Days after a presidential commission recommended a hands-off approach to regulating hedge funds, the Treasury Department is defending its new guidelines against critics who say the new rules don’t go far enough, according to The Financial Times. Answering naysayers — who include several state attorneys general — Robert K. Steel, a deputy to Treasury Secretary Henry M. Paulson Jr., said that the President’s Working Group on Financial Markets would stand firm on its report’s recommendations.
“The President’s Working Group did not view this issue through an anti-regulatory lens,” the F.T. reported Mr. Steel as saying. “In fact, if the group believed that our regulators needed more authority to address these issues, Secretary Paulson would have led the charge in asking for it.”
The report represents the newest stance on hedge fund regulation since the 1998 meltdown of Long Term Capital Management. In it, the Bush administration and top domestic regulatory agencies said that the $1 trillion industry needed no extra policing from the government or other agencies. Hedge funds, their lenders and their investors were best equipped to keep the lightly regulated investment pools in line, the report said.
Mr. Steel acknowledged criticism that “a vocal few” had decried the new rules as ambiguous. But he said that regulations could prove only a one-time fix — and that the guidelines should not be understood as “an endorsement of the status quo.” The principles outlined in the report, he said, were specific and should be helpful markers for people to follow.
He kept some of the onus on investors: “If one does not see appropriate disclosure, one should not invest.”
It isn’t clear yet whether Mr. Steel’s clarifications would pacify critics like Richard Blumenthal, Connecticut’s attorney general, who said that the rules need “a lot more teeth and a lot more specificity.” His state’s legislature is considering two bills that would bolster transparency in the famously secretive industry. Such a move would have extra impact because many hedge funds reside in the city of Greenwich.
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Wednesday, February 28, 2007
Will Market Jitters Chill Deal-Making?
As major stock indexes continued to slide on Wednesday, there were fears that the choppy markets would cool the recent deal-making frenzy. Volatility is the enemy of all deal negotiations, and many Wall Street firms have been banking on China, where the recent stock slide was most severe, for much of their growth potential.
Brokerage stocks were especially hard hit on Tuesday, in part because of fears about their exposure to the troubled subprime mortgage sector.
Shares of securities giant Goldman Sachs slumped 8.4 percent on Tuesday, more than most of its peers, which analysts said was partly due to its minority stake in the Industrial & Commercial Bank of China, China’s largest private sector bank. Shares of Lazard, an investment bank that advises on mergers and restructurings, fell 4.6 percent.
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Brokerage stocks were especially hard hit on Tuesday, in part because of fears about their exposure to the troubled subprime mortgage sector.
Shares of securities giant Goldman Sachs slumped 8.4 percent on Tuesday, more than most of its peers, which analysts said was partly due to its minority stake in the Industrial & Commercial Bank of China, China’s largest private sector bank. Shares of Lazard, an investment bank that advises on mergers and restructurings, fell 4.6 percent.
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Tuesday, February 27, 2007
Private Equity Buyout of TXU Is Enormous in Size and in Its Complexity
TXU's private equity acquirers are using an "equity bridge" to help finance the $45 billion deal, a new tactic that allows firms to buy companies with even less cash upfront but could leave Wall Street banks holding the bag.
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Live from Private Equity’s Confab in Frankfurt
Just as energy giant TXU was announcing its record-breaking deal to go private in the United States, many of the world's buyout chiefs were gathering in Frankfurt for Super Return, one of the industry's most closely watched gatherings. DealBook was there as well, keeping tabs on the array of notables who attended.
Go to Full Coverage of Super Return 2007>>
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Monday, February 26, 2007
A Buyout Deal That Has Many Shades of Green
TXU, the Texas energy giant, announced Monday it had agreed to be taken private by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group in what would be the largest leveraged buyout in history. The deal was remarkable not only for its size but for the role that environmentalists played in the negotiations, which were first reported Friday evening. To secure the support of these groups, the bidding consortium has agreed to scale back significantly on TXU's controversial plan to build 11 new coal plants.
The record-breaking deal comes amid a resurgence for Henry Kravis, a co-founder of Kohlberg Kravis Roberts and one of Wall Street's oldest masters. His firm is near completion of a $16 billion fund, and last year it became the first of the giant buyout firms to list shares of a fund to raise money, $5 billion to be specific, from smaller investors. "He is the Roger Clemens of the industry," James B. Lee Jr., vice chairman of J.P. Morgan Chase, told The New York Times. "He was a winner when he was 20 years old, and he is winner in his 60s."
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The record-breaking deal comes amid a resurgence for Henry Kravis, a co-founder of Kohlberg Kravis Roberts and one of Wall Street's oldest masters. His firm is near completion of a $16 billion fund, and last year it became the first of the giant buyout firms to list shares of a fund to raise money, $5 billion to be specific, from smaller investors. "He is the Roger Clemens of the industry," James B. Lee Jr., vice chairman of J.P. Morgan Chase, told The New York Times. "He was a winner when he was 20 years old, and he is winner in his 60s."
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Friday, February 23, 2007
Hedge Fund Report Draws Mixed Reactions
Guidelines for safeguarding the hedge fund industry released yesterday by the Bush administration drew applause from much of Wall Street for its measured tone and criticism from some lawmakers and industry observers who complained the report’s recommendations were too weak.
The administration, in an agreement with the top United States regulatory agencies, said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.
Instead, they announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles.
The principles, many already being followed by the sharpest investors and best-run companies, say that investors should not take risks they cannot tolerate and should carefully evaluate the strategies and management skills of hedge funds. They also call for funds to make clear and meaningful disclosures to investors.
But Richard Blumenthal, attorney general in Connecticut, home to many hedge funds, said the new guidelines did not adequately protect investors. “These vague recommendations lack substance and specifics, making them unenforceable,” he said in a statement. “In a perfect world, everyone would already follow these guidelines, but in the real world we need real protections.”
“A lot more teeth and a lot more specificity is required” to oversight of the hedge fund industry, Mr. Blumenthal said. “There will be efforts on the part of states to provide guidelines if the federal government doesn’t.”
