Working with Covington’s corporate lawyers, we regularly handle the employee benefits aspects of business transactions. We have extensive experience in transactional matters of all kinds, including acquisitions, divestitures, and business reorganizations (mergers, stock sales, asset sales, spin-offs, auctions, and IPOs); joint ventures; corporate finance (loans, credit facilities, private placements, and public debt offerings); and employee outsourcing and leasing arrangements.
We work with our clients at all stages of a transaction to ensure that we understand and carry out their business objectives. We combine our technical skills with practical business judgment to produce outstanding results.
Benefit Plans
We help our clients identify and address a wide range of employee benefits issues in business transactions. For example, we routinely:
- Analyze equity compensation plans to determine whether stock options and other equity awards should be cashed out, assumed, or replaced with awards issued by the buyer;
- Negotiate the terms on which defined benefit plan assets and liabilities will be transferred as part of a divestiture;
- Resolve participant voting issues, fiduciary issues, and tax issues that arise when a retirement savings plan holds the stock of a target company;
- Design affordable benefit programs and employee transfer arrangements for companies that combine to form a joint venture;
- Examine severance programs and post-retirement medical benefits to determine whether they include unanticipated liabilities; and
- Formulate the benefit-related events of default under corporate debt agreements to ensure that they will not be triggered inadvertently.
We provide thorough training, checklists, and form documents to ensure that our associates will conduct thorough and cost-effective due diligence reviews.
Transition Services
We have handled many transactions in which thousands of employees were transferred to a new employer on the closing date. The transfer of payroll services, insurance arrangements, pension assets, employment records, plan loans, deferral and investment elections, and dozens of other matters must be handled seamlessly if the transaction is to succeed. Our lawyers have extensive experience negotiating transition service arrangements that benefit all parties and ensure a smooth transition for the affected workers. Unlike firms whose practice is primarily transactional, we understand the day-to-day operation and administration of employee benefit plans. We know what works and what doesn’t, and we bring our practical knowledge to bear when we design workforce transition programs.
Severance, Retention, & Parachute Payments
Covington frequently advises companies on their obligations to executives and other employees under severance, retention, and parachute arrangements that might be triggered by a merger or divestiture. We evaluate potential tax liability for excess parachute payments, and we restructure compensation arrangements wherever possible to reduce or eliminate this liability. We help our clients design appropriate incentive and retention programs for key employees who will be needed in the business through the closing or after the transaction is completed.
PBGC Early Warning Program
Covington represents companies in “early warning” proceedings before the Pension Benefit Guaranty Corporation. Our lawyers have successfully resolved a number of early warning cases in which the PBGC sought substantial additional pension funding or guarantees as a condition of permitting major corporate transactions to proceed. We negotiated solutions that allowed our clients to complete their transactions on schedule without making any financial concessions to the PBGC. We draw on our experience in early warning cases to help our clients plan transactions in ways that will reduce the risk of PBGC intervention.
Representative Matters
- Norfolk Southern’s $5.9 billion acquisition of a majority interest in Conrail.
- The $2.3 billion stock sale of Beverly Enterprises to Pearl Senior Care.
- Kerr-McGee’s $245 million spin-off of its chemical division, Tronox, and modified “Dutch auction” repurchase of $4 billion of Kerr-McGee shares.
- Kerr-McGee’s $18 billion merger into Anadarko Petroleum Corporation.
- More than $10 billion in capital markets financing and bank financing for Calpine Corporation.
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