Warner Chief May Cash Out for $50 Million

The financial press is fond of saying “no money will change hands” when companies propose a merger by exchanging shares.

But in the case of Time Inc. and Warner Communications, a check for the eye-popping sum of $50 million will be issued to Warner Chairman and Chief Executive Steven J. Ross if Warner’s stock continues to trade at current levels and the merger is completed.

According to documents made public Tuesday at the Securities and Exchange Commission, the 61-year-old Warner chairman must cash out on the portion of bonus plans that have fully vested at the time of the merger. If Warner records a 10-day average trading price of $50, Ross will receive $50.4 million.

Time executives, on the other hand, won’t be cashing out because their company will be the surviving entity.

Some differences in corporate culture between the two giants will be preserved: Time’s top two executives continue to receive minimum guaranteed bonuses of 125% of their base salaries, while Ross’ bonus is pegged to the company’s earnings.

In addition to his $800,000 base salary, Ross will receive 0.4% of the merged company’s pretax earnings, as opposed to his current formula of 1% of after-tax profits. Based on the 1988 results of the two companies, Ross would earn a bonus of $4.3 million, compared to $7.1 million under the old formula.

With their annual base salaries and guaranteed bonuses, Time Chairman and Chief Executive J. Richard Munro will receive at least $1.46 million while Time President Nicholas J. Nicholas Jr. earns $1.29 million.

Once the companies merge, Ross will also receive options on 1.8 million shares of Time Warner stock.

In composite trading on the New York Stock Exchange, Warner shares closed Tuesday at $49.25, off 25 cents.