I guess when you’re negotiating a merger you always think you’re being clever but when it’s reduced to the affectless blow-by-blow in a merger proxy it can sound a little silly:
On April 19, 2013, Parent [Shuanghui International] sent a revised non-binding written proposal to Smithfield increasing the price per share Parent was willing to pay to $33.50 per share in cash [from $33.00]. Contemporaneously with the delivery of this written proposal, representatives of Parent’s advisors communicated to representatives of Smithfield’s advisors that, while Parent had decided to increase its price by $0.50, the impact of the expected fourth quarter financial results was negatively viewed by Parent. In particular, Parent’s advisors noted that a transaction at this price would be more challenging from a financing perspective and that the expected weakness in Smithfield’s fourth quarter results had significantly limited Parent’s willingness to increase its proposed price and, in fact, that Parent even considered reducing the original proposed price of $33.00 per share in cash.
Oh? “We raised our bid, but JUST SO YOU KNOW, we wanted to lower it, so don’t push us.” Obviously they ended up at $34. Read more »
Carl Icahn seems to have a lot of fun. Today he wrote a crazy letter to Dell shareholders that opens this way:
We take this opportunity to respond to rumors regarding the availability of financing for our proposal for a recapitalization at Dell and to address recent statements by Dell that demean the prospects of Dell. We are amazed by these statements by the Dell Board. In what other context would the person tasked with selling a product actually spend their efforts negatively positioning the very product they are trying to sell? Is that how the supposed “go-shop” was conducted? Can you imagine a real estate broker running advertisements warning of termite danger in a house each time a prospective buyer seems interested?
We can talk about the “recent statements by Dell that demean the prospects of Dell” in the footnotes1; up here let’s talk about Icahn’s “respon[se] to rumors regarding the availability of financing for our proposal for a recapitalization at Dell.” He says later in the letter: Read more »
Starboard Value’s letter to Smithfield Foods arguing that Smithfield is selling itself too cheaply to Shuanghui International makes for tough reading if you think pigs are cute. The 16-page letter does a pretty detailed sum-of-the-parts valuation of Smithfield at, like, a pig-by-pig level, and it doesn’t end well for the pigs. Sum-of-the-parts value has a disturbingly literal meaning, for them.
How did this letter come about? I imagine it as something like this:
Earlier this year, Starboard analyst recommends Smithfield on the basis of a long well-reasoned report about how it’d be worth 2x its current price if it were broken up.
Portfolio manager is persuaded and buys a chunk of shares starting in March, at an average price of around $27, planning to mount an activist campaign to break up the company.
Smithfield announces merger at $34 a share on May 29.
Starboard makes several million dollars on paper.
Starboard celebrates, congratulates analyst, etc.
Some spoilsport interrupts celebration saying, “well, but really the thesis was that Smithfield could break itself up and we’d make even more money.”
“Really, analyst, this counts as a loss.”
“Go back to your desk and repurpose your original report into a letter that we can mail to Smithfield.”1
If you’re a director of a public company with a controlling shareholder, and that shareholder wants to buy out the rest of the shares, you have a problem. On the one hand, you have fiduciary responsibilities to your non-controlling shareholders to get them the best possible deal. On the other hand: you have a controlling shareholder! He’s controlling! He has inside knowledge that no outside bidder or shareholder can match. He can do stuff like fire you, or make it impossible for you to sell to a higher bidder, or generally make life unpleasant if you reject his bid. He’s got a distinct advantage in negotiating against you, his employee.
Courts and lawyers try to minimize this problem through arid procedural stuff – lots of disclosure and independent directors and majority-of-the-minority votes and “entire fairness” review – but it’s actually just a real problem. You can read about the pending Dole buyout, where founder/CEO/40% shareholder David Murdock wants to buy back his company at an inglorious 18% premium and is carefully following1 all those arid procedural rules, and ask yourself: who cares? Are shareholders really in the same negotiating position as they would be if they were selling an un-controlled company to an outside bidder? Mehhhhh.
