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 »
Compared to strategic mergers, LBOs – particularly those not led by managers – are relatively easy for target companies to understand and evaluate. Generally speaking, shareholders are paid out in cash, so you don’t need to figure out what the merger currency is worth. You don’t have to negotiate “cultural” issues like whose name and/or irritating punctuation goes first in the surviving company’s name. You don’t have to figure out whose employee benefit plans will continue in force because everyone will be fired anyway.
And, because there won’t be any synergies and you won’t be taking stock in the acquirer, you don’t have to care about how they’ll run the business going forward. If your only goal is maximizing shareholder value, you just compare the expected value of your plan for the company’s independent operations to the actual cash value that a sponsor is offering. You don’t care if they’re going to make their 30% IRR by bringing in an operational genius to improve your products, or by the usual method of 8x leverage and mass firings. Maybe that’s an exaggeration – you care about things like “will they be able to sell the acquisition debt?” and “will my employees cause me physical harm between the time we announce this deal and the time I escape to a tropical island?” – but their long-term value creation plans aren’t really your concern. And, on their side, the sponsor has no interest in telling you, since their plans to improve your business just give you leverage to jack up the price.
Aaaaaand then there’s Yahoo! They figure, what the heck, they have all these smart people around, maybe they can get some free tips on how to improve things:
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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:
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People who have real jobs are sometimes surprised to learn how much of investment banking consists of hopeless pitching. Your team puts together a forty-page slide deck with sixty pages of appendices, proofreads it repeatedly, updates numbers every day for two weeks, and prints a dozen glossy spiral-bound copies. Then you lug them halfway across the continent, slog through the first five pages with an increasingly bored potential client, are politely rebuffed, and then cleverly ask “hey do you want any extra copies of the presentation for your colleagues?” so you don’t have to carry them back on the plane. Glamorous work.
It could, however, be worse, in that you typically don’t expect the prospective client that you’re pitching to put your slide deck on the Internet with a condescending link.* Sadly for publicity shy investment bankers everywhere, corporate innovator Larry Ellison wants to change that norm.
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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:
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