M&A

When a company does something that corporate-governance activists really don’t like, like adopting a poison pill, typically they announce that “the board decided unanimously to punch you in the face for your own good.” There’s some perception that, if they’re all in it together, the directors can’t be up to anything too unsavory. Forest Labs doesn’t have that option:

Forest Laboratories, Inc. (NYSE: FRX) today announced that its newly constituted Board of Directors adopted a stockholder rights plan and declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of Forest Laboratories common stock.

The Board adopted the rights plan in response to the recent rapid accumulation of a significant portion of Forest’s outstanding common stock. The rights plan is intended to protect the Company and its stockholders from efforts to obtain control of the Company that are inconsistent with the best interests of the Company and its stockholders. The rights plan also has an exception for an offer for all shares that is accepted by a majority of the Company’s shares and treats all shareholders equally.

That must have been an awkward meeting! For those of you sensibly not following the Forest Labs saga, that “newly constituted Board” was newly constituted with Carl Icahn nominee Pierre Legault, who was elected two weeks ago in a proxy contest, beating out one of the company’s nominees. The other nine directors are still the ones who opposed Icahn in the proxy contest. And the rights plan was designed to keep Icahn from buying any more of the company. Presumably it was approved 9-1. Read more »

  • 23 Aug 2012 at 4:11 PM
  • M&A

Come Back Carl Icahn! CVR Energy Still Loves You! Or Something.

I remain fascinated by this Carl Icahn – CVR Energy situation and wanted to add two curlicues to my conspiracy theory for why he dropped his bid.

First: while it’s fun to think that he may be unable to pay above $30 for a CVR merger due to let’s say imperfections in his tender offer documentation, there’s another, more broadly applicable, reason not to go above $30. That is: Carl Icahn is a repeat player. He bids for companies sometimes. And if you make a habit of (1) buying 80% of a company in a tender offer for $30 and (2) buying the remaining 20% in a merger a few months later for $31, then you may find it harder to get anyone to tender in your tender offer. Why not hold out for more?, they think, plausibly.

Thus it’s actually a very good idea for Icahn to be a raging asshole to the remaining 20% stub:* the worse he treats them, the more likely the shareholders of his next target are to tender. The holdouts in this deal gambled and lost and are now holding an illiquid stub that they may well end up selling to him on the open market for less than his tender price. Any potential holdouts in his next deal should be quaking in their hypothetical boots.

This only goes so far, though, because the more of a raging asshole you are, the more boards can do to keep you out of the next deal. A guy well known as a defender of shareholder rights against entrenched management tends to be able to put a lot more PR – and legal – pressure on boards than a guy well known for taking advantage of minority shareholders. And Delaware courts at least pay lip service to the idea that boards have more leeway to keep out – via poison pills, etc. – raiders who “coerce” shareholders than those who don’t (see, e.g., etc.).

So Icahn is in a weird position. Read more »

  • 22 Aug 2012 at 4:08 PM
  • M&A

Why Doesn’t Carl Icahn Want CVR Energy Any More?

Carl Icahn’s strangely halfhearted takeover of CVR Energy got even stranger and more halfhearted last night: after acquiring an 82% stake at $30 in a tender offer, and suggesting to the board that they think about selling him the rest of the company at $29, he withdrew that suggestion last night. He gets sort of a sad trombone for this letter:

Gentlemen:*

At the time we made our original offer on August 6th to take CVR Energy private, we stated that we were willing to pay $29.00 per share but in no event would we consider paying more than $30 per share. Since then a number of market conditions have changed, including a significant widening of crack spreads. We no longer think that the proposed transaction is feasible at this time and we hereby withdraw it.

Some background is here.** So this is a neat letter because it sort of sounds like “we no longer think CVR is worth that price” but it surely means “we are not willing to pay the higher price that CVR is now worth and likely to demand” – doesn’t it? Here are CVR’s comps since August 6th:***

Wider crack spreads + the sector trading up = if CVR was worth $29 two weeks ago it’s worth, what, $31 today?**** Or, I mean, you can imagine CVR’s board saying so: “if you were willing to pay $29 two weeks ago why not pay $31 today?” – but it’s weird for Icahn to negotiate himself right out of the deal.

So why did he? Read more »

  • 06 Aug 2012 at 5:53 PM
  • M&A

Best Buy Founder Looking For Graceful, Confusing Exit

If you were Best Buy founder Richard Schulze, how much would you pay to acquire the shares of Best Buy that you don’t already own? $24 a share? $26? $30? Surely it’d get too expensive for you above $30 or so?*

Nope! The more expensive it is for him the more money he saves, or rather gets, because he is not offering to buy Best Buy, but to sell it. From the Journal:

In his letter to the board, Mr. Schulze said he would finance the transaction through a combination of investments from private-equity firms, his equity investment of approximately $1 billion, and debt. His adviser, Credit Suisse, is “highly confident” Mr. Schulze could arrange the necessary debt financing, according to his statement.

Because Mr. Schulze’s holding of 68.9 million shares would be worth at least $1.65 billion, his proposal indicates he would divest himself of some of his personal stake as part of a transaction.