Forbes.com’s Liz Moyer suggested the guidelines amounted to a “caveat emptor” approach. “[T]he President’s Working Group on Financial Markets released only a vague set of guidelines and ‘principles’ and left it largely up to banks, funds and the markets to sort out the details,” she wrote. “Not surprisingly, Wall Street was delighted by the failure of the working group to act.”
The recommendations came after months of study by a presidential working group of top officials and regulators. They looked at both the hedge fund industry, which has more than $1 trillion in assets, and the management of private equity firms, which take direct control and ownership of companies rather than relying on large numbers of outside stockholders.
The New York Times said that the group’s conclusions reflected both the strong antiregulatory ideology of the administration and the formidable influence of Wall Street and the increasingly wealthy hedge fund industry among both Democrats and Republicans in Washington.
It noted that three of the administration’s most senior economic policy makers — Treasury Secretary Henry M. Paulson Jr., his top deputy, Robert K. Steel, and White House chief of staff Joshua Bolten — are alumni of Goldman Sachs, which in the last decade has evolved into one of the most important players in the private equity market.
And, the Times wrote, the decision to avoid demanding more openness from private funds represents a starkly different approach to that undertaken by Washington for publicly traded companies, which in the last five years have faced a battery of new governance, auditing and disclosure rules following the scandals at Enron and other large companies.
Writing in his Financial Armageddon blog, markets commentator Michael Panzner said that the decision “suggests that Pollyanna is back — with a vengeance — in regulatory circles.”
The working group rejected any proposal that would give the government the ability to inspect the books and records of hedge funds or force the funds to make regular reports about their activities. Both banks and brokerage firms must adhere to stringent rules that give regulators great leeway in supervising them.
While the working group never considered anything as strict, many hedge funds oppose even minimal oversight because they say it could slow their ability to make lightning-fast investment decisions or reveal trading strategies to rivals.
The report said that the concerns of less sophisticated investors in pension and retirement vehicles could best be addressed “through sound practices on the part of the fiduciaries that manage such vehicles.”
The announcement was hailed by several trade groups for the hedge funds and other companies involved in trading complex financial instruments.
“The President’s Working Group has taken a thoughtful and judicious approach to many of the investor protection and systemic risk issues which surround hedge funds,” said Micah S. Green, co-chief executive of the Securities Industry and Financial Markets Association, which represents hundreds of Wall Street firms.
“Too often, regulators reach immediately for new laws or rules which can have the unintended consequence of stifling innovation or smothering markets,” Mr. Green said. “By instead providing principles and guidelines, the President’s Working Group has recognized the importance of flexibility and efficiency in a healthy marketplace.”
The reaction in Congress, which is in recess this week, was largely muted.
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The administration, in an agreement with the top United States regulatory agencies, said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.
Instead, they announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles.
The principles, many already being followed by the sharpest investors and best-run companies, say that investors should not take risks they cannot tolerate and should carefully evaluate the strategies and management skills of hedge funds. They also call for funds to make clear and meaningful disclosures to investors.
But Richard Blumenthal, attorney general in Connecticut, home to many hedge funds, said the new guidelines did not adequately protect investors. “These vague recommendations lack substance and specifics, making them unenforceable,” he said in a statement. “In a perfect world, everyone would already follow these guidelines, but in the real world we need real protections.”
“A lot more teeth and a lot more specificity is required” to oversight of the hedge fund industry, Mr. Blumenthal said. “There will be efforts on the part of states to provide guidelines if the federal government doesn’t.”
Forbes.com’s Liz Moyer suggested the guidelines amounted to a “caveat emptor” approach. “[T]he President’s Working Group on Financial Markets released only a vague set of guidelines and ‘principles’ and left it largely up to banks, funds and the markets to sort out the details,” she wrote. “Not surprisingly, Wall Street was delighted by the failure of the working group to act.”
The recommendations came after months of study by a presidential working group of top officials and regulators. They looked at both the hedge fund industry, which has more than $1 trillion in assets, and the management of private equity firms, which take direct control and ownership of companies rather than relying on large numbers of outside stockholders.
The New York Times said that the group’s conclusions reflected both the strong antiregulatory ideology of the administration and the formidable influence of Wall Street and the increasingly wealthy hedge fund industry among both Democrats and Republicans in Washington.
It noted that three of the administration’s most senior economic policy makers — Treasury Secretary Henry M. Paulson Jr., his top deputy, Robert K. Steel, and White House chief of staff Joshua Bolten — are alumni of Goldman Sachs, which in the last decade has evolved into one of the most important players in the private equity market.
And, the Times wrote, the decision to avoid demanding more openness from private funds represents a starkly different approach to that undertaken by Washington for publicly traded companies, which in the last five years have faced a battery of new governance, auditing and disclosure rules following the scandals at Enron and other large companies.
Writing in his Financial Armageddon blog, markets commentator Michael Panzner said that the decision “suggests that Pollyanna is back — with a vengeance — in regulatory circles.”
The working group rejected any proposal that would give the government the ability to inspect the books and records of hedge funds or force the funds to make regular reports about their activities. Both banks and brokerage firms must adhere to stringent rules that give regulators great leeway in supervising them.
While the working group never considered anything as strict, many hedge funds oppose even minimal oversight because they say it could slow their ability to make lightning-fast investment decisions or reveal trading strategies to rivals.
The report said that the concerns of less sophisticated investors in pension and retirement vehicles could best be addressed “through sound practices on the part of the fiduciaries that manage such vehicles.”
The announcement was hailed by several trade groups for the hedge funds and other companies involved in trading complex financial instruments.
“The President’s Working Group has taken a thoughtful and judicious approach to many of the investor protection and systemic risk issues which surround hedge funds,” said Micah S. Green, co-chief executive of the Securities Industry and Financial Markets Association, which represents hundreds of Wall Street firms.
