Archive for July 2007

No. 2 Bank Hit With No. 2 Lawsuit

no2pencil.jpgWe kid…we kid Morgan Stanley—no one thinks they’re the No. 2 BB, or even the No. 3 or 4 for that matter. But they were in fact served papers last week by Lisa LaMacchia, an MS employee who claims that her boss, Richard Dorfman, offered her some unwanted touching and then tried to “sexually assault her with a pencil.”
The suit seeks unspecified money damages from Morgan Stanley and Dorfman, who allegedly once “stole a pair of underwear from [LaMacchia’s] gym bag” and is described as a “hostile and aggressive” boss (and “11, maybe 12 years old,” one intuits). The defendant claims that HR told her “suck it up,” as they presumably had bigger problems on their hands, like the protractor incident on the sixth floor.
Morgan Stanley Hit By ‘Sex-Pencil’ Suit [NYP via CWS]

  • 10 Jul 2007 at 12:56 PM
  • Chicago

Exchange Love Triangle: Chicago Exchanges to Merge

Chicago Board of Trade 2.jpgChicago Board of Trade shareholders accepted an $11.8bn merger proposal from the Chicago Mercantile Exchange yesterday, ending nine months of negotiations and an unremitting rival bid from IntercontinentalExchange. The results of yesterday’s shareholder vote, which will create the world’s largest futures exchange, were announced simultaneously by CBOT and CME last night.
CME Group will come into being next year and, continuing the industry’s amalgamative trend, is likely to pursue exchanges in New York and London.
Left out in the cold after an expensive campaign for CBOT, ICE is now a potential takeover target for New York Stock Exchange Euronext, Bloomberg News reports. According to Will Vicars, director of Caledonia Investments, NYSE Euronext’s “modus operandi to date has been acquisitions, and I think that will probably continue.”
Chicago Exchange Merger May Bring More Deals [Dealbook]
CME Acquisition of CBOT Turns Nymex, ICE Into Takeover Targets [Bloomberg]
CBOT-CME Is Done, at Last [Wall Street Journal]
CME and CBOT Shareholders Approve Merger [Chicago Board of Trade]

Who’s More Important Than Stephen Schwarzman?

blackstoneiposecondayfirstdaypopletdisapointingipoperformancedownwarddowndowndown.JPGYou’d think that a man who could get Tom Wolfe to accidentally wander in a side door on the floor of the New York Stock Exchange on B-Day, the day his private equity firm went public would get some attention in St. Tropez but apparently you’d think wrong. Oh yes, you’d think wrong (you’d also think: Es ist mir scheiss egal).
On Saturday, Tommy Hilfiger—TOMMY HILFIGER, not Ralph Lauren, but TOMMY HILFIGER— reportedly “drew a bigger crowd of admirers” at Club 55 than Stephen Schwarzman and his wife Christine. We don’t know about you, but we can’t think of anyone we’d rather gawk at/fawn over/ask for an autograph from/tell we’ve loved since he acquired Prime Hospitality and converted thirty-seven Wellesley Inns to the Extended StayAmerica brand than old crab hands. Or can we? Can we list some? What about: Christian Bale, Eric Bana, John Kraskinski, GOB, Paul Rudd.
Actually, that was our LIST. But, really, gets lets serious for a second—you would gladly trample Stephen Schwarzman for a moment with ______?
Riviera Retreat [New York Post]

And the Deal Flow’s Red Glare

Fireworks.jpg Gave proof through the night that the boom was still there. The first week of July saw $64 billion worth of announced deals, more than triple the amount in any of the past five years (of which, the first week in July 2005 came in a distant second with $18 billion of announced deals). Of the $64 billion, 71% was PE deal volume, with the $27 billion Blackstone bid for Hilton and the $6 billion Carlyle bid for Manor Care the two most major deals. PE volume for the first week of July in the past five years peaked at 32% of total deal volume, but on only $8.6 billion worth of deals. All these deals have to be wreaking havoc on analyst and associate summers (at PE firms and banks). Comment or send any stranded in an empty office teleconferencing with a Partner or MD on a beach stories to tips at dealbreaker dot com.
LBOs provide fireworks for Fourth of July [Reuters]

  • 10 Jul 2007 at 11:40 AM
  • KPMG

The KPMG Case: Does Dismissal Go Far Enough?

kpmgdismissabuseprosecutors.jpgThe Wall Street Journal’s editorial page comes out swinging against the prosecution in the now infamous KPMG tax shelter case. After a long list of the abuses, usurpations and creative legal theorizing by the prosecutors, the editorial page calls for the judge in the case to dismiss the charges against the defendants, who are former employees and advisers to KPMG.