I had trouble believing this – perhaps he rounds down unconventionally, or he meant he was kicking in an extra $1bn in cash for the equity check? – but it seems to be true. Schulze’s press release says that “he plans to finance the proposed acquisition through a combination of investments from the private equity firms, reinvestment of approximately $1 billion of his own equity, and debt financing,” which sure does sound like he’s kicking in some but not all of his shares. If so, the higher the price, the better of Schulze is: at $24, he can have his billion-dollar stake while cashing out $650mm, at $26 he gets $790mm, and at $30 he takes out over a billion dollars. He is perhaps more diluted in the new company at these levels – and/or the newco is more leveraged – but … um … that’s usually what happens when someone gives you money in exchange for stock, isn’t it? Read more »

It can’t be a coincidence that perhaps the greatest 8-K ever filed was filed at 5:07pm on July 3:

In connection with the Merger described in Item 2.01 of this Current Report on Form 8-K and pursuant to the terms of the Merger Agreement, effective as of the effective time of the Merger, William D. Johnson, the former Chairman, President and Chief Executive Officer of Progress Energy, was appointed as the President and Chief Executive Officer of Duke Energy.

Mr. Johnson, age 58, was Chairman, President and Chief Executive Officer of Progress Energy, from October 2007 through July 2, 2012. … Mr. Johnson previously served as President and Chief Operating Officer of Progress Energy, from January 2005 to October 2007.

Mr. Johnson subsequently resigned as the President and Chief Executive Officer of Duke Energy. See disclosure below under the heading “Resignation of Mr. Johnson and Reappointment of Mr. Rogers.”

I have no way of researching this but I’ll go out on a limb and say it’s unlikely that any company has ever previously announced the hiring and firing of a CEO within three paragraphs of each other in the same 8-K, with an employment agreement dated June 27 and a separation agreement dated July 2. This is not, of course, just a case of hiring a young whippersnapper who seemed full of potential and then finding him injecting heroin in the executive bathroom on his first day on the job; there seems to be some more Machiavellian maneuvering going on. Duke and Progress completed a stock-for-stock merger this week, forming the new Duke Energy; the deal gave Duke shareholders 63% of the combined company and 11 of the 18 new directors, including the executive chairman, while Progress’s CEO was set to be president and CEO of the combined company. Which, and expect to hear this argued in all seriousness in court: he totally was for five days! The Journal has more: Read more »

And so he’s not paying them on principle, the principle being I suppose “don’t fuck with Carl Icahn”:

Carl Icahn says he isn’t paying a bill from Goldman Sachs Group Inc., on principle. … “These guys were hired to keep me from buying the company at $30 and they failed,” Mr. Icahn said in an interview. “But they are now demanding $18 million for having done nothing.”

Goldman’s suit says the bank “fully performed all of its obligations.”

This is about Goldman’s lawsuit against Icahn-controlled CVR Energy, which has refused to pay Goldman’s bill, and both of these statements are obviously true! CVR and Goldman signed an engagement letter to the effect of (1) Goldman will hold CVR’s collective hand because it is scared of Carl Icahn and in exchange (2) CVR will pay Goldman 0.525% of the purchase price if someone buys it (and also some money if no one does*). Hands were held, so Goldman fulfilled its end of the bargain. Icahn does not think that that was worth eighteen million dollars but it wasn’t him trembling in the night as corporate raiders circled outside his door, so he wouldn’t would he? Read more »

  • 21 Jun 2012 at 5:30 PM
  • M&A

Goldman Surprised To Find Carl Icahn Being Kind Of A Dick

Sell-side M&A work is mostly a pretty good and lucrative business model but it has a few flaws. Try to spot a key one here:
(1) you represent a target;
(2) you spend your days fighting tooth and nail with the buyer to try to make them pay more and give up optionality, and generally to get more of the benefits of the deal for the target than for the buyer;
(3) then the buyer acquires the target, fires all the directors and officers, changes the locks, and replaces the stationery;
(4) then you get paid.

Did you spot the problem? Carl Icahn did: Read more »

One of the more fertile areas of academic finance is explaining why M&A is so bad – mergers seem to be on average value destructive, so why do they keep happening? Are CEOs just stupid? Are bankers just evil and persuasive? Here’s one answer that may be worth considering, which is that it looks like a good idea to acquire a successful company run by a talented and dedicated founder-CEO, but then things go pear-shaped because that founder-CEO either (1) departs, voluntarily or otherwise, with his giant bags of loot, or (2) suddenly loses interest in running his or her company when it’s owned by someone else and that someone else is now the founder-CEO’s boss:

Bidder gains are lower for acquisitions that involve targets with a founder CEO than for acquisitions of targets without a founder. The difference in bidder gains between takeovers of targets with founder CEOs and those without a founder is statistically significant, economically material, and robust to several model specifications that include a wide variety of deal- and firm-level control variables, like form of payment, competition, relative size, as well as some characteristics of the target CEO, such as his cash flow and voting stakes, age, and tenure.

That’s from this paper by Nandu J. Nagarajan, Frederik P. Schlingemann, Marieke van der Poel and Mehmet F. Yalin. It doesn’t clear up the whole mystery – non-founder mergers have also destroyed some value here and there, though I guess statistically less so – but I found it kind of fun. Read more »