“Too often, regulators reach immediately for new laws or rules which can have the unintended consequence of stifling innovation or smothering markets,” Mr. Green said. “By instead providing principles and guidelines, the President’s Working Group has recognized the importance of flexibility and efficiency in a healthy marketplace.”
The reaction in Congress, which is in recess this week, was largely muted.
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Private Equity Saves Jobs, Permira Boss Says
Under fire from government officials and labor unions alike, Permira Advisers‘ chief executive insists that private equity does not destroy jobs. Permira, one of Britain’s largest buyout firms, has been criticized for its stewardship of Birds Eye and the Automobile Association; each company has shed more than a quarter of its total workers since being acquired by the firm.
But in an interview with the BBC, Damon Buffini said that his firm’s work is mostly misunderstood.
“In a global economy there is no job security unless the business is profitable and sustainable and that it what we’re doing,” Mr. Buffini said. He pointed to Permira’s ownership of New Look and Travelodge as examples of private equity adding on jobs.
Mr. Buffini said he is inviting members of the GMB trade union for further discussions.
Meanwhile, Brendan Barber, the General Secretary of the Trades Union Congress, which represents the majority of Britain’s labor unions, said in The Guardian that his group will lobby the Group of Eight’s president, Germany’s Angela Merkel, next month to force greater disclosure by private equity.
“Indeed, ministers in this country can no longer turn a blind eye to private equity,” Mr. Barber wrote. “The TUC believes they need to think carefully about how to regulate an industry that, at present, is pretty much allowed to operate with impunity.”
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But in an interview with the BBC, Damon Buffini said that his firm’s work is mostly misunderstood.
“In a global economy there is no job security unless the business is profitable and sustainable and that it what we’re doing,” Mr. Buffini said. He pointed to Permira’s ownership of New Look and Travelodge as examples of private equity adding on jobs.
Mr. Buffini said he is inviting members of the GMB trade union for further discussions.
Meanwhile, Brendan Barber, the General Secretary of the Trades Union Congress, which represents the majority of Britain’s labor unions, said in The Guardian that his group will lobby the Group of Eight’s president, Germany’s Angela Merkel, next month to force greater disclosure by private equity.
“Indeed, ministers in this country can no longer turn a blind eye to private equity,” Mr. Barber wrote. “The TUC believes they need to think carefully about how to regulate an industry that, at present, is pretty much allowed to operate with impunity.”
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Icahn: Buyout Firms Are the Real Raiders
Carl C. Icahn is not afraid to shake things up at big, publicly traded companies. In the 1980’s, the billionaire financier was known as a “corporate raider”; these days “activist investor” is the preferred term. But in an interview in BusinessWeek, Mr. Icahn suggests that private equity firms are the new corporate raiders — and it does not seem intended as a compliment. Mr. Icahn takes issue with private equity firms’ habit of buying cash-rich companies from public shareholders, piling on debt and selling them later at a profit. “Cash is a great asset,” he told BusinessWeek. “But if private equity investors get their hands on it, they’ll reap the benefit instead of the shareholder.”
BusinessWeek seems dubious about casting Mr. Icahn in the role of “white knight for the common man.” But it does point out that Mr. Icahn appears to have at least four proxy battles on tap for this spring, including one with cellphone giant Motorola. Patrick McGurn, executive vice president of proxy advisory firm Institutional Shareholder Services, said he is not sure if that is one for the record books, but observes that Mr. Icahn is “certainly at the front of the shareholder activist buffet line.”
By the way, Mr. Icahn has said that he doesn’t much care whether you call him an activist investor or a corporate raider. “What’s the difference?” he said at a panel discussion in October. “I’m doing the same thing I did in the 1980’s.”
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BusinessWeek seems dubious about casting Mr. Icahn in the role of “white knight for the common man.” But it does point out that Mr. Icahn appears to have at least four proxy battles on tap for this spring, including one with cellphone giant Motorola. Patrick McGurn, executive vice president of proxy advisory firm Institutional Shareholder Services, said he is not sure if that is one for the record books, but observes that Mr. Icahn is “certainly at the front of the shareholder activist buffet line.”
By the way, Mr. Icahn has said that he doesn’t much care whether you call him an activist investor or a corporate raider. “What’s the difference?” he said at a panel discussion in October. “I’m doing the same thing I did in the 1980’s.”
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Wednesday, February 21, 2007
Frank Talk on Hedge Funds
As the new chairman of the House Financial Services Committee, Barney Frank has much of Wall Street bending his ear these days. But his office has fielded few calls from hedge fund managers — and he says he is not surprised.
“They hope I am the sleeping dog that they can let lie,” Mr. Frank, a Massachusetts Democrat, said in a meeting this week with reporters and editors at The New York Times.
Mr. Frank has previously said there should be more regulation of hedge funds, investment pools that raise funds from institutional investors and wealthy individuals. In recent months, however, he has softened that stance, suggesting that more information is needed before any decision on possible legislation is made. Congressional hearings on hedge funds are scheduled for early April.
Mr. Frank said that one potential concern was the large amount of debt that hedge funds use to amplify the size of their bets, a technique known as leverage. Using leverage, hedge funds have magnified the reach of their already considerable assets, which have reached more than $1 trillion worldwide according to some estimates.
“Theoretically, they have more money than there is money,” Mr. Frank said.
One question is whether, if many of these highly leveraged bets go bad, it could create instability in the global markets, causing what Mr. Frank described as “a run on the world, not just a run on the bank.”
The hedge fund Amaranth Advisors made big bets with big leverage and was forced to shut down last year after its investments led to billions of dollars in losses over a few days.
Another issue likely to emerge at the April hearings is whether it is appropriate for managers of public pension funds to put assets into hedge funds. Some lawmakers worry that such investments could put workers’ retirement assets at risk, and Mr. Frank said that there was likely to be “some restriction on the pension fund-hedge fund interaction.”
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“They hope I am the sleeping dog that they can let lie,” Mr. Frank, a Massachusetts Democrat, said in a meeting this week with reporters and editors at The New York Times.
