Bloomberg has a story today about how, while one side of Morgan Stanley made lots of money on the Facebook IPO in fees and greenshoe trading profits, another side of it did not do so well. So: how much of the subtext here is actually here?
Morgan Stanley, the underwriter that took Facebook Inc. public at a record high market value, said its own money-management unit bought more than 2 percent of the shares sold through the $16 billion offering.
Morgan Stanley Investment Management invested about $380 million in Facebook’s initial public offering, according to regulatory filings late last month, the first to show its IPO purchases. A dozen funds run by the advisory unit’s growth team, headed by Dennis Lynch, each allocated 6.8 percent of their net assets to buying Facebook stock at the IPO price of $38 a share.
Facebook has fallen 42 percent since its offering, increased in size and price at the 11th hour. The drop erased $39 billion in market capitalization, ranking the stock as the worst-performing large technology IPO ever based on the early loss in value, according to data compiled by Bloomberg. The decline crimped the performance of Lynch’s growth team, described as a “crown jewel” of Morgan Stanley Investment Management, and left the bank’s fund investors behind on the investment.
This is a form of story that is not uncommon and a lot of the accompanying eyebrow-raising is usually unjustified. Still, we’ve got eyebrows, let’s use them. Like: Read more »
Felix Salmon put up a great note from a reader about investment banking conflicts; it’s fantastic so go read it. But this is a tiny bit unfair:
You and many other commentators seem to have some misconceptions about what exactly large, sophisticated clients such as El Paso’s board hire investment bankers to do.
Its always funny how, in the minds of pundits everywhere, those conniving and all-powerful one-percenters who sit on corporate boards become impotent and completely incapable of independent decision-making once an investment banker walks into the room.
The basic argument is that repeat-player investment bankers provide value not by telling brainless executives whether to accept or reject a merger, but by providing intelligent decisionmakers with access and relationships, and relationships come with conflicts. As he says: Read more »
For some reason it is corporate governance day at Dealbreaker, so here is a grab-bag of inchoate nonsense (for a change!). First of all look at this:
The third-largest U.S. proxy adviser recommended that El Paso Corp shareholders vote against a proposed $23 billion sale of the company to Kinder Morgan Inc, switching its position after comments made by a Delaware judge.
Egan-Jones Proxy Services said in a report that it was withdrawing its endorsement of the deal because of “the conflicts of interest cited by (Delaware Chancery Court judge Leo Strine) and the attendant doubts cast on the deal.”
How should you take this? Well, one way to take it would be: if you paid me to tell you how to vote on things, you’d probably want me to look into those things and decide if they’re good things for you, and if they are tell you to vote for them and if not etc. So Egan-Jones* went and looked at this merger and decided it was a good merger and that its clients should vote for it. Then they learned about the conflicts of interest cited by the Delaware court, most of which were publicly available long before the opinion came out,** and changed their minds. Suggesting that they didn’t really do a bang-up job of examining the merger to begin with.
But that’s a stupid way of looking at Egan-Jones’s role because, really, you’re an EP shareholder and you’re like “oh Egan-Jones ran a DCF and this price looks good to them”? You can go read the DCFs of actual investment banks if that’s the sort of thing that gets you going. Nobody’s actually paying proxy advisors (do people pay them? I don’t know) for actual advice on how they should actually vote their shares. Instead they’re paying (maybe?) for some vague patina of good “corporate governance,” which means something like “good processes and independent boards and no conflicts of interest” and gets lots of chin-stroking academic articles written about it. Read more »
Delaware Chancellor Leo Strine has a bright future in blogging if chancelling doesn’t work out for him. Here’s how he describes Kinder Morgan’s negotiations to buy El Paso, specifically KMI CEO Rich Kinder’s price retrade with EP CEO Doug Foshee:
Kinder said “oops, we made a mistake. We relied on a bullish set of analyst projections in order to make our bid. Our bad. Although we were tough enough to threaten going hostile, we just can’t stand by our bid.”
Instead of telling Kinder where to put his drilling equipment, Foshee backed down.
I umm … I’m pretty sure that that quote from Kinder is approximate.
Anyway, this is from Strine’s opinion refusing to block the KMI-EP merger from proceeding even though he is pretty pissed about some of the apparent conflicts of interest in the deal, including that Goldman Sachs owns almost 20% of KMI while also advising EP, that the lead GS banker owned some KMI stock that he didn’t disclose, and that Foshee negotiated the merger single-handed while also maybe thinking about possibly LBOing EP’s E&P business for his own self.
Lucrative though my current pseudoprofession is, I suspect that if Strine ever leaves the chancelling racket he’d probably prefer to try his hand at merging and/or acquiring. Certainly he is fond of dispensing tactical advice: Read more »
Here’s a thing that you probably know: acquirers pay a premium to do acquisitions. That tends to be why the target sells, with some exceptions. So it is no surprise that Kinder Morgan is paying a premium to buy El Paso. And, when they announced the merger last month, they talked up that premium pretty good:
The consideration to be received by the EP shareholders is valued at $26.87 per EP share based on KMI’s closing price as of Oct. 14, 2011, representing a 47 percent premium to the 20-day average closing price of EP common shares and a 37 percent premium over the closing price of EP common shares on Oct. 14, 2011.
This was not enough for some people, who are suing because EP isn’t getting paid enough – and also because of little things like how Goldman advised EP on the merger while also being a regular advisor to Kinder Morgan and owning 19% of Kinder and being on its board and stuff like that.*
Fortunately Kinder and El Paso have a chance to clear all that up in the merger proxy that they filed yesterday afternoon. Others have noted some of the fun in the “Background” section, including lots of back-and-forth on price and tactics and one-liners like “On September 23, 2011, Weil delivered a draft merger agreement to Wachtell Lipton, and on September 24, 2011, Wachtell Lipton delivered a revised draft merger agreement to Weil,” which, I can tell you from experience, captures a whole lot of human suffering in a single sentence.
But let’s skip that and talk instead about another source of immense suffering, the financial opinions disclosure, which is distinguished by being 45 pages long.
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