And so he’s not paying them on principle, the principle being I suppose “don’t fuck with Carl Icahn”:

Carl Icahn says he isn’t paying a bill from Goldman Sachs Group Inc., on principle. … “These guys were hired to keep me from buying the company at $30 and they failed,” Mr. Icahn said in an interview. “But they are now demanding $18 million for having done nothing.”

Goldman’s suit says the bank “fully performed all of its obligations.”

This is about Goldman’s lawsuit against Icahn-controlled CVR Energy, which has refused to pay Goldman’s bill, and both of these statements are obviously true! CVR and Goldman signed an engagement letter to the effect of (1) Goldman will hold CVR’s collective hand because it is scared of Carl Icahn and in exchange (2) CVR will pay Goldman 0.525% of the purchase price if someone buys it (and also some money if no one does*). Hands were held, so Goldman fulfilled its end of the bargain. Icahn does not think that that was worth eighteen million dollars but it wasn’t him trembling in the night as corporate raiders circled outside his door, so he wouldn’t would he?

Anyway he’s got a point – as we discussed yesterday, Goldman was hired after Icahn had offered to buy CVR for $30, and Goldman rendered an opinion that $30 was inadequate, and Icahn ended up buying CVR for $30. So they didn’t increase the price for shareholders, or convince shareholders to take the deal, or convince them not to take the deal, or really do anything that you could value with money.** Their value added was more metaphysical: improving the terms of the contingent payment right that shareholders get, improving the structure of the deal to help non-tendering shareholders (but not enough!).***

As I said yesterday, my money’s on Goldman here: Icahn signed a Transaction Agreement with CVR Energy specifically acknowledging the Goldman engagement letter, and in fact forbidding CVR from changing it. Presumably he knew what it said, including that Goldman got $18mm if it failed to ward him off, so there’s not much of a case that either CVR Energy or Icahn should be able to get out of it now. So I don’t see him winning this lawsuit. Actually I don’t see him even really litigating it.

But I hope he does! There are tons and tons and tons of M&A lawsuits and many of them revolve around investment bank conflicts of interest and malfeasance. There is no allegation of that here. Instead, Icahn just thinks that the investment bank’s honest, honestly contracted for services aren’t worth what they charge for them. It would be a nice novelty to see a court decide that question.

Icahn Says Goldman Doesn’t Deserve Payment on CVR Energy Bill [Deal Journal]
Earlier: Goldman Surprised To Find Carl Icahn Being Kind Of A Dick

* Presumably less? The engagement letter is not filed but Goldman does say “We expect to receive fees for our services in connection with our engagement, including advisory fees that will be payable whether or not the Offer is consummated.” There is something a little weird about hiring an advisor to keep you independent and then agreeing to pay them more if they fail, but I guess paying someone more to not do a merger than to do one would be weird too. The lesson is there’s no good way to pay an investment bank, though “generously” is a good start.

** Poetic license – CVR negotiated a meaningful extension on the term of the contingent cash payment, which is worth something, and you could I guess submit it to some sort of option valuation method though, I mean, don’t.

*** For some reason I can’t resist the comparison to M&A strike lawsuits, in which plaintiffs’ lawyers almost never manage to increase the consideration that the buyer pays, but convince courts to award them fees because they’ve improved the disclosure around the deal. These fees are usually less than $18mm though.

31 comments (hidden to protect delicate sensibilities)
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Comments (31)

  1. Posted by guest | June 22, 2012 at 4:02 PM

    Matt, are you aware of any ibank conflict of interest cases that have resulted in a court refusing to uphold a contract? My understanding is that the conflict of interest cases pertain more specifically to a court's analysis of the fairness of a transaction.

  2. Posted by guest | June 22, 2012 at 4:02 PM

    Should be more specific: contract relating to the ibank's fees.

  3. Posted by Guest | June 22, 2012 at 4:14 PM

    Dick move by Icahn, but hysterical nonetheless. He should run for Congress. He'd fit right in.

  4. Posted by Backdoor_Bess | June 22, 2012 at 4:25 PM

    Goldman is a clown shop, bro

  5. Posted by Whee lunch break | June 22, 2012 at 4:30 PM

    You still have to pay a hooker even when you don't finish.

