After a few months in the spring in which the credit crunch appeared to ease, the vise has tightened once again. Nothing illustrates this better than the financing for the acquisition of the Weather Channel.
NBC Universal, which is a subsidiary of General Electric, teamed up with buyout barrons Bain and Blackstone. But the deal still failed to attract traditional lenders. Much of the financing, in fact, was provided by firms affiliated with the buyers.
Three affiliated lenders provided the bulk of the financing for the $3.5 billion deal. Bain’s Sankaty Capital, Blackstone’s GSO Capital, and GE’s commercial finance arm reportedly provided over half the funding. The lead bank role was was held by Deutche Bank, which likely had to promise funding to score the mandate for the fee-heavy M&A side of the deal.
The situation is almost the reverse of the deals that were seen at the height of the buyout boom, when banks were falling over each other to provide loans for buyouts and even going so far as making equity contributions to deals. Now it seems the lenders don’t even want to lend, so the buyers are having to fund the deals largely on their own.
Buyouts
Bill Miller, the Legg Mason fund manager who controls 5.4 percent of Yahoo, wants to see Microsoft buy the company. Halfway measures–such as a joint venture –don’t interest him.
That would seem to put him squarely in Icahn’s camp. But Miller’s still being coy, saying he’s undecided on how he’ll vote in the proxy fight.
Legg’s Miller undecided on Icahn’s Yahoo slate [Retuers]
So Microsoft chief executive Steve Ballmer says the company is not looking to buy Yahoo. They’re talking about other stuff that might “create value” or some such. It’s pretty much what we learned on Sunday, when Microsoft and Yahoo disclosed that they were in negotiations.
Is a buyout really off the table? The market doesn’t seem to think so. Shares are down a bit today but not by what you’d expect them to drop if the buyout was really done. Perhaps Ballmer is just sticking to the script, playing hardball to get a better price for Yahoo.
Still, this can’t make Carl Icahn and the rest of his hedge fund cohort happy. (Then again, he’s still up about $120 million, which would keep us happy.)
Microsoft Not Bidding to Buy Yahoo: CEO Ballmer [Reuters via ABC News]
Earlier this morning, we were telling Keith Bar Crunch about how we’re getting as sick of the “[insert name of hedge fund] loses [insert losses]” stories as many of you are, which must mean there’s something wrong with us. Really, who doesn’t enjoy tales of woe at other people’s expense? (A. Of late, like we just said two freaking seconds ago, us). We’d love nothing more than to (at least momentarily) can the negativity and write about RenTec making $30 billion last week.
Unfortunately, that’s not happening—because even though you don’t want to hear about the blow ups of various funds, you’re not getting out there and making any news (mergers and acquisitions, CEO sluts, etc) to the contrary—but we can guarantee you we’ve taken the appropriate steps to ensure that several notable quant funds have some major—and we do mean major—gains coming their way.
When we were working in mergers and acquisitions there was always nostalgic talk from the elders about the days of the hostile takeover. It wasn’t just that a lot of the people running the banks and private equity shops had come up through the ranks in the days of the hostile takeover. There was something else, something beyond a sentimental for yearning for the golden era of youth. It was as if the eighties—despite evidence of pink and yellow “power ties” and questionably girly haircuts on men—were somehow more manly than the present era.
Even the words “hostile takeover” speak of a martial spirit. As if taking a company from a decrepit management was like the Spartans facing down the Persians at Thermopylae and winning. The very language we spoke told us we were living in the shadow of our betters. Lots of the terms we were still expected to learn were leftovers from that era, although the devices that they named were rarely used. Who sends a “bearhug letter” letter anymore?
Well, we’ve got the pink and yellow ties. Even haircuts are becoming questionable once more. Men wear blazers, and Dana Vachon lunches without socks. Surely it’s time for the hostile takeover to come back.
Not persuaded? In the Wall Street Journal, Holman Jenkins has more substantive reasons for its return. The hostile takeovers were a far more effective way of keeping the managers of public corporations in check than the host of regulations, disclosure rules, compliance fetishes and calls for shibboleths such as “shareholder democracy” have ever been or are ever likely to be, Jenkins writes.
What’s missing today is the universal solvent of a lively expectation that hostile takeovers can befall managements that hog too much value for themselves. Unfortunately, legal and regulatory changes have made these all but impossible. Yet hostile takeovers were a far more productive way of closing the circle of accountability than the corporate governance wrecking ball aimed at Hollinger has proved to be.
He takes the Conrad Black case as a prime example of the problematic manager who might have been simply taken out of action by a healthy hostile takeover regime. Unfortunately, the powers that helped put hostile takeovers out of business—corporate insiders, a compliant press, regulators and lawmakers captured by corporate donors—still reign, and have since been joined by a new industry of academics, compliance advisers, accountants and prosecutors who all have an interest in keeping the status quo in place. Only with more so.
But we can still dream of bringing back the era we lost. Only without the girls in shoulder pads.
Waste Case [Wall Street Journal]
Goldman Sachs announced a giant buyout fund Tuesday, perhaps providing an answer to a bid question on the lips of Wall Street gossips: why was Goldman notably absent from the list of banks underwriting the initial public offering of private equity giant Blackstone. Yesterday Goldman Sachs chief executive Loyd Blankfein said the firm’s new buyout fund might garner as much as $20 billion. This would means Goldman will be looking to raise funds from investors looking to profit from the recent boom in the buyout business at the same time the Blackstone Group is hitting the public markets with its offering.
