Tags: activism, Hedge Funds, M&A, Shuanghui, Smithfield Foods, Starboard
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
Read more »
Tags: LBOs, M&A, MacAndrews and Forbes, Revlon, Ron Perelman, SEC
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 »
Tags: Carl Icahn, Dell, LBOs, M&A, Silver Lake, Southeastern Asset Management
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 »
Tags: Citi, David Wormsley, EMI Group, Guy Hands, Lawsuits, M&A, Terra Firma Capital Partners
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.
Or just do this: Read more »
Tags: M&A, Marissa Mayer, Qatalyst Partners, Tumblr, Yahoo
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:
Etc., etc., there is this: Read more »
Tags: Blackstone, Carl Icahn, Dell, LBOs, M&A, Silver Lake, Southeastern Asset Management
Man, the resistance to this Dell deal is crumbling pretty fast isn’t it? Blackstone dropped its bid two weeks ago, Icahn and Southeastern have been relatively quiet since Icahn defended his right to a free exchange of ideas just before Blackstone dropped out, and the stock is at $13.33, ~2% below the $13.65 deal price, after being as high as $14.51 in the hopes of a better deal.
Dell filed its revised merger proxy today, with revisions presumably mostly driven by the SEC’s comments on its first draft from March. It doesn’t look like the SEC put up much resistance either; here’s a crappy redline and the changes are smallish. Here’s my favorite piece of SEC nitpicking:
Get it? That’s: Read more »
Tags: Carl Icahn, Dell, DGCL 203, M&A, Southeastern Asset Management
A good public-relations rule of thumb is that, when you and your nemesis sign an agreement putting aside your differences, you should probably also agree on how you’ll announce your new friendship to the world. What you don’t want to do is, for instance, to sign a standstill agreement with a potential buyer in your strategic process, and announce that standstill agreement one morning, and then a few hours later have the potential buyer put out his own announcement taking issue with your characterization. Another rule of thumb might be, keep Carl Icahn away from your strategic process if at all possible.
This morning Dell sort of blandly announced that Carl Icahn had agreed not to buy more than 10% of Dell’s shares, or enter into agreements with other shareholders that would get him above 15%. And this afternoon Icahn announced that that agreement meant nothing and nobody should give it a second thought: Read more »