Twin Cities medical devicemaker St. Jude Medical recently told shareholders it was stripping away an executive perk called a tax “gross-up,” but company CEO Michael Rousseau may get one anyway as part of his potential $29 million golden parachute package.

In March, Little Canada-based St. Jude said in a securities filing that it had implemented an industry “best practice” by rescinding executive gross-ups, which happen when a company agrees to pay the special federal taxes on golden parachute pay after a big merger.

Since then, St. Jude has announced a big merger — a $25 billion proposed tie-up with Chicago’s Abbott Laboratories, which is expected to close by year’s end. As part of the deal, Rousseau, CEO since Jan. 1, may see nearly $5 million in payments to cover the tax on the part of his compensation package that would be accelerated if he left the company under certain circumstances after the deal, securities filings say.

St. Jude could be on the hook for $18 million worth of gross-up payments for its executives, including $3.3 million for Group President Dr. Eric C. Fain and $2.5 million for Chief Financial Officer Donald Zurbay, according to records filed with the Securities and Exchange Commission.

The gross-ups would only apply if the executives leave the company in the wake of Abbott’s acquisition of St. Jude, and Abbott has yet to announce its plans for who will run the combined company. The payments are available to executives who are terminated without cause or leave for “good reason.” 

The promised paydays have become an issue in a federal class-action lawsuit filed by a New York shareholder who wants to block the St. Jude-Abbott deal or force the company to pay damages. The lawsuit, revealed in a St. Jude securities filing last week, accuses St. Jude executives of failing to provide all the material facts proving that Abbott is the best buyer for St. Jude with its $25 billion bid.

“While St. Jude’s public shareholders are being cashed out for an inadequate price … the Company’s directors and officers will achieve a substantial payday,” says the lawsuit, filed in U.S. District Court in the Twin Cities by New Yorker Chaim Rosenfeld. Two similar shareholder lawsuits have been filed in Ramsey County.

Almost every major merger or acquisition faces some type of legal challenge over the deal price and terms, corporate attorneys say. Many of the cases are dismissed by judges.

“Sometimes it’s legit, and sometimes not,” said Richard Painter, University of Minnesota corporate law professor, of shareholder class-action litigation challenging mergers.

“There are a fair number of plaintiffs’ lawyers out there doing this. And some of the cases are legitimate cases, where management really has moved too quickly on a deal and ­basically worked something to favor themselves and does not help shareholders,” Painter said. “And then there are the other situations, where basically it’s a harassment tool …” 

St. Jude officials declined to comment for this story, as did Rosenfeld’s attorney.

A copy of the amended severance agreements, included in securities ­filings Wednesday, says management decided to include gross-ups to help retain executives, at least through the closing of the deal.

One person who is not expected to receive a tax gross-up in the deal is Executive Chairman Dan Starks, CEO of St. Jude Medical from 2004 until 2015. Starks is in line for $18 million in compensation related to the transaction, but the payment is not projected to trigger a federal excise tax.

Starks is St. Jude’s largest individual shareholder. Under the terms that Abbott has agreed to buy out St. Jude shareholders, Starks’ 8.5 million shares would be worth about $400 million in cash plus Abbott stock that would be worth more than $335 million at current prices.

Joe Carlson • 612-673-4779