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How much will Ladenburg executives make from the Advisor Group deal?

One of the year's largest wealth management M&A deals will yield tens of millions of dollars in cash for Ladenburg Thalmann’s largest shareholders. But it's not clear whether any of the proceeds will trickle down to advisors in the form of retention bonuses.

Ladenburg's Miami-based parent firm agreed last week to sell to private equity-backed rival Advisor Group for $1.3 billion. The publicly traded independent broker-dealer network spanning five firms and 4,400 advisors disclosed details about the deal in an SEC filing days later.

Based on the shares listed in a separate filing by its 10% owner — a holding company called Vector Group — Ladenburg CEO Dick Lampen stands to collect some $20 million. Vice Chairman Howard Lorber and former Chairman Phillip Frost would net even more. However, stock options and preferred shares could mean still higher payouts for insiders.

For advisors wondering if they'll receive retention bonuses after the five IBDs change hands, the sellers say they haven’t made any final decisions. However, the plan of merger restricts any investments or recruiting loans for advisors or prospective ones to no more than $500,000 each or $5 million on an aggregate basis for practice equity swaps and $2.5 million for bonus loans.

The respective cumulative limits would double if the deal doesn’t close by the end of the first quarter. Executives, board members and other major shareholders would collect $3.50 per share for common stock and the excess between the purchase price and their options at close.

In addition to the acceleration of the stock options, preferred stockholders would get the opportunity to convert some or all of their holdings into cash. Debt securities issued by Ladenburg would transfer to the combined company upon completion of the deal.

Substantial shares in Vector could also pose an impact on the amount of compensation. Frost is the largest shareholder of the Douglas Elliman Realty parent and tobacco company owner, while Lorber and Lampen have executive positions there, according to Vector’s annual proxy.

Advisor Group CEO Jamie Price — who is slated to lead the merged company of nine IBDs with 11,500 advisors — had cited the fact that there won’t be any repapering of client assets to new custodians under the deal when he said the firm didn’t have plans to offer retention bonuses.

But Ladenburg COO Adam Malamed followed up with an emailed statement noting that the transaction process is still “in the early stages.” He and other executives focused their public statements about the deal on the IBD subsidiary structure the networks have in common.

The two firms “have highly complementary capabilities that will enable us to strengthen technology, practice management and service for financial advisors across our combined platform,” Malamed said. He added that advisors will recognize the strength of the merged resources as they “continue to learn about this transaction.”

Ladenburg IBDs 2018 revenue

Ladenburg intends to play a big role in that educational process. The seller must “assist the parent in its efforts to retain the company’s financial advisors following the closing,” according to the plan of merger.

The mandatory retention push includes in-person meetings with “key” advisors and “reasonably prompt notice” to Advisor Group should Ladenburg become aware of any departures by senior executives or representatives with more than $300,000 in annual gross dealer concessions.

Shareholders stand to make significant amounts any time a company sells — and the board members who voted unanimously in favor of the deal face a binding fiduciary obligation to consider any offers. Plaintiff law firms have also issued press releases about so-called investigations into whether the deal undervalued Ladenburg.

A higher price would have meant even bigger payouts. The tab of $3.50 per share already constitutes a 25% premium over the stock’s closing price from its prior trading day and a multiple of 2.1x on Ladenburg’s stated book value at the end of the third quarter, according to a note by analyst Alexander Paris of Barrington Research.

The multiple represents “a premium to the 0.9x price/book average among small cap broker-dealers,” according to Paris. He noted that the stock is trading “within pennies of the agreed-upon purchase price” in reducing its rating to “market perform” after the sale agreement.

Executives stand to make a lot from the deal. CFO Bret Kaufman and Joseph Giovanniello, Ladenburg’s senior vice president for corporate and regulatory affairs, could also make an additional $550,000 in severance pay if they lose their positions after the merger.

In agreeing to buy back most of the stake held by Frost for $130 million when he settled an unrelated SEC case last December, Ladenburg restricted the billionaire investor’s holdings to no more than a 5% stake. The figures on insider stock come from the latest available public filings, while other numbers on executive compensation come from Ladenburg’s 2019 annual proxy.

