Let's say you're an investment banker at JPMorgan (congrats). You have two accounts giving you headaches: one, a promising unicorn-ish software startup that's lately hit the skids and desperately needs a savior; the other, a lumbering tech incumbent that has gone the way of IBM and needs to acquire something soon to prove there's a reason to live.
There's a clear solution here, and it happens to be what JPMorgan did: match Good Technology up with BlackBerry Limited in a $425 million merger that in 2015 served to remind investors that both companies were, miraculously, still alive.
But there are a few catches. First, that $425 million may not have been the best price. Then there's the fact that other Good Tech suitors might have made better offers. Oh and also you might have wanted above all else to stay in the good graces of BlackBerry, which for all its flaws remains a $5 billion company with a hefty appetite for M&A.
These complicating factors are the meat of a lawsuit filed last year by investors in Good Technologies over the deal, which is currently winding its way through a Delaware court. Plaintiffs claim JPMorgan committed “fraud on the board” in pushing the company to merge, an outcome that helped the bank maintain ties with the acquirer. JPMorgan is fighting the charges.
The thing that's toughest to swallow in all this is that the target of JPMorgan's true affections was BlackBerry, of all companies – a first name in smartphones that no longer makes smartphones. Yet evidence recently presented at court seems to back that story up. From the Financial Times:
After the deal was signed, Jennifer Nason, JPMorgan’s global chair of technology, media, and telecom banking, wrote to colleague Curt Sigfstead: “Fantastic result! Glad bberry didn’t use [a banker]. Curt — we should have Jamie [Dimon, JPMorgan chief executive] call/email Chen,” according to the lawsuit.
Other investors were apparently stunned by the deal. A private-equity suitor wrote: “I’m shocked it went that low...JPMorgan and/or Board just totally ignored us.” A venture capital backer of Good Tech's called it “an absolutely fire sale fantastic deal.”
Surrendering Good Tech into the loving embrace of BlackBerry wasn't an inevitable outcome for the firm. At one point they considered going public, which JPMorgan apparently pooh-poohed. One motive for downplaying a potential IPO might have been JPMorgan maintaining a loving and supportive relationship with BlackBerry. But there's also the alleged fact that the estimated $2 million in potential IPO fees would have fallen short of the $4 million in merger advisory fees. And there's some slightly embarrassing evidence this was indeed the case:
Cristina Morgan, a vice-chair in the technology banking group at JPMorgan and the relationship manager for the Good account, wrote in an early 2015 internal email, recently disclosed in a court filing: “The important assignment here [at Good] is the M&A engagement so whatever we have to get that matters.”
Ms Morgan, in a recent deposition, was asked by the suing shareholders if IPOs were a loss leader for JPMorgan. She responded that “IPOs are a loss leader for all banks”.
Remember when Jamie Dimon lamented the dearth of companies going public in his annual letter earlier this month? Though he blamed everything from “excessive reporting requirements” to “negative media scrutiny” for the phenomenon, he somehow forgot to mention that mergers and acquisitions are a big part of the reason that we have fewer public companies now than in 1996. Perhaps Jamie can ask his own investment bankers why that is.