Tags: Carl Icahn, CVR Energy, M&A
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:
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 »
Tags: Best Buy, LBOs, M&A, Private Equity, Richard Schulze
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 »
Tags: Bill Johnson, Duke Energy, Jim Rogers, M&A, Progress Energy
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 »
Tags: Carl Icahn, CVR Energy, Goldman Sachs, M&A
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 »
Tags: CEO pay, founders, M&A, papers
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 »
Tags: Carl Icahn, CVR Energy, Lawsuits, M&A, shareholder activists, tender offers
If you want to buy a company you can do it in one of two ways: you can negotiate a merger with the board, put it to a shareholder vote, and if you get above 50% then all the other shareholders are basically forced into the deal and you pay the merger price. Or you can buy shares, typically in a tender offer, and if you get above 50% then you … sort of own the company. But not exactly, because there are still other people who own 49%. And, generally speaking, those other people don’t like you.
Today some of those other people are suing Carl Icahn because (1) he owns about 80% of independent refiner CVR Energy, (2) they own about 20%, and (3) he is being kind of mean to them. Specifically, after tendering for the company and buying most of the shares at $30, he’s been taking advantage of the fact that no one really wants to be a minority shareholder in a controlled company by buying more shares at around $27.50.*
Some of those minority shareholders want to stop him doing this, claiming that “Once any genuinely independent board of directors learned of Icahn’s scheme, such a board would have adopted a poison pill to stop Icahn from making any more open market purchases unless and until the Board was able to negotiate a cash-out merger that provided the Company’s remaining shareholders with fair value.” And so they’re suing to force Icahn’s board to adopt a poison pill and prevent him from buying at market prices. That is strange: Read more »
Tags: Citi, JVs, M&A, Morgan Stanley, Morgan Stanley Smith Barney
Morgan Stanley has announced that it will be buying 14% of its Morgan Stanley Smith Barney joint venture from Citi in a sort of glacially negotiated way. MS currently owns 51% of MSSB (plus $5.5bn of preferred interests), and Citi owns the other 49% (plus $2bn of preferred). You can read how they’re going to figure out the price here. Basically they each hire an advisor to value MSSB like a public company, and then get together and see how close they are. If they’re within 10% of each other, they average their prices; if not, they hire a third advisor to figure out who got closer to the right answer. Don’t get too excited about pitching to be one of those advisors, though, at least not in the first round:
Morgan Stanley and Citigroup each will engage one investment bank or financial advisory firm of national standing and with experience in the valuation of securities of financial services companies (an “Appraiser”) for purposes of estimating FMV. All fees and disbursements of the first two Appraisers shall be the responsibility of the party that engaged such Appraiser. Either or both of the first two Appraisers may be an affiliate of the party engaging such Appraiser, and Morgan Stanley has engaged Morgan Stanley Investment Banking as its Appraiser.
MSSB’s net income was about $300mm last year*, and recent Morgan Stanley Investment Banking valuation precedents suggest about a 100x P/E, so I’ll go ahead and predict we’ll see a $30bn-ish valuation from them, no? (Too easy? Actually, ha, it’s not that wildly off; press reports suggest a $15bn bid from MS and a $23bn offer from Citi.) Here’s how they’ll do their math: Read more »