Mr. Frank has previously said there should be more regulation of hedge funds, investment pools that raise funds from institutional investors and wealthy individuals. In recent months, however, he has softened that stance, suggesting that more information is needed before any decision on possible legislation is made. Congressional hearings on hedge funds are scheduled for early April.
Mr. Frank said that one potential concern was the large amount of debt that hedge funds use to amplify the size of their bets, a technique known as leverage. Using leverage, hedge funds have magnified the reach of their already considerable assets, which have reached more than $1 trillion worldwide according to some estimates.
“Theoretically, they have more money than there is money,” Mr. Frank said.
One question is whether, if many of these highly leveraged bets go bad, it could create instability in the global markets, causing what Mr. Frank described as “a run on the world, not just a run on the bank.”
The hedge fund Amaranth Advisors made big bets with big leverage and was forced to shut down last year after its investments led to billions of dollars in losses over a few days.
Another issue likely to emerge at the April hearings is whether it is appropriate for managers of public pension funds to put assets into hedge funds. Some lawmakers worry that such investments could put workers’ retirement assets at risk, and Mr. Frank said that there was likely to be “some restriction on the pension fund-hedge fund interaction.”
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Shift on Antitrust Issues May Aid Sirius-XM Deal
While XM Satellite Radio’s merger deal with rival Sirius Satellite Radio has drawn numerous comparisons with EchoStar Communications’ failed effort to merge with DirecTV four years ago, the regulatory climate that led the Federal Communications Commission to block the deal has changed, The New York Times reports.
The Justice Department’s surprising approval of Whirlpool’s acquisition of Maytag — a deal that created the nation’s largest manufacturer of appliances with more than 50 percent market share — has encouraged others to proceed with deals that might have seemed to pose regulatory problems.
Indeed, Sirius and XM executives are positively bullish on their prospects. In a conference call with analysts yesterday, Mel Karmazin, the chief of XM, said that “I would not have gone to our board,” if he “didn’t think there was greater than a 50-50 chance of approval.” In fact, the deal’s timing was driven in part by a feeling that the current administration was more likely to let the deal through and that it needed to be done before that window closed.
The New York Post points out that Mr. Karmazin has a good track record when it comes to getting media deals past regulators, noting that he combined Infinity Broadcasting together with CBS and CBS with Viacom.
Much will depend on how the F.C.C. chooses to define the relevant market. Does it include non-satellite radio services such as AM and FM radio as well as iPods and mobile phone streaming? If not, an antitrust lawyer for XM concedes that the deal is essentially doomed. “If the market is satellite radio, we’re dead,” he told TheDeal.com. “But that’s not going to happen.”
Michael K. Powell, the former chairman of the Federal Communications Commission who blocked the EchoStar-DirecTV deal, said the deal is by no means a sure thing. “I do think it could get through, but I don’t think it’s going to be an easy one,” he told The Times. “It’s going to be incumbent on the companies to demonstrate that the analysis in EchoStar-DirecTV is different.”
In opposing that deal, regulators — both from the F.C.C. and the Justice Department — argued the merger would create a monopoly. EchoStar and DirecTV, on the other hand, argued that the market should be defined more broadly than simply satellite television and should encompass cable television operators and telephone companies providing video over phone lines.
When Sirius and XM announced their merger on Monday, they made a similar argument — that their market is much bigger than just satellite radio. “In addition to existing competition from free ‘over-the-air’ AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies,” the companies said.
Still, there is no question that times have clearly changed: a decade ago, the argument for a Sirius-XM merger would have never had a chance.
Joel I. Klein, then the acting assistant attorney general in charge of the antitrust division, gave a speech to the radio industry 10 years ago this week, suggesting that merging terrestrial radio stations in the same market was “no different from a situation where all soft drink manufacturers would seek to merge and control 100 percent of that market. We wouldn’t walk away from such a merger — and if you like soft drinks I should think you wouldn’t want us to walk away — merely because there are lots of other beverages out there, such as milk, juice, beer, wine, et cetera.”
Mr. Powell said that in the end, the deal’s fate would lie in the evidence that both companies produce during the government’s review. He said that while EchoStar and DirecTV publicly talked up an assortment of competitors like cable and telephone, when the government got its hands on the companies’ documents about the way they internally defined their rivals, “it seemed that the only competitors who mattered were each other.”
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The Justice Department’s surprising approval of Whirlpool’s acquisition of Maytag — a deal that created the nation’s largest manufacturer of appliances with more than 50 percent market share — has encouraged others to proceed with deals that might have seemed to pose regulatory problems.
Indeed, Sirius and XM executives are positively bullish on their prospects. In a conference call with analysts yesterday, Mel Karmazin, the chief of XM, said that “I would not have gone to our board,” if he “didn’t think there was greater than a 50-50 chance of approval.” In fact, the deal’s timing was driven in part by a feeling that the current administration was more likely to let the deal through and that it needed to be done before that window closed.
The New York Post points out that Mr. Karmazin has a good track record when it comes to getting media deals past regulators, noting that he combined Infinity Broadcasting together with CBS and CBS with Viacom.
Much will depend on how the F.C.C. chooses to define the relevant market. Does it include non-satellite radio services such as AM and FM radio as well as iPods and mobile phone streaming? If not, an antitrust lawyer for XM concedes that the deal is essentially doomed. “If the market is satellite radio, we’re dead,” he told TheDeal.com. “But that’s not going to happen.”
Michael K. Powell, the former chairman of the Federal Communications Commission who blocked the EchoStar-DirecTV deal, said the deal is by no means a sure thing. “I do think it could get through, but I don’t think it’s going to be an easy one,” he told The Times. “It’s going to be incumbent on the companies to demonstrate that the analysis in EchoStar-DirecTV is different.”
In opposing that deal, regulators — both from the F.C.C. and the Justice Department — argued the merger would create a monopoly. EchoStar and DirecTV, on the other hand, argued that the market should be defined more broadly than simply satellite television and should encompass cable television operators and telephone companies providing video over phone lines.
