M&A

How should reverse break-up fees be valued?

Jim Kim — Fri, 05 Sep 2008 13:44:43 -0400

If we were to assign reverse break-up fees an actual market value, such fees would constitute a bull market. How long would it be before banks started making markets in options and swaps on such fees? TheDeal.com notes that there are some who indeed think that target companies should value such fees more along the lines of a put for buyers. That put would be quite pricey in the current environment, and it might do a better job of dissuading buyers from walking away. Recall that Cerberus was able to walk away from its deal for United Rentals by simply by paying a $100 million reverse termination fee. So far, we haven't seen a rush by boards of selling companies to change the model. But lawyers in the field are more supportive of the put concept, and may be able to persuade more clients.

For more:
- here's TheDeal.com article

The art of the rumor

Jim Kim — Wed, 09 Jul 2008 07:43:26 -0400

Rumors can be a nasty business on Wall Street. Increasingly, they're a high stakes business. There's already been one prosecution. The SEC recently announced a settlement with Paul Berliner, a trader formerly associated with the Schottenfeld Group; he was alleged to have spread rumors that the Blackstone Group was on the verge of renegotiating a deal for Alliance Data. The SEC is also looking into the role that rumors played in the Bear Stearns debacle. None of this has deterred the practice, however. It's a favorite pastime on Wall Street, one that has most recently befuddled Lehman Brothers. The New York Times quotes CEO Dick Fuld, as saying, "I will hurt the shorts, and that is my goal." Technology has made rumor-mongering that much more efficient. But people should not think that IMing and texting will render your words untraceable. The day when a case is built on new-age communication forms is not far off (see next item).

For more:
- here's a New York Times column

All-stock deals to make a return?

Jim Kim — Tue, 24 Jun 2008 21:41:52 -0400

We speculated a while back that all-stock deals may make a return. The idea is that financed deals will be difficult in this environment. Still, some companies with strong stocks have put themselves in a good position for acquisitions. As if on cue, Bunge has agreed to buy Corn Products International in an all-stock deal worth $4.4 billion. But Breakingviews.com notes that the market reacted skeptically, as the deal looks "slightly value destructive for shareholders." The article also points out that the deal could create up to $840 million in "cost cuts and incremental profits" annually, less than the premium paid. Finally, the article talks about a paper composed by academics Baruch Lev and Feng Gu that concluded that "stock-for-stock acquisitions tend to destroy value." Mr. Market may be onto something, which just could limit these deals going forward.

For more:
- here's the Breakingviews.com article

Media leaks negatively affect potential deals

Jim Kim — Wed, 11 Jun 2008 21:37:47 -0400

Leaking to the media, especially the Wall Street Journal, about possible deals is a grand tradition on Wall Street. Many a reporter has made a reputation via deal talk. For bankers, the goal is to control the story spin, which makes sense in sensitive situations. Some may want to prod another bidder. At times, a leak can be a problem, especially if the stocks go haywire. The most recent twist on this comes from research conducted by London's Cass Business School and reported by IDD. It found that just under 50 percent of leaked deals actually close, compared with 72 percent of non-leaked deals. Also, the premium paid by the winner in a leaked deal is 14 percent lower than in non-leaked deals. To leak, or not to leak boils down to specific situations, it seems. On balance, staying mum may be a better bet.

For more:
- here's the IDD article (For FierceFinance readers)

JPMorgan Chase slashes investment banking execs

Tue, 27 May 2008 06:59:58 -0400

CNBC reports that JPMorgan Chase has axed a lot of investment bankers, reflecting the realities of the market. About 200 executives were cut. The move apparently is unrelated to Bear Stearns integration. Many of those cut were junior bankers, an executive told the news service. The mergers and acquisitions team supposedly took the biggest cuts--"as many as half the people... were told they no longer have jobs." One could argue that this marks one of the most severe head-loppings in quite a while, but that's hard to gauge. If stealth cuts could somehow be figured in, these cuts may look comparable. Most think there are more to come.

For more:
- here's the CNBC article

Icahn now main player in Microsoft-Yahoo drama

Tue, 20 May 2008 06:59:58 -0400

The key man in the still unfolding Microsoft-Yahoo pas de deux is not Steve Ballmer, not Jerry Yang, or even Eric Schmidt. It's investor activist Carl Icahn. The New York Times notes that while he has proposed an all-new slate of directors, he really does not want to jump onto the board. What he wants is a deal--with Microsoft. As Microsoft-Yahoo Round 1 wound down, we made the point here that the possibility of a deal wasn't dead. We suggested that Microsoft may likely come riding back into the scene if Yahoo stumbled. Well Icahn and his merry band of fellow disgruntled shareholders have pushed the issue. Microsoft has come riding back, with a limited proposal to buy Yahoo's search business. You'd have to think there may be larger possibilities this time around.

For more:
- here's the New York Times article

Bank merger deals not likely

Mon, 19 May 2008 06:59:54 -0400

At a time when banks need huge capital injections, there's always a renewed focus on costs and efficiencies. You might have thought that such an environment would be ideal for some strategic mergers, but the numbers just don't seem to be working, reports TheDeal.com. A strategic merger is a hard sell when there are so many questions about the quality of assets, future earnings and so many other things. Fortunately, for a lot of banks in need of capital, private equity firms seem to have gotten over their traditional aversion to financial services companies. As TheDeal.com notes, Corsair Capital has invested in National City. TPG Capital has invested in Washington Mutual. The likes of Kohlberg Kravis Roberts are said to be mulling financial services investments. Who can blame them? The terms right now are incredible.

For more:
- here's the article

Microsoft to the rescue of Yahoo?

Fri, 16 May 2008 06:59:55 -0400

We noted not too long ago that it might not be wise to assume that the Microsoft-Yahoo dance was completely over. Ever since Jerry Yang and company spurned Steve Ballmer and company, Yahoo shareholders have been up in arms. Now, with no less than Carl Icahn declaring war on the Yahoo board, we just might see another deal emerge. Not that Microsoft will storm back to the table, but who else will pony up those kind of numbers. Google of course, but that's about it. Icahn apparently has candidates lined up for all 10 board seats. Look for other hedge funds to start getting involved. So a deal may yet emerge. Pencil in the date July 3. That's when the Yahoo annual meeting will take place.

For more:
- here's a MarketWatch article
- here's an AP article on Icahn's plans
- here's Icahn's letter to the Yahoo board
- here's the response

H-P deal pushes JPMorgan to top of table

Thu, 15 May 2008 06:59:58 -0400

After the Microsoft-Yahoo nondeal rewrote the league tables for the year, here comes another big technology deal with big implications for the standings. The New York Times notes that JPMorgan Chase, by dint of its role in advising Hewlett-Packard in its $13.3 billion takeover of EDS, has inched to the top of the table. It edged out Goldman Sachs, which might have stayed on top if its client had Yahoo ended up in a deal. Don't be surprised if Goldman ends up back on top. One big deal would do the trick. Still, this is rare air for JPMorgan and yet another feather in the cap of Jamie Dimon. Hewlett also retained Lehman Brothers, while Electronic Data hired Citigroup and Evercore Partners, the Times notes.

For more:
- here's the article from the New York Times

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