Steris Settles Lawsuit over Tax Reimbursements to Executives

The reimbursements involve Steris' upcoming $2 billion acquisition of medical device sterilization rival Synergy.

Chris Newmarker

Steris has settled a shareholder lawsuit filed over special payments its board approved for top officers and directors--payments meant to reimburse them for U.S. excise they will owe after the Ohio-based company moves its headquarters to the United Kingdom amid a merger with medical device sterilization rival Synergy.

The settlement in the Court of Common Pleas in Cuyahoga County, Ohio, includes Steris agreeing to publicly disclose more information about the $11.4 million in tax reimbursement payments going to current and former corporate officers and non-employee directors, according to a Monday filing with the SEC. Synergy also agreed not to grant any additional stock compensation until six months after Steris closes on its nearly $2 billion acquisition of Synergy. Steris also says it will negotiate to pay fees and expenses for the plaintiff's attorney.

The special U.S. excise tax for corporate officers comes on top of of capital gains taxes that shareholders in general often have to pay in such inversion deals, in which a U.S. company moves its headquarters abroad by acquiring an overseas company. The excise tax is meant to dissuade executives from making such deals, so boards have gotten in the habit of reimbursing executives for the tax payments.

Excise tax reimbursements, in fact, are the reason why Medtronic's $48 billion acquisition of Covidien has made its CEO Omar Ishrak the most well-compensated top executive in the medical device industry. Ishrak's total compensation was $39.5 million for the company's fiscal year ended April 24. Medtronic, too, faced a shareholder lawsuit over its compensation plan, but a U.S. District Judge in Minnesota declined to issue an injunction in December, according to the Star Tribune of Minneapolis.

Steris and Synergy shareholder are scheduled to vote Friday to approve the inversion deal. The vote comes days after a federal judge in Cleveland denied the Federal Trade Commission's request for a preliminary injunction to halt the merger.

Besides dealing the FTC a rare setback in the courts, Judge Dan Polster's opinion also casts doubt on whether x-ray sterilization is truly ready for prime time in the U.S. medical device market.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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