

 $78,813,367 (54544%)

 $2,979,804
(576%)

640%

675%

5

Levine, Jay

OneMain Holdings, Inc.

new

 $71,532,583 (516913%)

 $71,532,583 (516913%)

67%

624%

6

Schwarzman, Stephen

The Blackstone Group L.P.

-1

 $69,147,028 (645%)

 $69,147,028 (645%)

0%

27%

7

Iger, Robert

The Walt Disney
Company

-1

 $65,645,214 (581%)

 $66,065,073 (68%)

4%

61%

8

Charlès, Bernard

Dassault Systèmes SE

new

 $51,098,970
(564%)

 $65,983,199 (564%)

18%

66%

9

Heppelmann, James

PTC Inc.

-2

 $49,969,163 (5403%)

 $17,041,464 (5107%)

36%

5%

10

Freda, Fabrizio

The Estée Lauder Companies Inc.

-2

 $48,753,819 (0%)

 $9,387,109
(683%)

3%

665%

11

Handler, Richard

Jefferies Financial
Group Inc.

-2

 $44,674,213 (5105%)

 $5,951,709 (5339%)

633%

649%

12

Kilroy, John

Kilroy Realty Corporation

new

 $43,624,774 (5282%)

 $18,204,958 (622%)

614%

618%

13

MacMillan, Stephen

Hologic, Inc.

-3

 $42,040,142 (5275%)

 $12,231,622 (656%)

64%

610%

14

Hogan, Joseph

Align Technology, Inc.

new

 $41,758,338 (5256%)

 $69,763,660 (5504%)

66%

6137%

15

Schulman, Daniel

PayPal Holdings,
Inc.

new

 $37,764,588 (596%)

 $41,295,115 (5328%)

14%

672%

16

Lawrie, John

DXC Technology Company

-5

 $32,185,309 (572%)

 $7,105,877
(676%)

635%

17

Dimon, James

JPMorgan Chase &
Co.

new

 $30,033,745 (56%)

 $18,136,934 (687%)

67%

633%

18

Stephenson, Randall

AT&T Inc.

-6

 $29,118,118 (51%)

 $21,606,548
(614%)

622%

618%

19

Narayen, Shantanu

Adobe Systems
Incorporated

-6

 $28,397,528 (529%)

 $67,297,455 (555%)

29%

641%

20

Moghadam, Hamid

Prologis, Inc.

-6

 $28,201,397 (546%)

 $35,887,540 (56%)

66%

632%

21

Greenberg, Robert

Skechers U.S.A.,
Inc.

new

 $27,361,406 (5252%)

 $11,157,656 (515%)

640%

693%

22

Garrabrants, Gregory

BofI Holding, Inc.

-7

 $26,975,924 (5299%)

 $12,708,360 (568%)

616%

621%

23

Strangfeld, John

Prudential
Financial, Inc.

-7

 $26,696,966 (62%)

 $15,525,376 (649%)

626%

640%

24

Milligan, John

Gilead Sciences Inc.

-7

 $25,961,831 (568%)

 $21,781,701 (54%)

610%

613%

25

Nadella, Satya

Microsoft
Corporation

-7

 $25,843,263 (529%)

 $34,874,210 (517%)

21%

620%

26

Nooyi, Indra

Pepsico, Inc.

-7

 $24,491,117 (621%)

 $26,276,686 (668%)

65%

623%

27

White, Miles

Abbott Laboratories

-7

 $24,254,238 (528%)

 $31,646,904 (51%)

29%

623%

28

Chenault, Kenneth

American Express Company

-7

 $24,208,661 (530%)

 $54,431,474
(642%)

63%

639%

29

Bush, Wesley

Northrop Grumman
Corporation

-7

 $24,185,259 (528%)

 $34,319,926 (51%)

619%

653%

30

Corbat, Michael

Citigroup Inc.

-7

 $24,183,714 (536%)

 $20,164,941 (534%)

628%

656%

31

Wren, John

Omnicom Group Inc.

new

 $23,945,128 (0%)

 $23,633,099 (59%)

4%

16%

32

Lance, Ryan

ConocoPhillips

-8

 $23,406,270 (57%)

 $21,852,860 (528%)

16%

4%

33

Muilenburg, Dennis

The Boeing Company

-8

 $23,392,187 (527%)

 $31,334,957 (519%)

12%

683%

34

Blankfein, Lloyd

The Goldman Sachs Group, Inc.

-8

 $23,390,658 (56%)

 $6,617,836
(677%)

634%

641%

35

Moynihan, Brian

Bank of America
Corporation

-8

 $22,754,510 (54%)

 $25,330,434 (525%)

615%

651%

36

Hewson, Marillyn

Lockheed Martin Corporation

-8

 $22,717,004 (61%)

 $34,148,718 (53%)

616%

648%

37

Miller, Alan

Universal Health
Services, Inc.

new

 $22,588,883 (54%)

 $6,324,536 (683%)

3%

64%

38

Osuna Gómez, Juan

Obrascón Huarte Lain, S.A.

new

 $22,331,445 (5755%)

 $22,331,445
(5755%)

686%

6137%

39

Tyagarajan, NV

Genpact Limited

new

 $22,299,191 (5608%)

 $1,738,855 (664%)

614%

646%

40

Nanterme, Pierre

Accenture plc

-11

 $22,299,174 (513%)

 $29,414,791 (531%)

66%

640%

41

Messina, Carlo

Intesa Sanpaolo
S.p.A.

-11

 $22,182,562 (5193%)

 $5,842,684 (523%)

625%

647%

42

Holmes, Stephen

Wyndham Worldwide Corporation

new

 $21,479,166 (542%)

 $50,161,004 (553%)

629%

684%

43

Johnson, R.

HCA Healthcare, Inc.

-12

 $21,419,906 (524%)

 $109,050,692 (51407%)

43%

25%

44

Novakovic, Phebe

General Dynamics Corporation

-12

 $20,720,254 (64%)

 $41,885,999 (513%)

621%

641%

45

Brown, Gregory

Motorola Solutions,
Inc.

-12

 $20,348,558 (533%)

 $69,555,180 (5137%)

30%

18%

46

Gorsky, Alex

Johnson & Johnson

-12

 $20,097,572 (633%)

 $46,428,340 (555%)

65%

630%

47

Read, Ian

Pfizer Inc.

-12

 $19,549,213 (630%)

 $47,042,550 (567%)

25%

9%

48

Casper, Marc

Thermo Fisher Scientific Inc.

new

 $18,607,103 (616%)

 $85,476,755 (5161%)

18%

617%

49

Allen, Samuel

Deere & Company

-13

 $18,525,667 (515%)

 $44,767,370 (5155%)

63%

658%

50

Hammergren, John

McKesson Corporation

-13

 $18,143,017 (610%)

 $63,161,402 (635%)

628%

640%

[1] Compensation in USD – exchange rates based on single point of time, end of tax year 2018.

[2] Excludes executives appointed since 2017 season.

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Votes against executive remuneration are growing. In this article we look at this change in the European indices and the S&P500.

Deutsche Bank: How CGLytics Tools Inform Glass Lewis’ Pay and Governance Analysis

Glass Lewis’ assessment of executive remuneration reflects a balance of quantitative and qualitative considerations, with CGLytics’ suite of tools underpinning the quantitative component. In the following discussion, we review the quantitative assessment with respect to Deutsche Bank, using CGLytics’ analytical tools.

Shutterfly: A Glass Lewis Use Case

Glass Lewis takes a look at the recent proposed amendment to the Shutterfly equity compensation program and the response from shareholders.