Aramark CEO gets $1B in latest buyout

Joseph Neubauer is willing to take the risks
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PHILADELPHIA - The first time Joseph Neubauer took Aramark Corp. private in 1984, the deal was worth $889 million. When he and other managers led a leveraged buyout of the nation's largest food services company a second time, the price tag zoomed to $6.24 billion.

And the biggest winner among shareholders at Aramark, which Friday completed its first week as a newly private company? Neubauer and his family, whose holdings soared in value to almost $1 billion.

That puts Neubauer, 65, who came to the United States from Israel alone at the age of 14 and said he learned English from John Wayne movies, near the top of the list of beneficiaries from a wave of LBOs that have swept corporate America in the last year.

As the number of buyouts rises, along with the popularity of companies being ''flipped'' back to public ownership by their private buyers, the role of top executives in those deals is drawing increased scrutiny and criticism from regulators and lawmakers in Washington, governance experts and shareholder groups.

The Aramark sale, however, flew mostly under the radar. Shareholder complaints focused on the price offered, not how the buyout enriched Neubauer. Still, the sums he pocketed are remarkable.

What also makes him stand out among billionaire CEOs is the amount of risk that Neubauer, who was hired in 1979 as Aramark's chief financial officer, was willing to assume. He amassed his holdings by cashing in stock options and using millions in borrowed funds to buy shares at prices as low as 27 cents each. Stock splits multiplied his shares. His stake grew with the help of a board so friendly to him, it established a scholarship in his name at his alma mater.

''He has holdings you would associate with a founding CEO - and very few founding CEOs,'' said Brian T. Foley, an independent compensation consultant based in White Plains, N.Y. ''You also have to remember, he's been there a long time. . . . It's almost refreshing.''

Aramark did not return repeated phone calls for this story, which is based on an examination by The Associated Press of Securities and Exchange Commission filings, public documents and estimates from compensation consultants. A message left with Neubauer's office was not returned.

Aramark makes most of its money running cafeterias and hot dog stands everywhere from Shea Stadium in New York to Indiana state prisons. Sales grew from $7.4 billion in fiscal 2001, when the company had its last initial public offering at $23 a share, to $11.6 billion in fiscal 2006.

But earnings growth has been choppy and the stock was a bit of a dud, never rising much above $30 a share.

That provided an opening for Neubauer and his financial partners from Goldman Sachs, JP Morgan Chase and three buyout funds. After initially offering $32 per share, they bumped the payout to $33.80 per share in cash, enough to win over shareholders.

This leaves all the potential upside to Neubauer, his partners and 250 Aramark managers, who are on the hook for almost $2 billion in existing debt and an additional $4.5 billion in buyout debt.

Sent to Massachusetts from Israel at 14 to live with an aunt and uncle, Neubauer majored in chemical engineering at Tufts, where he worked his way through college waiting tables at his fraternity. An economics professor helped him win a full scholarship to the business school at the University of Chicago, where he graduated in 1965, according to articles about Neubauer on the University of Chicago and Tufts Web sites.

Neubauer joined Aramark after previous jobs at Chase Manhattan bank, where he was the youngest vice president at 27 and PepsiCo Inc., where he was the youngest treasurer at a Fortune 500 company.

Neubauer has been CEO at Aramark since 1983, except for one nine-month period in 2004 when a longtime company executive, William Leonard, succeeded him.

Fans say he is unassuming; critics say he lacks people skills and detested the quarterly conference calls with analysts that were part of running a public company.

His compensation has not notably outpaced other CEOs. From fiscal 1991 to fiscal 2005, he collected $27.8 million total in salary and bonuses, and exercised stock options valued at $37.87 million, according to Equilar Inc., a compensation research firm in San Mateo, Calif.

About Aramark

A look at Aramark CEO Joseph Neubauer's payout:

* THE DEAL: Aramark Corp., the nation's largest food service company, on Friday completed its first week as a private company after completing a $6.2 billion leveraged buyout deal. CEO Joseph Neubauer, his family and family foundations have a stake in the company valued at nearly $1 billion.

* THE COMPANY: Aramark sells food at major league football, basketball and baseball stadiums; it also runs hospital, school and prison cafeterias. In addition, Aramark is one of the country's largest uniform suppliers.

* THE CEO: Neubauer, who came to the United States from Israel alone at 14, has said he learned English watching John Wayne movies.

* THE OUTLOOK: The company's debt is expected to balloon to $6.2 billion from $1.76 billion because of the deal, making its interest payments jump. But Neubauer has said, ''debt never really killed any company.''