But that’s boring and instead you should read today’s astonishing SEC order stemming from the approach to this problem taken by the board of Revlon, a company that at this point is probably more famous for making merger law than cosmetics.2 In 2009, Revlon’s 61% shareholder, Ron Perelman vehicle MacAndrews & Forbes, wanted to buy out the rest of Revlon in a moderately convoluted way.3 So M&F and Revlon negotiated a merger, but that ran aground when Revlon’s M&A banker, Barclays Capital, told Revlon that its fairness committee had said no dice: Read more »
One of my favorite themes in the Dell LBO pseudo-battle is the cognitive dissonance between Dell’s need to tell its shareholders how screwed it is, for the purpose of convincing them to vote to sell at the somewhat underwhelming price of $13.65, and its need to simultaneously tell everyone how good it is, for most other purposes. Like, just, self-esteem for one thing, but also things like getting financing and avoiding a MAC1 and not making prior performance statements sound like lies. Today Ronald Barusch has a delightful Dealpolitik column pointing out another important purpose, which is: paying management a lot for their excellent performance:
Last week Dell Inc. filed its annual compensation committee report. … There were raises for all of the top executives other than Mr. Dell, the chief executive. And everyone was granted bonuses. …
Each of the top officers was ranked at 100%, from a range that can vary from 0-187.5%, in terms of their individual performance. 100% indicates that individuals meet specified objectives, including those relating to “Strategic and transformational objectives relating to each executive officer’s function or business unit, including the degree to which the executive officer is driving change in support of Dell’s transformation.” The objectives are set so that “The Committee believes that the achievement of these performance objectives would correspond to meaningful improvements for the organization and are reasonably difficult to attain.”
Company performance is considered as well and this percentage was set at 70%, from a range that can vary from 0-150%.
Consider the transition of those pseudo-numbers: 100% performance by executives translates into 70% performance by the company translates into, um, this: Read more »
I feel like it would be a useful, or at least entertaining, exercise to require every company, once a year or so, to give a presentation to its shareholders that is like “here’s why you should vote for an LBO of our company at a ~2% premium to the current stock price.” Even if there’s not an LBO in the offing, I mean; just as rhetorical practice. Like Buffett’s tame bear. Anyway Dell, which does have an LBO in the offing, filed its presentation today and it’s 39 pages of “boy do we suck”:
High fives all around, boys! Or take this slide:1Read more »
Fundamentally if you’re a sell-side M&A banker your job is to find a buyer and get them to overpay for the company you’re selling. I mean, oh, you know, you’re a repeat player and reputational concerns and continued business relationships and all that militate against getting them to overpay too much. But mostly, the more they overpay the better you’ve served your client. Also, though, those reputational things etc., plus lots of fraud laws, militate against getting buyers to overpay by deceiving them about stuff relating to the company you’re selling. You can’t, like, just go forge financial statements. That’s cheating, and not in an admiring hahaha-you-got-me way. In a jail way.
So what’s left? One thing you can do is gently deceive them about the competitive dynamic. This might seem a little silly – if you’re buying a company, shouldn’t you be carefully determining its fundamental value rather than just bidding a penny more than whoever else is in the auction? – but in fact a lot of the M&A function is pretty much exactly that. You set up an auction, you demand confidentiality, you forbid bidders from talking to each other, you don’t tell them each others’ bids, you don’t announce to the world when a bidder has dropped out, all with the goal of creating the appearance of more competition than there is. When the bidders share too much information about their bidding plans with each other, you sue them. If a possibly viable but spivvy bidder comes along, you encourage them to stick around and throw out big numbers, just to keep the other bidders on their toes. “Yes, Carl Icahn, please, tell us more about your plans to buy our company,” is a sentence you might find yourself saying. You don’t outright lie, but you do your best to create the impression that your particular fertilizer-byproducts company is the prettiest girl at the dance or whatever the going metaphor is.
If you’ve seen the internet today you know that everyone wants to talk about their feelings regarding the union of Yahoo! and Tumblr, those icons of two different generations of internet orthography. Do you prefer the florid olden style of Extraneous Punctuation! or the sleek postmodern vibe of Mssng Lttrs?1 Let us know in the comments or, of course, on your Tumblr. Here’s Goldman’s note:
Management cited the “uncanny” fit between Tumblr, with its fast-growing but largely unmonetized usage, and Yahoo, with its strengths in monetization but declining engagement.
Many people would think “avaricious widely disliked company” and “well-liked nonprofit, more or less,” would not be a good fit for each other, but I guess “uncanny” doesn’t actually mean “good.”
The press release is … terrible? Unspeakable. “Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business,” begins the second paragraph. Are you encouraged? If you’re a Tumblr user? (Not really, right?2 ) If you’re a Yahoo! shareholder? I drew you a picture:
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