This case has been shot through with prosecutorial overreach from the first, and the U.S. Attorney’s office pushed the boundaries of the law to win it. Due process is the sine qua non of a just system of criminal law. When those entrusted with upholding it instead trample on it, they have surrendered any claim to be acting in the public interest. Judge Kaplan has suggested in court that if private citizens had done some of the things that the KPMG prosecutors have done, they would be on trial. If Attorney General Alberto Gonzales won’t dismiss the case, Judge Kaplan should do it for him.

But we have to wonder, will dismissing the charges go far enough? The prosecutors have asked Judge Kaplan to dismiss charges as part of a risky gambit to set the stage for an appeal to a higher court, where they hope to overturn Kaplan’s earlier rulings that they violated the defendants’ constitutional rights to counsel. The appeals process could take several more months or even years, perhaps going as high as the Supreme Court. If the prosecutors win their appeal, the case will land back down at the trial level. This means that the KPMG defendants could spend several more months or years in legal limbo, a very costly legal limbo while their legal bills continue to stack up.
If the case against the KPMG defendants is as bad as the Journal editorial board says it is, shouldn’t the editorial have gone further? Where’s the call for President George Bush to pardon the defendants? Or is the power of the presidential pardon reserved exclusively for the politically well-connected these days?
The KPMG Fiasco [Wall Street Journal]

Bally Total Fitness is feeling the burn when it comes to soliciting creditor approval for a prepackaged reorganization plan before filing for bankruptcy. Two activist hedge funds, Liberation Investments and Harbinger Capital Partners (and the award for the two hedge funds most likely to be activist by their name alone goes to…), have proposed an alternate restructuring plan, one that conveniently eschews bankruptcy and gives the two hedge funds majority control of the company.
The activist consortium currently owns 11% of Bally’s common shares, and sent its alternate restructuring plan in a letter to the board on July 4, for effect. The new plan would give sub debt holders $60mm and new notes, and Harbinger 80% of the equity.
Bally’s will continue to solicit approval for its other plan, which has approval from the majority of current debt holders (63% of senior and 80% of senior sub). The company has until July 27 to solicit support from 2/3 of senior noteholders.
We’re still getting a kick out of the consequences of letting a fund called Harbinger and a fund called Liberation accumulate 11% of your company. Is it possible for a fund to have a more ominous “I guarantee these guys will be activists” name? We’ve tried coming up with a list (don’t let these guys near your common shares):
– David’s Slingshot Partners
– CBC (Cockblock Capital)
– La Resistance Capitale Fraternite
– TAMCO (Thermopylae Asset Management Company)
– Icahn’t Believe It’s Not Better Partners
– BYOB (Bring Your Own Board) Capital Management
– Defenestration Investments
– The Black Panthers
– One Man’s Perk Is Another Man’s Indiscretion Group

  • 10 Jul 2007 at 10:47 AM
  • BP

Lord Browne Is Not Getting Any

lordebrownREX0105_228x366.jpgRemember Lord Browne, the BP executive who parted ways with the oil company back in May because he got creative with the truth regarding his personal life in court, forfeiting an estimated £15m ($30 m) and, more importantly*, if we’re going to split hairs, his spot as a director at Goldman Sachs? He’s now had an addition £1.5m ($3 m) owed to him frozen by the oil wooly-haired mammoth, until a court case is resolved.
At issue is what a few shareholders believe was mismanagement (“draconian,” yes draconian now, cost cuts prior to a pipeline spill, etc) in Alaska. They are seeking unspecified damages from 39 current and former BP executives and directors. To be clear, this suspension of pay is only to facilitate the funds being turned over to the injured party (who believe it would be “difficult” to recover the money from the Lord) when and if the shareholders are successful, and has nothing to do with the gay witch hunt from earlier this year.
BP freezes payments to Browne [The Guardian]
*it’s never about the money.

Can You Hear Me Now?

Are you on the 10:00am S&P subprime teleconference? The S&P has its task force of David Wyss, Susan Barnes, and Patrice Jordan discussing market conditions, revisions to RMBS surveillance and new ratings methodologies. This is in reference to the following major events this morning:
Word from some of our readers is that so many people are wondering how the ratings agencies will react (finally!) to the subprime fallout that you can’t even listen in at the moment. At least it’s a great excuse to tell senior people if you got stuck as resident note taker. Oh well, if you miss it, here are the replay numbers:
US/Canada: 1-866-397-8265
US/All Others: 1-203-369-0540