When Sirius and XM announced their merger on Monday, they made a similar argument — that their market is much bigger than just satellite radio. “In addition to existing competition from free ‘over-the-air’ AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies,” the companies said.
Still, there is no question that times have clearly changed: a decade ago, the argument for a Sirius-XM merger would have never had a chance.
Joel I. Klein, then the acting assistant attorney general in charge of the antitrust division, gave a speech to the radio industry 10 years ago this week, suggesting that merging terrestrial radio stations in the same market was “no different from a situation where all soft drink manufacturers would seek to merge and control 100 percent of that market. We wouldn’t walk away from such a merger — and if you like soft drinks I should think you wouldn’t want us to walk away — merely because there are lots of other beverages out there, such as milk, juice, beer, wine, et cetera.”
Mr. Powell said that in the end, the deal’s fate would lie in the evidence that both companies produce during the government’s review. He said that while EchoStar and DirecTV publicly talked up an assortment of competitors like cable and telephone, when the government got its hands on the companies’ documents about the way they internally defined their rivals, “it seemed that the only competitors who mattered were each other.”
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Justices Reject Antitrust Award
By THE ASSOCIATED PRESS
Published: February 21, 2007
WASHINGTON, Feb. 20 (AP) — The Supreme Court threw out a $79 million award against the Weyerhaeuser Company on Tuesday in a lawsuit accusing the company of trying to monopolize the hardwood lumber market in the Pacific Northwest.
The decision, which was unanimous, came in the case of a defunct lumber mill that said it was driven out of business when Weyerhaeuser overpaid for logs that it allegedly did not need.
The ruling overturned a decision by the United States Court of Appeals for the Ninth Circuit, which had affirmed a jury’s award to the mill operator, the Ross-Simmons Hardwood Lumber Company. The jury, which determined that Weyerhaeuser had violated federal antitrust law, returned a $26 million verdict, which was tripled to $79 million.
Ross-Simmons accused Weyerhaeuser of paying too much for alder logs and not using what it bought. Alder is used in furniture and specialty products like picture frames and musical instruments.
Published: February 21, 2007
WASHINGTON, Feb. 20 (AP) — The Supreme Court threw out a $79 million award against the Weyerhaeuser Company on Tuesday in a lawsuit accusing the company of trying to monopolize the hardwood lumber market in the Pacific Northwest.
The decision, which was unanimous, came in the case of a defunct lumber mill that said it was driven out of business when Weyerhaeuser overpaid for logs that it allegedly did not need.
The ruling overturned a decision by the United States Court of Appeals for the Ninth Circuit, which had affirmed a jury’s award to the mill operator, the Ross-Simmons Hardwood Lumber Company. The jury, which determined that Weyerhaeuser had violated federal antitrust law, returned a $26 million verdict, which was tripled to $79 million.
Ross-Simmons accused Weyerhaeuser of paying too much for alder logs and not using what it bought. Alder is used in furniture and specialty products like picture frames and musical instruments.
Tuesday, February 20, 2007
Deere to buy landscape supplier
Deere & Co., moving to bolster its John Deere Landscapes subsidiary, said Monday that it has agreed to acquire Cleveland, Ohio-based Lesco for $14.50 a share, or an indicated $132 million. Go to Article from The Chicago Tribune>>
Satellite Radio Deal Puts Focus on Regulators
After Sirius and XM, the United States' two satellite radio services, announced plans Monday to merge in a $13 billion deal, speculation quickly turned to how regulators would react to such a combination. The proposal brought immediate comparisons to the proposed merger of satellite television broadcasters EchoStar and DirecTV, which regulators rejected four years ago. But Sirius chief executive Mel Karmazin wasted no time asserting that this deal was completely different.Rebecca Arbogast, a telecom analyst for Stifel Nicolaus, told the Washington Post that XM and Sirius were wise to time the deal so that it could be completed before Democrats have the chance to win the presidency. Even so, Jonathan Jacoby, an analyst at Banc of America Securities, cautioned that this transaction could be held up in regulatory red tape for a long time. Breakingviews also sees regulatory static ahead. The New York Post reported that the 50-50 structure of the XM-Sirius deal was no accident. Mr. Karmazin said the deal hinged on getting each side to "swallow their pride" rather than jockeying for a majority of the new company's equity.Go to Item from DealBook>>
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Monday, February 19, 2007
A Good Word for Hedge Fund Activism
When hedge funds buy shares of a company and start agitating for changes in the way it is being managed, they may seem to be gunning for a quick killing at the expense of longer-term shareholders. But, in fact, the evidence shows that for the most part, buy-and-hold investors ought to cheer when hedge funds jump aggressively into a stock, according to a new study.
Titled “Hedge Fund Activism, Corporate Governance and Firm Performance,” it was written by Alon Brav, a finance professor at Duke; Wei Jiang, an associate professor of finance and economics at Columbia; Frank Partnoy, a law professor at the University of San Diego; and Randall S. Thomas, a professor of law and business at Vanderbilt. The study has been circulating in academic circles since the fall.
The authors examined nearly 900 instances from 2001 through 2005 of what they call hedge fund activism. The professors compiled their database in large part from the reports that hedge funds must file with the Securities and Exchange Commission whenever they acquire at least 5 percent of a company’s outstanding shares and intend to get involved in running the company.
Though the professors concede that they have no way to know whether their sample included every instance over this five-year period of hedge funds trying to change a company’s behavior, they write that they believe the sample “includes all the important events.” Included in the professors’ database are not only aggressively hostile actions like threats of lawsuits, proxy fights and takeovers, but also offers to help management enact policies intended to bolster the company’s stock price. Inherent in such cases, Professor Brav said, is an implied threat of hostile actions if management rebuffs those offers.
Go to Article from The New York Times »
Titled “Hedge Fund Activism, Corporate Governance and Firm Performance,” it was written by Alon Brav, a finance professor at Duke; Wei Jiang, an associate professor of finance and economics at Columbia; Frank Partnoy, a law professor at the University of San Diego; and Randall S. Thomas, a professor of law and business at Vanderbilt. The study has been circulating in academic circles since the fall.