    – UBS Escort Quant

  6. Posted by Primalequity | June 22, 2012 at 4:30 PM

    Just because icahn.

  7. Posted by Generic Matt Hate | June 22, 2012 at 4:38 PM

    More specifically, would how many of Matt's charts and graphs the client had to sit through be at all relevant to determining whether the transaction was fair to them?

  8. Posted by Macquarie Quickie | June 22, 2012 at 4:39 PM

    Any word yet though on those pro rated hourly room fees?

    -Sydney Brothel Hourly Rate Quant

  9. Posted by Guest | June 22, 2012 at 4:40 PM

    Stiffing Goldman for fees, the NKI!

  10. Posted by Crazy Carl | June 22, 2012 at 4:43 PM

    "I don’t see him even really litigating it.

    But I hope he does!"

    Damnit Matt! I already got you a collector's edition HP-12C for the CFA Level 1 and now you're asking for this too?

  11. Posted by HungryIntern | June 22, 2012 at 5:04 PM

    English motherfucker, do you speak it?

  12. Posted by guest | June 22, 2012 at 5:45 PM

    icahn doesn't have a leg to stand on legally, but just watch, goldman will accept a lower fee. their alternative is to argue publicly that they earned $18m selling a company for $30/share that someone offered to buy for $30/share. the press won't leave it alone, current and future clients will more closely scrutinize defense advisory incentive fees, NO ONE will side with goldman*, and they will increasingly look like the rent-seeking, living-on-mars, entitled lightweights they mostly are.
    * including CVR management. they have no formal power anymore, but the longer and more closely people look at what they signed up for the dumber they're going to seem.

  13. Posted by Guest | June 22, 2012 at 6:13 PM

    Just as I was ready to stop reading, I started to scroll down … and I WAS DONE. It was a great feeling

  14. Posted by hurf | June 22, 2012 at 6:29 PM

    Hi! I'm Josh. I'll be your server today. Our special is: Capitalisation. Would you like me to tell you more about it?

    – Josh the fucking punctuation quant okay?

  15. Posted by hurf | June 22, 2012 at 6:30 PM


    – Euphemism Quant

  16. Posted by guest | June 22, 2012 at 6:40 PM

    Valid points. Though I think that if there's anyone that is more repulsive to the general public than Goldman, it is probably someone like Icahn.

  17. Posted by Details overload | June 22, 2012 at 10:06 PM

    That's too much capitalisation.

  18. Posted by guest | June 23, 2012 at 5:57 PM

    Icahn isn't the subject of constant congressional scrutiny though. Icahn hasn't been accused of ripping off clients. He just runs around buying up companies ran by idiots. The general populous might hate him, but that doesn't really matter. At the end of the day, Icahn can take the heat a lot easier than Goldman. Besides 18 mil for an opinion that wasn't even remotely effective – that's horseshit. The interesting thing is that Goldman knows they have the most to lose by making this public but they did it anyway. It makes you wonder where all the money is coming from these days.

  19. Posted by Thad Abercrombie | June 24, 2012 at 1:35 PM

    Carl likely thinking…If there is no Goldman Sachs in say 23 months then why pay this bill that the receiver-trustee or liquidator's at GS will just ignore anyway.

    Smart thinkin Carl

  20. Posted by guest | June 24, 2012 at 2:04 PM

    outside of NYC most people in the general populace have no idea who carl icahn is. say the words "goldman sachs" however, and a farmer in iowa is likely to offer an opinion (and not a favorable one).
    this only gets worse for CVR management. people going to ask why exactly they paid someone 18m to get only a marginally better deal than the one on the table. there is no good answer.

  21. Posted by Real Money 77 | June 24, 2012 at 10:06 PM

    Icahn's gonna choke on CVR at $30 so $18mm isn't gonna make much of a difference. He's the ultimate pump and dump artist.

  22. Posted by unwanted guest | June 25, 2012 at 5:04 AM

    The general public will take an interest in Carl Icahn when he starts dating one of the Kardashians or lands a spot on Dancing With the Stars. Since GS can't do either of these, they're pretty much off the hook.

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