What's Next for MDC and Its Departing Founder as Investigation Continues

Nadal Could Have Qualified For a Golden Parachute

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Miles Nadal, the founder of MDC Partners and its biggest individual shareholder, suddenly found himself on the outside this week, but his extrication from the company is hardly complete. And the company, whose portfolio includes hot creative agencies such as Anomaly and 72andSunny, still has some T's to cross itself. But both may find themselves catapulted into distinctly different chapters soon enough.

The company's employment agreement with Mr. Nadal's publicly announced successor, Scott Kauffman, is actually still pending. "The Company does not yet have an employment agreement with Mr. Kauffman, but plans to enter into an employment agreement promptly," MDC said in a SEC filling on Monday.

The details for Mr. Nadal are a little different. His July 20 separation agreement changes elements of his terms with MDC. Under the agreement, MDC and Mr. Nadal are treating Mr. Nadal's departure as "a voluntary resignation" and "a voluntary separation from service without Good Reason." Mr. Nadal didn't get any severance pay, and he'll be returning more money to the company.

Mr. Nadal has agreed to repay $1.9 million by the end of November, and $10.6 million to MDC with payments to be made in five installments, the final one due Dec. 31, 2017. That's in addition to existing money he had already agreed to repay to MDC amid an SEC investigation, beginning in October, into MDC's accounting practices, trading information and Mr. Nadal's expenses.

If there is a "change in control" at MDC -- meaning if MDC is sold -- Mr. Nadal will be required to pay the $10.6 million within 10 days of a deal's completion.

That's a turnabout from Mr. Nadal's previous employment agreements: If MDC had been sold, and Mr. Nadal did not end up with the position of CEO at the new parent company, Mr. Nadal would have qualified for a golden parachute of about $27.2 million as a cash severance payment.

Mr. Nadal last year significantly reduced his MDC holdings. In May 2014, he sold 3.5 million MDC shares at $23.14 a share, or $81 million, reducing his MDC stake from 18.1%. MDC shares July 21 closed at $17.83, up 22 cents, after hitting a 52-week low of $17.16 during the day in heavy trading.

Mr. Nadal's remaining 11.3% is worth about $100 million, but it's unclear how much control he has over many of his shares: MDC's April proxy statement said nearly 5.1 million of his nearly 5.7 million shares "have been pledged as collateral for margin accounts maintained at Comerica Securities Inc., RBC Dominion Securities Inc., Morgan Stanley and CIBC Wood Gundy, a division of CIBC World Markets Inc."

Investors and analysts, meanwhile, remain optimistic about the potential sale of the company -- perhaps moreso than before.

Mr. Nadal's exit doesn't hurt the company like it might have once, said Brian Wieser, senior analyst at Pivotal Research. "It's now a sufficiently mature organization," he said. "That wasn't the case even five years ago. It would have been different if the company was still dependent upon him to run it."

The continuing investigation isn't good news, but MDC may emerge the better, he suggested. "I don't know what they're going to find, but I think this was an important step for them. It's clear there's always been a disconnect between Nadal's compensation and size of the company."

A sale to another holding company makes sense strategically and financially, SEC investigation or no, said Rich Tullo, director of research at Albert Fried & Co. The company is actually more affordable without Mr. Nadal's salary and payout, he said.

And besides, he said, "my personal belief is creative is where you want to be in this transition cycle" -- MDC's strength, even with Mr. Nadal gone.

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