The authors examined nearly 900 instances from 2001 through 2005 of what they call hedge fund activism. The professors compiled their database in large part from the reports that hedge funds must file with the Securities and Exchange Commission whenever they acquire at least 5 percent of a company’s outstanding shares and intend to get involved in running the company.
Though the professors concede that they have no way to know whether their sample included every instance over this five-year period of hedge funds trying to change a company’s behavior, they write that they believe the sample “includes all the important events.” Included in the professors’ database are not only aggressively hostile actions like threats of lawsuits, proxy fights and takeovers, but also offers to help management enact policies intended to bolster the company’s stock price. Inherent in such cases, Professor Brav said, is an implied threat of hostile actions if management rebuffs those offers.
Go to Article from The New York Times »
Sirius and XM Plan to Cross Signals, Report Says
Not more than a year ago, the idea of a satellite radio merger seemed implausible at best. But if a New York Post report, based on an unnamed source, is to be believed, the unlikely could become reality: Sirius and XM plan on announcing a merger of equals Monday. But negotiations, which took place in Washington, were described as ongoing and delicate, and a deal was far from assured.
The Post said that XM’s chairman, Gary Parsons, will retain that post, while Sirius’ Mel Karmazin will serve as chief executive for the new company.
Beyond the combining of content — Howard Stern and Oprah Winfrey, the National Football League and Major League Baseball — the deal will also save the two companies almost $7 billion a year.
Until now, the biggest stumbling block to such a merger was the prospect of antitrust concerns. Yet both Sirius and XM have grown increasingly confident that the two could structure a deal to avoid regulator ire; over the past year, Mr. Karmazin changed his tune, saying that competitors like MP3 players with built-in radio would mitigate antitrust issues.
Deal talk took a splash of cold water late last year, as Kevin Martin, the chairman of the Federal Communications Commission, said that “under current rules,” such a merger would be prohibited. But analysts later took a more sanguine view of Mr. Martin’s wording and said that a deal was still possible.
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The Post said that XM’s chairman, Gary Parsons, will retain that post, while Sirius’ Mel Karmazin will serve as chief executive for the new company.
Beyond the combining of content — Howard Stern and Oprah Winfrey, the National Football League and Major League Baseball — the deal will also save the two companies almost $7 billion a year.
Until now, the biggest stumbling block to such a merger was the prospect of antitrust concerns. Yet both Sirius and XM have grown increasingly confident that the two could structure a deal to avoid regulator ire; over the past year, Mr. Karmazin changed his tune, saying that competitors like MP3 players with built-in radio would mitigate antitrust issues.
Deal talk took a splash of cold water late last year, as Kevin Martin, the chairman of the Federal Communications Commission, said that “under current rules,” such a merger would be prohibited. But analysts later took a more sanguine view of Mr. Martin’s wording and said that a deal was still possible.
Go to Article from The New York Post »
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Tuesday, February 13, 2007
Private Equity Slugfest
Investors and regulators fear there isn't enough competition among private equity firms for deals. But new data show the number of competing bids is up sharply
by Steve Rosenbush , BusinessWeek.com
by Steve Rosenbush , BusinessWeek.com
SEC slammed over hedge fund 'wealth' test
It seemed reasonable enough: Protect the little guy from big risks in hedge funds. But the public comments suggest little guys don't want any help.
By Bethany McLean, Fortune editor-at-large
February 11 2007: 5:44 PM EST
By Bethany McLean, Fortune editor-at-large
February 11 2007: 5:44 PM EST
Friday, February 09, 2007
Fortress’s ‘Standing-Room Only’ I.P.O. Prices at High End
The first hedge fund and private equity company to go public in the United States makes its market debut Friday at $18.50 a share, at the high end of its expected price range. At that price, the company, Fortress Investment Group, which manages about $30 billion in assets, would have a market value of $7.4 billion.
Demand for the offering was strong, analysts said. People who attended a presentation by Fortress on the offering on Wednesday said that it was standing room only.
Though traditionally restricted to wealthy investors and institutions, hedge funds have attracted the attention of many average investors in recent years, in part because of the huge profits that the top funds can achieve. Hedge funds’ penchant for secrecy and the riches amassed by the top fund managers, many of whom have built modern-day castles in and around Greenwich, Conn., have only added to the allure. Last year’s publication of the book “Hedge Funds for Dummies” was just the latest example of hedge funds’ entry into the popular culture.
But some have grown concerned about mom-and-pop investors diving into hedge funds, which sometimes take big risks to achieve their above-average returns. Regulators are considering stricter rules about what kinds of investors should be allowed to put their money in hedge funds.
Amid this growing buzz, Fortress on Friday will become the first U.S. hedge-fund firm to sell shares to the public — and demand appeared heavy. Last week, Fortress said in a filing that it expected to sell the shares in a range of $16.50 to $18.50 each. The price was set Thursday at $18.50 per share, raising $634 million for Fortress.
Go to Article from The New York Times »
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Demand for the offering was strong, analysts said. People who attended a presentation by Fortress on the offering on Wednesday said that it was standing room only.
Though traditionally restricted to wealthy investors and institutions, hedge funds have attracted the attention of many average investors in recent years, in part because of the huge profits that the top funds can achieve. Hedge funds’ penchant for secrecy and the riches amassed by the top fund managers, many of whom have built modern-day castles in and around Greenwich, Conn., have only added to the allure. Last year’s publication of the book “Hedge Funds for Dummies” was just the latest example of hedge funds’ entry into the popular culture.
But some have grown concerned about mom-and-pop investors diving into hedge funds, which sometimes take big risks to achieve their above-average returns. Regulators are considering stricter rules about what kinds of investors should be allowed to put their money in hedge funds.