For a full recap on the announcement of the deal, check out “Advisor Group’s new IBD giant is leveraged on network appeal.” To see which executives and other major shareholders would make the most under the deal, scroll through the slideshow.

Brett Kaufman
Title: CFO

2018 compensation: $1,008,363

Shares:268,466

Cash upon close: $939,631.29

Kaufman has been Ladenburg’s CFO since April 2008, following his tenure as director of financial planning and analysis on the controller’s group at Bear Stearns.
Joseph Giovanniello
Title: Senior vice president for corporate and regulatory affairs

2018 compensation: $1,080,384

Shares: 420,153

Cash upon close: $1,470,535.50

One of the longest tenured Ladenburg executives, Giovanniello joined the firm in 1996 and became its general counsel two years later.
Richard Krasno
Title: Lead independent director

2018 compensation: $330,400

Shares: 448,917

Cash upon close: $1,571,209.50

Dr. Krasno served as chairman of the University of North Carolina Health Care System from 2009 to 2012. Since 2015, he has also sat on the board of alcoholic beverage firm Castle Brands, another company in which Frost owns a substantial stake.
Henry Beinstein
Title: Director

2018 compensation: $190,400

Shares: 523,675

Cash upon close: $1,832,862.50

Beinstein has been a director of Vector Group since 1994 and a director of Castle Brands since 2009. He’s also a partner of the BD firm Gagnon Securities.
Adam Malamed
Title: COO

2018 compensation: $2,875,228

Shares: 1,612,290

Cash upon close: $5,643,015

Malamed joined the firm after selling the assets of BroadWall Capital, the independent energy equity research company he co-founded, to Ladenburg in 2006.
Jacqueline Simkin
Title: Director

2018 compensation: $190,400

Shares: 2,062,740

Cash upon close: $7,219,590

Simkin is the owner of investment manager Simkin Investments and has served on five company’s boards since her earlier career as a real estate developer.
Mark Zeitchick
Title: Director

2018 compensation: $3,783,551

Shares: 4,320,790

Cash upon close: $15,122,765

Zeitchick is a director of Castle Brands and the former CEO of Ladenburg Thalmann’s investment bank from September 2006 to December 2011.
Dick Lampen
Title: CEO

2018 compensation: $3,115,271

Shares: 5,658,249

Cash upon close: $19,803,871

In addition to being an executive vice president of Vector Group and a director of Castle Brands and Douglas Elliman, Lampen has served as chairman of the board of FSI. The former Salomon Brothers investment banker became Ladenburg’s chairman last September — when Frost retired from the firm’s board — but he has been CEO of Ladenburg since 2006.
Howard Lorber
Title: Vice chairman

2018 compensation: $1,685,400

Shares: 6,147,479

Cash upon close: $21,516,176

Lorber has been vice chairman since 2006, the same year he became CEO of Vector Group following his tenure as president of Vector's current real estate subsidiary New Valley.
Phillip Frost
Title: Former principal shareholder and chairman

Shares: 7,024,630

Cash upon close: $24,586,205

The billionaire pharmaceutical and biomedical entrepreneur assembled Ladenburg’s IBD network by helping to finance the acquisition of its five firms since 2007. Last December, Frost agreed to pay $5.5 million to settle SEC charges that he participated in a pump-and-dump scheme. Ladenburg purchased most of his one-third stake for $130 million, paid for with $50.9 million in cash on hand and more than $75 million worth of senior debt notes.
Glenn Halpryn
Title: Investor

Shares: 9,309,128

Cash upon close: $32,581,948

A longtime real estate investor and developer, Halpryn appears in Ladenburg’s latest annual proxy as the listed owner of more than 6% of the company’s stock.
Vector Group
Title: Investor

Shares: 15,191,205

Cash upon close: $53,169,217

Vector and each of its directors with substantial Ladenburg shares entered into voting agreements “as a condition and material inducement” to support the merger, according to an SEC Schedule 13D filing. The holding company also has 240,000 shares of preferred stock in Ladenburg.