Like many of you, probably, I read Barbarians at the Gate at an impressionable age, and was fascinated by the idea of M&A as a dramatic clash of swashbuckling personalities. Among the highlights of my brief time in the M&A business was the time we kept two competing bidders on different floors, unbeknownst to each other, and ran back and forth between them to negotiate a deal. I was all “hey this is like that book!”
Occasionally you can watch a deal from afar that tickles some of the same fancies. The Vulcan / Martin Marietta fight, though it’s early yet, is pretty fun. You’ve got the long negotiation process that seems to have bogged down over who got to be the boss, and ended in tears and recriminations after the Vulcan CEO never called back his Martin Marietta counterpart. You’ve got the pretty fake “hostile” exchange offer – if it’s contingent on the target board approving, it’s not really hostile – alongside the real hostility of two court cases, a brewing proxy fight, and a public war of words.
Now there’s Vulcan’s reply to one of those lawsuits, which is predictably feisty and paranoid, as well as the WSJ Deal Journal’s claim that “Vulcan may be even more unhappy that Martin Marietta launched its hostile bid in December. (Some lawyer’s holiday trip was ruined, perhaps?)” Which I thought was kind of BS; having worked for Vulcan’s law firm here, I can tell you that they pretty much plan their holiday trips around having them ruined and are bitterly disappointed if they have to spend Christmas break skiing or whatever rather than dictating 425s from Chamonix. But then I read the filing: Continue reading »
You should probably go read Steven Davidoff’s column in DealBook today about yesterday’s hostile bid by Martin Marietta to take over Vulcan Materials. It’s an amazing list of all the reasons that this will not end up actually being done as a hostile deal, including:
(1) a New Jersey “constituency statute” designed to, essentially, keep the Mitt Romneys out of New Jersey, that might also work to prevent an all-stock merger of equals with a US public company;
(2) a nondisclosure agreement that Martin Marietta signed which, though it doesn’t actually prevent MLM from launching a hostile bid for VMC, does cleverly prevent it from making the disclosures required by the SEC to do so (though it apparently made them anyway); and
(3) a typo, really, in the VMC charter that may prevent MLM from doing even a fully priced deal if it’s not approved by current directors.
But you should even more read MLM’s exchange offer document, particularly the “Background of the Offer,” which is a weirdly human story about two rich dudes who each ran a company and harbored a deep desire to be each other’s boss. Vulcan CEO Donald James had met with Martin Marietta CEO Ward Nye and his predecessor to discussing merging off and on since 2002. Here’s an account of their last conversation: Continue reading »
Last week Goldman and Morgan Stanley dropped sneaky hints about maybe changing their accounting so they could lend their way into more M&A deals. But this week we’re back to Barclays lending its way into more M&A deals, and Skip McGee got a little excited about it for DealBook:
“We’ve long had a big-boy M.& A. business,” Hugh E. McGee III, Barclays’ head of investment banking and a Lehman veteran, said in an interview. “And now we’ve got a big-boy checkbook.”
That’s a pleasingly straightforward take on the Barclays rises from Lehman’s ashes story, in which Lehman bankers find it quite congenial to be able to win deals by lending gobs of money to companies to pay for their mergers. Not that that’s how Barclays wins mandates or anything:
But Mr. McGee said the bank’s aim was not to rely on lending to get into deals. Barclays is less likely to make a giant loan commitment if it is not one of the lead advisers on a transaction, he said, and is being discerning about to whom it lends.
“We want to lead with our relationships and then use our balance sheet,” he said. “We don’t want to lead with our balance sheet.”
So is that working? Just for fun/to play with the Secret Dealbreaker Bloomberg/to make some charts, I made some charts. Continue reading »
A thing I liked about being a banker, but that made me consistently terrible at managing my PA, was that in banking you don’t really get paid to be right about things. Nobody made any money telling AOL and Time Warner that maybe they’d be better off on their own. Instead, your job is telling a persuasive story – a story that often ends with “so that’s why you have to [buy this company][sell your company].” You tell that story with DCFs and PowerPoint and steak dinners, but ultimately all the numbers and charts are aimed not at objective reality but at persuasion. And the easiest way to make a story persuasive is to tell people what they want to hear.
It is, however, possible to take that concept too far. Fairness opinions are a troublesome example. Nobody in the real world believes all that much in fairness opinions, but banks actually take them pretty seriously because they represent in a vague and highly caveated way a bank’s conclusion that the price paid in a merger is (within a wide range of) “right,” or at least somehow connected to objective reality. This is a hard mindset to get into when your day job is basically persuasion, and you can expect some slips every now and then.