Amid this growing buzz, Fortress on Friday will become the first U.S. hedge-fund firm to sell shares to the public — and demand appeared heavy. Last week, Fortress said in a filing that it expected to sell the shares in a range of $16.50 to $18.50 each. The price was set Thursday at $18.50 per share, raising $634 million for Fortress.
Go to Article from The New York Times »
Go to Article from The Los Angeles Times »
Go to Commentary from MarketWatch »
Wednesday, February 07, 2007
Deal volume rises, but number of deals takes a dive
Steve Rosenbush at BusinessWeekOnline writes:
There's no sign of a slowdown in M&A deal volume. Five weeks into 2007, volume is on track to smash the $4 trillion record established last year, according to market researcher Dealogic. In the U.S., M&A volume for the year to date is $228.6 billion, up 86% from the comparable period of last year. Global deal volume is up 36% to $407.1 billion.
The number of deals has declined though. In the U.S., there have been 519 deals, down 38% from 841 during the comparable period of last year, according to Dealogic. On a global basis, the number of deals has declined 25% to 2.,392.
A few big deals, such as Blackstone and Vornado's bidding war for Equity Office Properties, are pushing up deal volume. The decline in the total numbers of deals is worth watching, though. The year is so young, that it's hard to read too much into the data. But the magnitude of the decline is significant, and bears watching. Is this the first evidence of a shift in M&A trends, toward a fewer number of larger deals?
There's no sign of a slowdown in M&A deal volume. Five weeks into 2007, volume is on track to smash the $4 trillion record established last year, according to market researcher Dealogic. In the U.S., M&A volume for the year to date is $228.6 billion, up 86% from the comparable period of last year. Global deal volume is up 36% to $407.1 billion.
The number of deals has declined though. In the U.S., there have been 519 deals, down 38% from 841 during the comparable period of last year, according to Dealogic. On a global basis, the number of deals has declined 25% to 2.,392.
A few big deals, such as Blackstone and Vornado's bidding war for Equity Office Properties, are pushing up deal volume. The decline in the total numbers of deals is worth watching, though. The year is so young, that it's hard to read too much into the data. But the magnitude of the decline is significant, and bears watching. Is this the first evidence of a shift in M&A trends, toward a fewer number of larger deals?
Defending the Management Buyout
New York Times columnist Ben Stein and the legions of other critics of management-led buyouts have it all wrong, according to TheEconomist.com. Calling the reaction “a tad hysterical,” it argues that M.B.O.’s are not, as Mr. Stein has repeatedly argued, an inherent conflict of interest, and shareholders are often enriched by them.
The purported conflict in management-led buyouts arises from managers, in their role as part of the buying group, trying to get the lowest price for their companies, which on the face of it means that, in dealing with private equity suitors, they are acting against the interests of their shareholders, who want the highest price.
Are shareholders getting shortchanged? TheEconomist.com suggests they are not, writing that “so much money has been raised in the past couple of years by private equity firms, and banks are so keen to lend them billions more, that this has become a sellers’ market.” (Of course, this argument assumes that buyout firms will actively bid against eachother, which is something that the Justice of Department is looking into.)
Further, it is not as if managers are free of personal risk in such deals. Private equity firms “are much less tolerant of failure than public companies are,” TheEconomist.com writes. “They fire fast.”
The critics are also wrong, TheEconomist.com says, to assume that “the mere existence of a potential conflict of interest will lead directly to wrongdoing.” One of the “great strengths of capitalism,” the magazine concludes, “is its ability to develop efficient mechanisms to manage conflicts of interest. When a boss considers selling his firm to private equity, the check on him is particularly simple: the shareholders of his firm must approve any sale.”
As noted previously on DealBook, data suggest that the premiums paid for companies in M.B.O.’s is often smaller than in the average deal. TheEconomist.com shrugs this off: “So what?” it writes. “The selling shareholders were presumably happy with that premium. The time to cry scandal will be when private-equity firms pay less than the public-market price.”
Go to Article from The Economist »
Go to Earlier Item on DealBook »
The purported conflict in management-led buyouts arises from managers, in their role as part of the buying group, trying to get the lowest price for their companies, which on the face of it means that, in dealing with private equity suitors, they are acting against the interests of their shareholders, who want the highest price.
Are shareholders getting shortchanged? TheEconomist.com suggests they are not, writing that “so much money has been raised in the past couple of years by private equity firms, and banks are so keen to lend them billions more, that this has become a sellers’ market.” (Of course, this argument assumes that buyout firms will actively bid against eachother, which is something that the Justice of Department is looking into.)
Further, it is not as if managers are free of personal risk in such deals. Private equity firms “are much less tolerant of failure than public companies are,” TheEconomist.com writes. “They fire fast.”
The critics are also wrong, TheEconomist.com says, to assume that “the mere existence of a potential conflict of interest will lead directly to wrongdoing.” One of the “great strengths of capitalism,” the magazine concludes, “is its ability to develop efficient mechanisms to manage conflicts of interest. When a boss considers selling his firm to private equity, the check on him is particularly simple: the shareholders of his firm must approve any sale.”
As noted previously on DealBook, data suggest that the premiums paid for companies in M.B.O.’s is often smaller than in the average deal. TheEconomist.com shrugs this off: “So what?” it writes. “The selling shareholders were presumably happy with that premium. The time to cry scandal will be when private-equity firms pay less than the public-market price.”
Go to Article from The Economist »
Go to Earlier Item on DealBook »
Monday, February 05, 2007
Venture Capital's Growing Aspirations
Silicon Valley's archetype for drawing venture funding has long been two guys in a garage—from Hewlett-Packard (HPQ) founders Bill Hewlett and David Packard to the brains behind Google (GOOG), Larry Page and Sergey Brin. But judging from recent trends, that template may be subject to revision.
Some of the biggest venture capital firms are raising large funds, targeting more established companies, and increasingly setting their sights abroad. That's the finding of recent research by Dow Jones (DJ) VentureOne.
