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: Read more »
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. 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.
Read more »
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:
Read more »
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.
Read more »
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:
Read more »
The cheery infernal canines at Cerberus Capital Management have been pretty consistent in saying that (1) they’d rather not close on their deal to buy Innkeepers out of bankruptcy, (2) it’s because there’s been a material adverse effect, and (3) no, thanks, they’d rather not tell anyone what that MAE was. And in “anyone” they’re going to include the bankruptcy court, as they demonstrated yesterday. The judge remains curious, however, and set a trial for October:
Judge Chapman sympathized with Innkeepers’ desire to resolve the MAE issue as quickly as possible, citing widespread media coverage about the uncertainty of the deal.
She rejected Cerberus lawyer Adam Harris’ argument that Innkeepers should have done more to affirm its readiness to close the deal in August.
“Come on, Innkeepers was ready to close,” she said. “They were there. It’s not like asking a girl to dance. You didn’t need to hear from them the next day, saying: ‘We’re really, really ready to close.’”
Cerberus is not gambling everything on its strategy of never, ever saying what the MAE was. It released a statement saying:
Read more »
Everyone knows that a public company merger is a feeding frenzy for service providers. When you’re writing a multi-billion dollar check for a transformative acquisition, you’re not so worried about a million in fees here and there. So bankers make a lot, lawyers make a bit less, and printers and accountants and proxy solicitors and the SEC all get a piece of the cash cheerfully handed out by acquirers. What is less obvious to people outside the M&A business is that there’s also a tax paid to a group of securities plaintiffs lawyers, who make it their business to sue the board of every company involved in a merger.
The process is pretty straightforward. A merger is announced. A group of law firms sue, on behalf of the target’s shareholders, claiming that the board followed a defective process, had a variety of conflicts of interest, and obtained an inadequate price. The board disagrees, but doesn’t want to run the risk of a court holding up the merger and so agrees to pay off the law firms. It’s not legal just to pay them to go away – they represent shareholders, after all, so they have to get something for those shareholders.
Occasionally what they get is a 5 or 10 cent increase in the merger price, but more often it’s just some added disclosure in the merger proxy. The company amends its proxy to say “we forgot to mention that our lead banker plays a lot of golf with the acquirer’s CEO so he was probably talking smack about us on the side,” the lawyers can say that they got something for the shareholders, and everyone signs a settlement that the judge can approve and that includes a $500k payoff to the law firm. Shareholders get nothing other than additional reading material, but it’s a pretty profitable business for the law firms.
Today’s WSJ has an excellent story about how judges in Delaware have started taking a closer look at these cases:
Read more »
James Woolery, a partner at Cravath, has been named co-head of North American mergers and acquisitions, alongside Chris Ventresca. [Bloomberg]
The Wall Street Journal’s influential Heard on The Street column calls Goldman Sachs “pricey compared with other Wall Street securities firms” and predicts After that Goldman’s long run of climbing earnings may be coming to and end. The M&A slow down, so carefully documented in our weekly M&A wrap-up, should hurt revenues from fees while exposure to leveraged loans may drag down profits.
“Goldman could post in mid-March its smallest quarterly profit in three years,” HotS writes.
Analysts have been hammering away at Goldman for the last few weeks, predicting a climb down from its elevated status on Wall Street. While no-one thinks we’re going to have a surprise subprime write-down, many think the widening credit market crisis is finally about to take a piece out of the Goldman Sachs money mint.
So do the analysts and HotS have it right? Or does Goldman have yet another surprise up its sleeve, like when they revealed they had gone short subprime and made a bundle? Over to the right, at the top of the center column, we’ve created a poll for you to cast your vote. Goldman: long or short? You decide.
Goldman’s Profit Magic May Be Fading [Wall Street Journal]