Here, for instance, is a useful tip for any junior analysts: this is not what a DCF looks like:
Continue reading »
A while back Del Monte Foods agreed to be bought by KKR, with Barclays advising Del Monte on the merger. After the deal was announced, Barclays ran a go-shop period for Del Monte, which found no better bidders. The thing about that was that Barclays was providing KKR’s financing for the deal – and that KKR was paying Barclays more than Del Monte was. Some people thought that was kind of shitty, they sued, a Delaware court agreed, it enjoined the deal, a boutique bank (Perella Weinberg) had to run a second go-shop, there was a lot of weeping and wailing and judges saying things like:
Barclays secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees. On multiple occasions, Barclays protected its own interests by withholding information from the Board that could have led Del Monte to retain a different bank, pursue a different alternative, or deny Barclays a buy-side role. Barclays did not disclose the behind-the-scenes efforts of its Del Monte coverage officer to put Del Monte into play. Barclays did not disclose its explicit goal, harbored from the outset, of providing buy-side financing to the acquirer.
It was a thing.
Now it’s going to be less of a thing:
Continue reading »
Once disgraced, now rehabilitated, and always mustachioed tech banker Frank Quattrone has gotten some well-deserved congratulations for convincing Google to up its bid for Motorola Mobility from $30 to $40 despite the fact that (1) MMI was trading at $24.47 and (2) there was no other bidder. So, yay. Also his firm, Qatalyst, is getting $40mm in fees (44bps of enterprise value on a ~$9bn EV deal) for 14 days of work; co-adviser Centerview, who presumably did not come up with the plan of “try asking for more money,” is getting a piddling $12.5mm.
All that and more is in Motorola’s merger proxy filed today. Also in the proxy, though, are some internal forecasts from MMI – which might help explain Qatalyst’s success, provide ammunition to Motorola shareholders unhappy with the price, and/or raise questions about the quality of MMI’s forecasting. Continue reading »
We noted yesterday that InBev officially announced its attempt to oust the entire Anheuser Busch board, but the dynastic politics of the St. Louis brewer always add a bit of color to the blandest corporate proceedings.
One interesting twist is that InBev nominated Adolphus Busch IV, uncle to August IV. While the Buschs’ entire holdings are less than 5% of the company, meaning that Adolphus isn’t going to swing the deal by himself, we appreciate a good family drama, preferably about uncles turning on their own dynasty.
Adolphus was the author of an earlier letter to the Anheuser-Busch board that pleaded with directors to accept, or at least consider, InBev’s offer. He stated that this was the only way that “Budweiser will once again be truly the ‘King of Beers.’” We like the melodramatic flourish at the end, but we would have begun the letter somewhat differently: “Now is the winter of our discontent, Made glorious summer by this sun of Bud.”
-senior royal family correspondent Andrew
The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings
“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”
Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.
Hewlett-Packard: The Advisers [Deal Journal]
This is the closest we’ve ever come to a NSFW acquisition by a public company. Dick’s Sporting Goods is picking up Chick’s Sporting Goods, which is privately held. Dick’s will pay $40 million in cash and assume around $31 million of indebtedness. There’s also a provision for an additional $5 million payout if Chick’s performs well. Which is probably another dirty joke in itself.
Dick’s Sporting Goods Agrees to Acquire Chick’s Sporting Goods [Press Release via Yahoo]
The bank that seems to be everywhere in New York city is being bought by TD Bank, creating the fifth largest bank—with $312 billion of deposits—in the US. TD Bank will pay $8.5 billion of cash and stock for Commerce.
Commerce Bank was the fast food chain of banking. It’s founder Vernon Hill, who is said to own the largest private house in New Jersey, started as a fast-food franchise owner before starting up Commerce Bancorp in 1973.
Commerce shareholders will get 0.412 shares of TD Bank and $10.50 in cash. That works out to a 6.6 percent premium, although some would argue that the bank was already trading at a premium after Hill resigned and speculators began whispering that the bank was in play.
TD Bank is Canadian. So, you know, blame Canada.
Deal Press Release [Newswire]
Although no one has ever found a Chinese version of the supposedly-Chinese imprecation “may you live in interesting times,” we heard it quite a bit over the long weekend. We do indeed live in interesting times when the president and the chairman of the Federal Reserve need to give booster-ish speeches going into a long weekend to quell what many feared was quickly mounting into a panic in both the credit and equities markets.
Despite a credit crunch and equity market volatility keeping August more interesting than many expected, it was a very slow time for much of the finance industry. The mergers and acquisitions pace slowed to a crawl. It was the slowest month for mergers since 2004, according to research firm Dealogic. Europe’s corporate-bond issuance having plunged more than 75% last month. (High-rated corporate bond issuances in the US, however, were up, as investors fled from riskier debt.) The high yield debt market basically closed up shop for the month, hitting what the Wall Street Journal calls a “near all time low.”
The wise and wealthy we spoke to over the weekend (some of whom seem a bit less wise and probably less wealthy after market turbulence in mid-August) expect only more of the same.
“It’s going to be a wild ride through September,” a portfolio manager at a major institutional investor told us over the weekend. “Look at what happens in high yield. If they can’t get the high yield market cranking again, there’s going to be a lot of pain everywhere.”
Being told that August was slow seems a bit like waking up with a raging hangover and being told the party was dull. Well, yes. It might have been slow. But it was a very wild slow.
Slowest August since ‘04 [Reuters Dealzone]
Oasis for Bonds: Investment-Grade Issuance Soars [Wall Street Journal]