Go to Article from BusinessWeek »
Some of the biggest venture capital firms are raising large funds, targeting more established companies, and increasingly setting their sights abroad. That's the finding of recent research by Dow Jones (DJ) VentureOne.
Go to Article from BusinessWeek »
Friday, February 02, 2007
Senate Report Says S.E.C. Botched Hedge Fund Inquiry
The Securities and Exchange Commission mishandled its inquiry into suspect trades by a prominent hedge fund, then may have tried to cover up those mistakes after its chief investigator on the case complained, according to an interim Senate report released Thursday. The report, released by the former chairmen of the Senate Judiciary and Finance Committees, Arlen Specter of Pennsylvania and Charles E. Grassley of Iowa, also asked the S.E.C. or the Justice Department to consider investigating whether false testimony was given to S.E.C. officials who examined the hedge fund, Pequot Capital Management.
The report did not cite examples of what testimony might have been false.
The two Senate committees began looking into the case in July after the investigator, a commission lawyer named Gary J. Aguirre, said he was fired for complaining that the Pequot investigation had been derailed because of political considerations.
“At best, the picture shows extraordinarily lax enforcement by the S.E.C.,” Senate investigators concluded. “At worse, the picture is colored with overtones of a possible cover-up.”
The report strongly suggests that Mr. Aguirre was fired in retaliation for his criticism. At the same time, Senate investigators said they were “deeply troubled” by the failure of the S.E.C.’s inspector general, Walter J. Stachnik, to investigate Mr. Aguirre’s accusations properly.
Mr. Aguirre testified that his troubles at the S.E.C. began when he asked for permission to examine John J. Mack, an influential Wall Street executive. After initially supporting Mr. Aguirre’s decision, senior S.E.C. officials abruptly changed course, the report notes.
“What is troubling is how this enthusiasm waned after public reports on June 23, 2005, that Morgan Stanley was considering hiring Mack as its new C.E.O.,” the report concludes.
Mr. Mack’s testimony was eventually taken in August 2006, more than a year after Mr. Aguirre proposed doing so. “We are concerned about the circumstances under which it was done,” investigators said. “Mack’s testimony was taken five days after the statute of limitations expired, and only a few months after we initiated our inquiry into this matter.”
The report concludes that the S.E.C. finally interviewed Mr. Mack to deflect public criticism for not having done it earlier.
Go to Article from The New York Times »
The report did not cite examples of what testimony might have been false.
The two Senate committees began looking into the case in July after the investigator, a commission lawyer named Gary J. Aguirre, said he was fired for complaining that the Pequot investigation had been derailed because of political considerations.
“At best, the picture shows extraordinarily lax enforcement by the S.E.C.,” Senate investigators concluded. “At worse, the picture is colored with overtones of a possible cover-up.”
The report strongly suggests that Mr. Aguirre was fired in retaliation for his criticism. At the same time, Senate investigators said they were “deeply troubled” by the failure of the S.E.C.’s inspector general, Walter J. Stachnik, to investigate Mr. Aguirre’s accusations properly.
Mr. Aguirre testified that his troubles at the S.E.C. began when he asked for permission to examine John J. Mack, an influential Wall Street executive. After initially supporting Mr. Aguirre’s decision, senior S.E.C. officials abruptly changed course, the report notes.
“What is troubling is how this enthusiasm waned after public reports on June 23, 2005, that Morgan Stanley was considering hiring Mack as its new C.E.O.,” the report concludes.
Mr. Mack’s testimony was eventually taken in August 2006, more than a year after Mr. Aguirre proposed doing so. “We are concerned about the circumstances under which it was done,” investigators said. “Mack’s testimony was taken five days after the statute of limitations expired, and only a few months after we initiated our inquiry into this matter.”
The report concludes that the S.E.C. finally interviewed Mr. Mack to deflect public criticism for not having done it earlier.
Go to Article from The New York Times »
Thursday, February 01, 2007
Bracing — or Just Praying? — for an I.P.O. Comeback
Could initial public offerings rebound this year? Some hopeful private equity managers and venture capitalists seem to think so. There is, Rob Garver of CFO.com declares, “a growing feeling that the future may be 2007.” One reason is that startups are getting restless. “Going public is the goal,” David Spreng, a partner at Crescendo Ventures, told CFO.com. “When a C.E.O. is rallying the troops, he’s not planting his flag and telling everyone, ‘Let’s build this company so that we can sell it to a private-equity firm.’”
CFO notes that I.P.O.’s have picked up “modestly” in recent months, and total capital raised grew last year, though there were fewer offerings in 2006 than in 2005.
Meanwhile, the amount of late-stage capital has grown, according to Peter Y. Chung, a partner with Summit Partners.
Complaints that Sarbanes-Oxley is sending companies overseas for their public debuts may be overblown, some observers say. Robert L. Friedman, a senior managing partner at Blackstone Group, noted that many of the companies that have floated stock had previously been publicly traded, or were part of larger firms that were, and therefore had their Sarbanes-Oxley compliance schemes already in place.
As DealBook noted last week, the travel Web site Orbitz — which had been part of the publicly traded Cendant — may soon go public again. The site’s parent company, Travelport, was taken private by Blackstone just six months ago.
Go to Article from CFO »
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CFO notes that I.P.O.’s have picked up “modestly” in recent months, and total capital raised grew last year, though there were fewer offerings in 2006 than in 2005.
Meanwhile, the amount of late-stage capital has grown, according to Peter Y. Chung, a partner with Summit Partners.
Complaints that Sarbanes-Oxley is sending companies overseas for their public debuts may be overblown, some observers say. Robert L. Friedman, a senior managing partner at Blackstone Group, noted that many of the companies that have floated stock had previously been publicly traded, or were part of larger firms that were, and therefore had their Sarbanes-Oxley compliance schemes already in place.
As DealBook noted last week, the travel Web site Orbitz — which had been part of the publicly traded Cendant — may soon go public again. The site’s parent company, Travelport, was taken private by Blackstone just six months ago.
Go to Article from CFO »
Go to Earlier Item on DealBook »
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