$$$ Deals: Trash Is on Top of the Heap
In our M&A Roundup for the week ended June 29, big Allied Waste sale to Republic Services leads to a doubling of deal volume, although private equity recedes. [CFO.com]
$$$ Merrill concerns reignite Bloomberg speculation [MarketWatch]
$$$ Daniel James [WallStrip]
Archive for June 2008
$$$ Deals: Trash Is on Top of the Heap
Yahoo filed its preliminary proxy statement today in an effort to win over its shareholders for the upcoming August 1st board meeting,
Within its 32 pages, the presentation outlines: 1) the failed Microsoft acquisition and why Microsoft was inconsistent, 2) the downside of a partial search agreement with Microsoft, 3) the benefits of the Google partnership, 4) Yahoo’s plan for the future, and 5) also makes a case that Carl Icahn hurts the performances of companies he has recently been involved with and that his board slate is not the answer.
Yahoo cites two separate occasions (May 17 and June 8), where they asked Microsoft if they wanted a full company acquisition, and Microsoft said no. Additionally, Yahoo believes that the partial search agreement does not benefit the company “financially or strategically and is based on flawed assumptions.”
The claim that Microsoft was “unresponsive and inconsistent,” with regards to making a deal is rather accurate. We are well aware of the see-sawing of Ballmer and Co. as they kept switching positions on the deal. The presentation gives a nice overview of the timeline of events on page 8.
Yahoo addresses each aspect of the hybrid search deal with Microsoft, concluding that it does not improve cash flow and cedes too much control. The $1 billion upfront is taxable and Yahoo believes that Microsoft’s cost savings and revenue benefits are far too optimistic and unrealistic. They also make the claim that they are unprotected competitively at the end of the ten year search agreement.
The plan for the future is discussed starting on page 17 of the presentation. Yahoo believes that its unique assets, like its content properties, Yahoo! News, Sports, and Finance, make it a “must buy” for advertisers. They want to better position themselves to link search and display together, and the presentation also mentions cloud computing, the next step towards “Web 3.0.”
The recent reorganization within Yahoo’s management ranks is their effort to support these core strategies.
By far the most interesting part of the presentation is Yahoo’s attack on Carl Icahn, charted out on page 28. Take a look; there are a lot more red arrows than green ones. Yahoo makes the case that Icahn has hurt shareholders of companies he has been involved with in the past year, as stock prices have plunged. At the same time, is it Carl who is hurting the price or is it the company that is battling him and underperforming?
It will be interesting to see Icahn’s response to Yahoo playing offense here. On Friday, he indicated he would comment on Yahoo and its management. So far, the only update on his blog today is his responses to a few commenters’ remarks regarding his previous rants on corporate America.
You can take a look at the full presentation here.
– Yacrosoft correspondent Travis
August Busch IV, the 43-year-old CEO of Anheuser-Busch, announced his counterattack against InBev’s now-hostile offer during a Friday conference call with investors and analysts. Kaiser August pitched an expansion of Anheuser’s cost-cutting program, Blue Ocean, to make $1 billion in cuts by 2010, twice its original target and including job buyouts or layoffs for up to 1300 employees, or 15% of Anheuser’s workforce. “We need to break from a conservative culture,” the young Kaiser reported, but gave no word on whether shareholders also needed to break from conservative management.
Busch argued that Anheuser’s current management “can achieve independently” the value of InBev’s bid and has planned the cuts for some time. Setting aside skepticism about the timing and originality of the plan, he has his work cut out for him in convincing shareholders that Anheuser can trim its fat more efficiently than InBev. Busch contends that an already-entrenched management team can deliver better results because of their familiarity with the terrain; previous attempts by conservative, family-controlled enterprises in similar situations have had mixed results at best. Carlos Brito, by contrast, speaks of “unleashing that to the world” when he refers to Budweiser, capturing the hyper-aggressive national spirit of the Belgians.
August IV initially said that InBev could remove all the directors at will, but asked at the end of the call, “Can we correct my statement” before announcing that Anheuser would challenge this point in Delaware’s Chancery Court. Chances for peace look slim; one beverage consultant remarked “InBev is a very aggressive company. They don’t take no for an answer.”
-senior Anheuser-Habsburg-Busch correspondent Andrew
I don’t know how many of you had signed up to hear Erin Callan’s “insights on both the mitigation of risk during volatile market conditions as well as the outlook for Lehman and the industry” tonight at 6:15 but FYI, the event has been cancelled.
What transpired in the 4 hours since Count Vikula hacked into our system and shut this place down?
– Massage enthusiast Jeffrey Epstein pleaded guilty to paying underage girls to awkwardly stand by while he jerked off into a towel. He was sentenced to 18 months in prison, plus a year of house arrest, and will be given the official title of sex offender. Adding insult to injury is the news that he will definitely not have the scratch to take up with the prosts, at least not with the same vigor, following the hard time. Epstein lost $57 million as “Major Investor No.1″ in the Bear Stearns hedge funds.
– Vanity Fair/Bear blamed CNBC, where “there is simply no adult supervision,” for BSC going down, and also claimed that a group of hedge fund managers celebrated the collapse at a breakfast the following Sunday morning during which they “planned a similar assault on Lehman” for the following week BUT FAILED TO TELL US WHAT THEY ATE.
– We received cloak and dagger emails from a few of you about “something happening at Lehman.”
