CSC's Top Execs Eligible For $90.5M In Possible Payouts Thanks To HPE Enterprise Services Deal

CSC's top executives could earn as much as a combined $90.5 million in stock, option and severance payouts if the proposed merger with HPE's Enterprise Services division goes through.

The Tysons, Va.-based company, No. 8 on the CRN Solution Provider 500, detailed payouts for its five executive officers, how its deal with HPE Enterprise Services came together, and the composition and selection process for the combined company's board of directors in a registration statement filed late Wednesday with the U.S. Securities and Exchange Commission (SEC).

Mike Lawrie – CSC's chairman, president and CEO and the expected chairman, president and CEO of the post-merger company – could receive a payout of as much as $44 million, while Paul Saleh – CSC's CFO and executive vice president who will hold the same role with the post-merger company – could receive a payout of up to $14 million.

[New: CSC, HPE Enterprise Services Unveil Star-Studded Post-Merger Executive Lineup, Operating Structure]

If Lawrie and Saleh remain with the post-merger company as expected, they will receive payouts of $36.9 million and $11.6 million, respectively.

Other executives are also slated for large payouts. Stephen Hilton, EVP and GM of CSC's Global Infrastructure Services (GIS) division, could receive $12 million. James Smith, EVP and GM of CSC's Global Business Services (GBS) division, could receive $11.1 million. William Deckelman, CSC's EVP, general counsel and secretary, could receive $9.4 million. Their roles post-merger haven't been decided.

Hilton, Smith and Deckelman will receive $10.7 million, $9.4 million, and $7.8 million, respectively, if they become part of the post-merger company. If all five leaders join the post-merger entity, CSC will end up spending $76.2 million on stock and option payouts for these executives.

Upon closing of the merger with HPE Enterprise Services, No. 3 on the CRN SP 500, all outstanding shares of CSC common stock will be cancelled and converted into shares in the combined, post-merger company, according to the SEC filing. Some 50.1 percent of the post-merger company's stock will be issued to HPE stockholders, while the remaining 49.9 percent will be issued to CSC stockholders.

The name of the post-merger company hasn't yet been determined, according to a CSC spokesperson.

HPE and CSC's senior management teams began talking in early 2015 about a potential combination of the Enterprise Services business with CSC. But those discussions were abandoned in April 2015 before any draft documentation was prepared, according to the SEC filing, and CSC the following month announced plans to spin off its government services business into what would become CSRA.

Both HPE's split from Hewlett-Packard and CSRA's split from CSC closed in November 2015.

Renewed efforts kicked off in January 2016, the filing said, when HPE's board of directors had representatives from Goldman Sachs requested information from CSC regarding their shareholder base. In late February, HPE's board instructed Goldman Sachs to contact CSC's legal counsel to explore the legal constraints involved in structuring a transaction between the two entities.

On March 29, HPE's board directed Goldman Sachs to contact CSC's legal counsel and request a meeting between Lawrie, Saleh, HPE CEO Meg Whitman and HPE EVP and COO Chris Hsu, according to the filing. The four executives met on April 1 and discussed the potential advantages of a transaction involved CSC and HPE Enterprise Services, though particular terms weren't discussed.

In early April, the SEC indicated that CSC and HPE's top management received approval from their respective boards of directors to engage in substantive discussions to determine if a mutually-beneficial transaction could be negotiated. On April 23, Lawrie got CSC's board to sign off of a meeting between two of CSC's board members, Hsu, and two of HPE's board members to review the benefits of a merger.

Between late April and late May, the two companies conducted due diligence and negotiated the terms of a merger agreement and separation agreement, as well as the financing arrangements for CSC.

HPE's board of directors met five times between April 11 and May 17 to review the status of the negotiations and results of the due diligence. HPE's board approved the transaction materials on May 23.

CSC's board of directors met six times between April 23 and May 24 to review the negotiations and due diligence, provide input on contractual considerations, review communications and assess the impact of the transaction of CSC's stockholders, customers and employees. CSC's board approved the transaction documents on May 24, and the deal was announced that day.

Lawrie will chair the 10-person board of the combined, post-merger company, and Whitman will serve as one of its members. The remaining eight directors will be selected by a four-person committee consisting of Whitman, Lawrie, HPE Board of Directors Chairman Patricia Russo and CSC Board of Directors Member Peter Rutland.

Four of the remaining eight directors will be chosen from CSC's current nine-person board (Lawrie is one of the nine members), while the other four directors will have been designated by HPE.

The combined company recorded sales of $25.6 billion in the 12-month period ending April 1 (for CSC) or April 30 (for HPE Enterprise Services), according to the SEC filing. For the same time period, the combined entity recorded a net loss of $1.71 billion, or $6.10 per share.

As part of this transaction, HPE has agreed to not engage in activities that were conducted exclusively by its Enterprise Services business for two years after the deal closes, with the exception of relatively minor acquisitions. Similarly, CSC and HPE Enterprise Services agree not to engage in activities that were conducted exclusively by HPE for two years after the deal closes.

For the first year after closing, HPE has agreed not to solicit, hire, or offer to hire any existing CSC or HPE Enterprise Services. CSC and HPE Enterprise Services have also made a similar non-solicitation pledge as it relates to HPE, according to the SEC filing.

HPE will enter into an agreement where CSC and HPE Enterprise Services will provide certain IT outsourcing services to HPE, while CSC and HPE Enterprise Services will enter into an agreement where HPE will provide certain hardware, software and technology services to the post-merger company.

And HPE and HPE Enterprise Services will enter into a real estate agreement post-merger where the then-separate entities will either transfer to or share certain leased or owned property.