Equity Plans at Merlin Entertainments Swings, Roundabouts and Fish a Wizard Combination Stephen Diosi, Ashurst (UK) Fiona Rose, Merlin Entertainments (UK)

Who are we? Fiona Rose Deputy Group Company Secretary Merlin Entertainments plc T: +44 (0)1202 440002 E: [email protected]

Stephen Diosi Counsel, employee benefits and incentives Ashurst LLP T: +44 (0)20 7859 1249 E: [email protected]

What we are going to cover •

A case study of how Merlin has made use of equity for its employees both before and after its IPO in 2013 • A bit about Merlin • The IPO – some details • Culture of equity participation • Pre-IPO employee incentives • Shifting to a listed environment – the impact on existing arrangements and the demand for new ones • A closer look at the global all employee Sharesave plan But first, a short video.

1979 First SEA LIFE opens in OBAN Scotland

Merlin’s history 1999 Merlin Entertainments is formed

2000-2006 SEA LIFE expands in Continental Europe

2005 Merlin acquires the LEGOLAND Parks

1979 It  started  with a  fish

Where  next ?

2006 Merlin acquires Gardaland

2007 Merlin acquires The Tussauds Group

2011 Merlin acquires Sydney Attractions Group

2012 Merlin acquires Living and Leisure Australia

2013 Merlin floats on the London Stock Exchange

2014 Opened our 100th Attraction

Culture of equity participation

Unique Culture, Unique Company •

The Merlin Way – – – – – – –

We love what we do We care We are innovative and fast moving We do what we say We make every £, $, € ... count We take ownership …and we make it fun!

•

Equity participation – long desired objective

•

CEO award programme introduced in 2010

Employee Engagement Striving to be the best company to work for in our industry

Share Schemes – Pre IPO 1999

Introduction of first management equity scheme. 58 senior managers participated in a Share Option Scheme

2005

The secondary buy-out provided a ‘partial exit’ and rollover of the Share Option Scheme into a new share plan for existing participants The senior management that joined Merlin as part of the LEGOLAND acquisition joined the new share plan which increased the number of participants to 130

2007

The acquisition of the Tussauds Group saw a ‘partial exit’ for the 130 existing employees, with a further 150 employees joining the scheme.

2010

CVC acquired Dubai International Capital’s share in Merlin. The 280 employees received a ‘partial exit’ and rollover into a new share plan. New employees/promotions since the initial grant received phantom shares. Introduction of the CEO award scheme.

2013

IPO. A complete exit from the old share scheme, phantom shares and CEO awards

Employee Equity Participation The CEO Award Plan was aimed at extending equity participation to as many employees as possible as recognition for long service and/or outstanding contribution. Numbers of Awards Year

Long Service

Outstanding Contribution

Total

2010

272

566

838

2011

206

480

686

2012

497

242

739

Total

975

1,288

2,263

In 2012 the Merlin CEO Award Plan was awarded ‘Most Effective Motivation or Incentive Strategy’ by Employee Benefits Magazine

CEO Award Scheme “It is like it has always been there. Everyone is fully engaged with the scheme. We have 90 attractions and 30 different languages. From a global perspective, for everyone to embrace it multiculturally is really satisfying.”

The IPO

The IPO • • • • • • •

Admission to trading on the Official List of the London Stock Exchange Global offer – sale by existing shareholders Merlin Share Plan Nominee was one of the Selling Shareholders Aim was to raise approximately £200 million Admission on 13 November 2013 Float price of 315p Currently FTSE250 with a market capitalisation of approximately £3.9 billion

Shifting to a listed environment Impact on existing arrangements • • • • •

•

A complete exit from the old share scheme, phantom shares and CEO awards Conversion of shares into new listed shares and partial sale. Lock-up arrangements on the balance Additional awards Interaction with the Merlin employee benefit trust (letters of wishes and directions) Specific personalised communications detailing the exit mechanism and the financial impact sent to each employee within 3 hours of the IPO share price announcement Account had to be taken of local law requirements, e.g. US

Post IPO - New plans •

Performance Share Plan – top 2 levels of senior management. Two performance conditions measured over a 3 year period

•

Deferred Bonus Plan – aligned to the PSP

•

Company Share Option Plan – 3rd layer of senior management. No performance conditions

•

All Employee Sharesave

2014 All Employee Sharesave •

•

Key objectives included: – ensure Merlin employees from around the world have the opportunity to participate in the success of the Group and have a slice of the equity – consistency of global operation Launched in 23 jurisdictions:

EU North America

11 States

Australasia

2014 All Employee Sharesave Basic operation: Savings Contract

Share Option

3 years

Buy Shares

Features: • Option over a specified number of shares • Fixed monthly savings: £5-£250 (or local equivalent) for 3 years • Purchase price at 20% discount • Must remain an employee, but good leaver reasons • At end of savings period, three choices: o Buy shares and hold o Buy shares and sell o Take savings back

3 years

2014 All Employee Sharesave Legal and tax challenges Solution

Challenge •

Regulatory

• • •

•

Monthly savings

•

Global feasibility and coordination of advice Phantom options in Australia, New Zealand and China US state filings Savings contract o Legal contract with a bank in UK o “own choice” arrangement for other jurisdictions o enforcement issues

2014 All Employee Sharesave (cont’d) Solution

Challenge •

Tax treatment

•

More bespoke arrangements where necessary, in particular UK, Belgium and US

•

Overall operational global consistency

•

Tailored where necessary, in particular in the US to comply with S.423 US Tax Code

•

Data protection

•

Consent letters/appropriate notifications

2014 All Employee Sharesave Administration Challenges Challenge

Solution

•

First experience

•

Engaged with share plan administrators

•

Timing

•

Gave ourselves time (or so we thought!)

•

Data Collection

•

Employed an excel wizard on a fixed term contract

– – – –

23 countries No single employee database Testing and Validation Late entries

– – –

Cross referenced data several ways Local HR reviewed data files Individual packs sent out after main mailing

All Employee Sharesave Communications • • • • • • • •

Posters Table talkers Webinars for HR teams Printed and Electronic Brochures Welcome Video from CEO Personalised invitation letter from CEO Workshops Updates on employee intranet

All Employee Sharesave - Feedback Tea Colaianni – HR Director “It’s great to see so may of our employees taking up the opportunity to become Merlin Shareholders and own a piece of the magic!” Julie Gallagher – London Cluster “We have had a fantastic response to the scheme here in London from all attractions. I can safely say I’ve had more enquiries about this than any other initiative/benefit that we have implemented which is just great!”

All Employee Sharesave - Feedback Bente Noringriis – LEGOLAND Billund, Denmark

“Many of our employees ask how many in LEGOLAND Billund chose to participate in Sharesave. We ended up with a 74% take-up which I would consider a Merlin success story and thus positive to tell. Our colleagues love the interactive booklet. You’ve done a great job with this roll out.”

All Employee Sharesave - Feedback Angela Wang – Shanghai cluster “Can you please send me the introduction webinar for HR? It is so professional to me, I need to study. Thank you!” Claire Jenkins – feedback received on moving her from UK to Australia plan after the launch “IT WORKED!!!!!!!! - THANK YOU!!!!!!!!!!!”

All Employee Sharesave Employee take-up Numbers of employees Year

Eligible

Participated

%

UK (SAYE)

3,417

1,374

40.2

USA (423b)

2,536

523

20.6

ROW (ISAYE)

3,540

856

24.2

Total

9,493

2,753

29.0

Any questions?