– Carney, as one of you guessed, staged a Free Epstein rally, topless, while I watched one of the best “It’s Always Sunny In Philadelphia” episodes ever, “Charlie Wants An Abortion.” If you haven’t seen it, stop what you’re doing and rectify that now. My favorite part is this little bit of dialogue (looking for a clip) between Mac and Meg, a pro-lifer he’s trying to bed, at an abortion clinic protest:
We’re still going through the Vanity Fair article on Bear which blames, among others, Citadel, SAC Capital, and Goldman Sachs for bringing down the 85 year-old firm. But before we start pointing fingers, let’s take a second to note the one party writer Bryan Burrough doesn’t think had a hand in blowing the place to smithereens. And in fact, if I may be so bold as to read between the lines, seems to applaud for coming to BSC’s rescue, albeit too late.
So where do Wall Street’s movers and shakers spend their summers? Everyone knows that the Hamptons is a favorite. Private equity billionaires Henry Kravis and Pete Peterson have places on the east end of Long Island, as do George Soros and oil heir David Koch. Other bold-face names (at least, Wall Street bold-face names) include Mary Meeker, the Morgan Stanley stock analyst, short-seller Jim Chanos and Citigroup executive Sallie Krawcheck.
But what about other summer getaways popular with Wall Street executives? Forbes has a rundown today of who summers in Aspen, Sun Valley, Connecticut’s Litchfield and Nantucket.
Citi CEO Vikram Pandit sent out a memo congratulating the troops on completing the second quarter last night; not successfully, per se, just in general. I’m paraphrasing but something like “It’s June 30 and we’re still here,” which you have to admit is an accomplishment worth highlighting. He then went on note that while big C has “the right Strategy, Structure, and Talent,” rather conveniently, “none of that matters.” The only thing that matters, Count Vikula wrote, “is our Culture– our heritage, our people,” and preserving the legacy of Citi now, so that when this thing goes down (and see me about placing bets later), it’ll be gone but not forgotten. To that end, Vik would like you to take a few hours or weeks to write down your favorite memories of Citi. Do you think fondly of the gazillions in writedowns C’s taken in the last couple days? Or would you like to get more personal, and perhaps discuss the 40 lashings you received after getting caught napping at the desk, post new motto? No story is too meaningless. And while sharing it probably won’t make Citi “the best company in the world,” as Count Vikula jokes later in the memo, or even profitable, it will be a big waste of your time. And that’s what this is all about, isn’t it?
Auction Rate Securities
So how did Wall Street convince all those corporate treasurers to invest the cash holdings of their companies in disastrous auction rate securities? A new study shows that more than 85 percent thought that Wall Street firms would bail out the market if it failed, according to this morning’s Financial Times.
Nearly 70 per cent of corporate treasurers who bought auction-rate securities said dealer support was implied. A full 17 per cent of the treasurers said that they were “told explicitly that the investment bank would ensure that the auctions would not fail.”
For years, the firms selling auction rate securities did support the market by buying excess securities, guaranteeing the auctions would not fail. When scrambling to increase balance sheet capital earlier this year, nearly every firm on Wall Street that had sold the products decided to let the auctions fail. Since then issuers have been forced to bail out those securities paying the highest interest rates, while investors with those paying the lowest interest rates have simply been unable to access their funds.
Auction-rate securities ‘implied support’ [Financial Times]
Phil Gramm gave his first political interview in years to Stephen Moore in the Wall Street Journal’s weekend edition. The interview is clearly meant to reassure conservative voters about Republican presidential candidate John McCain. What separates McCain from Obama, Moore writes, is that although neither of them know much about economics, “McCain has the good sense to know where to turn to for first-rate advice.”
Gramm was something of a hero to a lot of conservative activists. He cut his teeth as a Reagan Democrat in the House of Representatives, championing Ronald Reagan’s tax cuts in the early eighties. Later he switched allegiances to the Republican party and got elected to the Senate. With the GOP victories in 1994, Gramm became the chairman of the powerful banking committee. Moore writes that he played a “decisive role in nearly every fiscal conservative victory in the 1980s and 1990s.”
But that was then and this is now. Gramm is now 65 years old, and he vanished from the political stage six years ago when he took a high-rolling investment banking job at UBS. So what does Gramm offer voters now?
Don’t Forget the Middle People (NYT)
Wherever you go, it’s always about the middle class. In the election, you rarely hear talk about the actual, real poor. Maybe you fight vaguely against poverty or something, but that’s about it. It’s all middle class all the time. Seems that even in Hollywood, where the actors are mulling a strike, they’re making their complaints about the industry’s “middle class”. And they got the NYT to explain how third tier actors are having a tough go of it these days, for all sorts of reasons. Some will sound really familiar: like outsourcing voiceover work overseas. Then there’s the attack on cheap, substitute goods: too much reality TV programming!
Falling Prices Grip Major Stock Markets Around the World (NYT)
Great news: world markets are just as bad as the US ones. That’s great in the sense that we shouldn’t feel too bad about slipping back into bear market territories after one of the worst June’s of all time. Also good news: June is almost over, so we can get back to starting to go up again.
Property Insurers Confront Rising Catastrophe Losses (WSJ)
All this flooding in the midwest: what’s it costing the insurers? Recent catastrophe claims are totaling $5 billion, and total for the year stand at 8.9 billion which is close to the entire loss for 2007. It could pretty much guarantee that the industry sees an underwriting loss for the year, though perhaps that not in the bag just yet.
Volatility Drops Most Since 2001 as Dollar Fall Slows (Bloomberg)
Everytime oil spikes another $5, you hear a lot of fretting about the continued decline in the dollar. But apparently that’s really slowing down. One index of currency volatility has dropped severely as the pace of the dollar’s declines have slowed. Anyway, the point this article is trying to make is that the deceleration of the dollar’s decline may avoid severe forms of intervention, such as government’s stepping in and buying or selling.