'Strategy' Not Reason for Scotts Miracle-Gro Departures

The departures of two high-level execs had nothing to do with the company's strategy.
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Scotts Miracle-Gro

(SMG) - Get Report

senior executives seem to be more the annual variety than the perennial.

David Aronowitz, the company's general counsel, and Chris Nagel, EVP of North America, both resigned from the company last week. This comes just 10 months after Robert Bernstock resigned as COO.

"It has nothing to do with strategy. It has nothing do with the financial integrity of the company," says Jim King, investor relations at Scotts.

Scotts made it clear that Bernstock's separation was due to his lack of agreement on future strategy for the lawn and garden company. However, in the case of Nagel and Aronowitz, King professed no knowledge of why both gentlemen left within a day of each other.

Bernstock's position of COO was eliminated when he left in September of 2006 and Nagel, a nine-year employee, was elevated from CFO to the position of North American Consumer Business. At the time, CEO Jim Hagedorn said of Nagel, "...he has proven to be both collaborative and decisive -- a management style that is a strong fit with the needs of our North American business."

Both Aronowitz and Nagel exercised their stock options in May and June. The gentlemen acquired stock at mostly $16 a share and then disposed of it at roughly $46 a share. Nagel collected more than $400,000 in proceeds.

The two trades in June were on the only two days in that month in which the stock hit $46. There were more opportunities in May to sell at $46, which turned out to be the best month for stock performance since March. The stock has not been at $46 since June 5.

The stock traded down following the news of the departures, but was up 84 cents, or 1.9%, at $44.18 on Monday.

The remaining unvested options were cashed out at termination. Aronowitz, also a nine-year employee, received $850,000 and Nagel walked away with $1.4 million. Bernstock was paid more than $2 million according to his separation agreement.

Stewart Scharf of S&P wrote, "We have corporate governance concerns, as some inside directors are on the audit committee, while outside auditors are reviewing how SMG accounts for the reimbursement of certain costs." Most analysts covering the stock rate it a hold, according to Thomson Financial.

The news follows Scott's announcement that it will report lower-than-expected earnings on July 31. Citing poor weather, the Marysville, Ohio, company said its third quarter will be flat over last year's quarter.

Jim Hagedorn will oversee day-to-day operations, while Dave Evans remains as CFO. Evans inherited that role when Nagel moved up. King said an active search had begun for Nagel's replacement, but not for Aronowitz.