Could this conflict be what kept Goldman out of the Blackstone IPO? While the conflict is not formally direct—Goldman will presumably raise funds for its latest fund from institutions and other large investors while Blackstone’s offering has a potentially broader market, including public investors—in practice they are probably competing for the attention of many of the same investors. Participants in headline making initial public offerings tend to be the institutional players, hedge funds and wealthy individuals that Goldman would hit up for its new fund. Underwriting Blackstone while running a fundraising operation for other could certainly create some awkward, unseemly moments.
If Goldman were underwriting the Blackstone IPO, you can imagine the roadshow where potential investors asked the Blackstone’s Goldman underwriting team why they should invest in the Blackstone IPO instead of Goldman’s own fund.
Goldman has been notoriously creative in handling conflicts of interest but this may have stretched the imaginations of even the cleverest boys in its client relationship business.
Private equity funds are clearly hearing the sound of this particular trumpet this morning. It announces that their push into the territory traditionally controlled by Wall Street’s banks—notably in investment banking services and real estate investment—is not going unanswered. Under John Mack, Morgan Stanley has pushed aggressively into hedge funds and private equity, through acquisitions and internal reforms. And now Goldman steps directly into Blackstone’s path.
Game on.
Goldman Aims for $20 Billion Buyout Fund [DealBook]
Goldman’s Buyout Fund May Top $20 Billion, CEO Says [Bloomberg]
Goldman CEO says new LBO fund could exceed $20 bln [Reuters]
[Goldman Sachs could not immediately be reached for comment on this kind of irresponsible speculation. ]
All of the stuff we’ve read about the TXU deal has been somewhat interesting—it’s the biggest deal ever, it has a “green” aspect to it, it involves possible insider trading—but failed to grip us. We couldn’t figure out why and were actually kind of upset about it—everyone else had themselves in a tailspin over THE BIGGEST BUYOUT ever, so why couldn’t we join the fun? Were we dead inside? Then, we realized, the problem with all the previous stories on the deal were that they failed to grab us, generally, because they failed to grab US, specifically. Which is to say—none of the stories talked about TXU from a “me” angle. Luckily, David Weidner at Market Watch sensed our needs and responded accordingly, detailing today, all the people—besides the obvious ones—who will be thinking of Texas fondly later this year (those rabbit fur mufflers aren’t going to pay for themselves).
Forget China. Private equity runs Wall Street these days and it is keeping the big banks busy. As long as money is cheap, firms like Kohlberg Kravis Roberts & Co. and Texas Pacific Group are going to make the bankers and lawyers rich. A few of us in the shareholding public might do OK, too.
Way back on Monday, the big news was that six firms had a deal to buy Texas utility TXU Corp. for $32 billion, not including another $12 billion in debt. For those who remember, it was the biggest leveraged-buyout in history – finally bigger than RJR Nabisco, without the debt – and the first utility deal for private equity.
It also meant another huge payday for Wall Street – especially for six banks that advised or financed the deal, or did both. M&A advisory fees could come close to $300 million, based on the fees paid on deals of more than $10 billion in recent years, and legal fees could be above the usual time billed considering the regulatory and political hurdles facing the deal.
To get the deal done, TXU and the KKR and Texas Pacific-led buyout group brought in some of the biggest dealmakers in the business. Estimates put the number of senior bankers and attorneys who worked directly on the deal at 50.
A Texas-sized deal [Market Watch]
Our ears always perk up whenever someone mentions that “management” is backing a bid by corporate raider activist investor Carl Icahn. Because, well, you kind of have to wonder if “management” knows who Icahn is. As part of his bid package to acquire Lear—which the troubled auto-parts company announced this morning it was officially accepting—did Icahn have to specify exactly which of members of management he regards as morons and frat-boys?
Interestingly, the Icahn’s buyout agreement reportedly contains a “go shop” provision that gives the company 45-days to consider competing bids. It’s not clear yet whether anyone expects this to actually happen. There certainly are some Lear shareholders—even some other “activist investors”—who think Icahn’s bid is too low. But for the most part “go shop” provisions are CYA moves—meant to provide legal cover against shareholder lawsuits claiming that the company was undersold: “Hey, we waited around for a month and a half and no-one else wanted this thing!”
And you better believe that when you are accepting a bid that is more than four bucks below where your stock is currently trading, those CYA provisions are pretty important.
Lear Accepts Carl Icahn’s $2.8 Billion Cash Offer [Bloomberg]
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Posted in:
Buyouts
The Dolans Bid Billions for Cablevision and All We Got Were These Lousy Letters
By John CarneyThe founding family of Cablevision put in their second bid in less than a year to take the company private. Our spies have sent us the bid letter the Dolan family sent to the board of Cablevision as well as a memorandum issued to Cablevision employees . According to the letter to the board, the primary rationale for taking the company private is to allow for long-term planning and entrepreneurial leadership that the Dolan’s don’t believe will be tolerated by the public markets.
You can download both letters at the links above.
We think Page Six needs to be encouraged to do more items about finance people. Like this one:
WHICH billionaire buyout buccaneer called his 3-year-old son to the dinner table the other night and had him repeat to the guests a phrase he had taught the toddler: “I want to [bleep] you up the [bleep]“? The 23- year-old nanny complained to the boy’s mother, who told her to get over it, and the nanny quit on the spot . . .
That should be easy enough. How many billionaire buyout guys with 3-year-old sons are there?
Just Asking… [PageSix]
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