Lose $8 billion, pocket $160 million?

By The Wall Street Journal

The departure of Stan O'Neal, the chief executive of Merrill Lynch, is now official -- but not the terms of his exit.

Despite expectations that O'Neal would step down from the Wall Street firm Monday morning, the 56-year-old Merrill chief stayed in command until today as lawyers for the board and O'Neal tried to work out terms of an exit package that could exceed $160 million.

The $160 million estimate includes accumulated equity, retirement benefits and deferred compensation, according to an analysis done for The Wall Street Journal. O'Neal began negotiating the terms of his forced departure over the weekend in the wake of an $8.4 billion write-down announced last week.

• Video: Walk-away pay

O'Neal, also the company's chairman, could cash in exercisable stock options valued at $36.8 million based on Monday's 4 p.m. price of $67.42 for Merrill shares. The $160 million estimate also reflects the eventual vesting of 1.27 million restricted shares currently worth about $86 million plus $9.6 million from long-term performance awards.

Merrill Lynch staffers may retain unvested stock grants "upon retirement" if their combined age and length of service equals at least 60 and they don't join a rival during the vesting period, its latest proxy statement says. In addition, the projected package includes retirement benefits that the proxy says were worth $24.8 million and $4.8 million in deferred compensation, both as of late last year.

O'Neal did not have an employment contract and wasn't entitled to cash severance unless he lost his job following a takeover of Merrill Lynch. But the board's compensation committee has the "discretion" to give him severance benefits, the proxy says. In the event of a takeover-related job loss, O'Neal would have been eligible for severance benefits of $29.5 million, as of late last year.

A 21-year career at Merrill

Informed individuals said O'Neal has retained Joseph Bachelder, a New York attorney who specializes in representing top executives on employment matters. Bachelder is known for hard-nosed advocacy on behalf of his clients. He bolsters his assertions with detailed analyses, based on extensive number-crunching by a team of aides.

Bachelder, through an aide, declined to comment. A Merrill Lynch spokeswoman declined to comment on negotiations with O'Neal or the projected size of his possible exit package. The spokeswoman pointed out that the package would reflect O'Neal's accumulated stake at Merrill, based on a 21-year career, including five years as CEO.

"I'd be surprised if they go beyond" what the CEO already is entitled to, said Russell Miller, managing director of Executive Compensation Advisors, a unit of executive recruiters Korn/Ferry International.

As of the end of 2006, O'Neal had earned $47.1 million in profits by exercising options since 1999, according to regulatory filings and Standard & Poor's ExecuComp. Earlier this year, he made at least $10 million more by exercising close to 200,000 more options when the stock was close to its yearly high point, regulatory filings show.

The most-valuable option grant held by O'Neal, of 753,770 options, was dated Sept. 24, 2001, when markets were reeling after Sept. 11. O'Neal, then Merrill's president, won plaudits for working nonstop to shore up the firm's operations. Three Merrill employees died in the attacks, and thousands more were dispersed after the company's headquarters were damaged.

The September 2001 option award gave O'Neal the right to buy Merrill's shares for $39.80 apiece, about 15% below the closing price of the stock just before the attacks. The award has proved profitable for O'Neal. The September 2001 award -- all of which is exercisable -- could be cashed in for a gain of about $20.8 million, based on Monday's closing share price.

This article was reported and written by Joann S. Lublin and Mark Maremont for The Wall Street Journal. Reporters Randall Smith and George Anders contributed.