Posted by Heidi N. Moore, May 29, 2008, 2:48 pm
Deal Journal, WSJ.com
While Barack Obama predicts his own victory in the Democratic presidential primaries as of June 3, deal makers fret about whether a Democratic administration would mean never being able to do a big M&A deal again.
US Airways and United Airlines, for instance, said today that they are pedaling as fast as they can to get a deal done before the Bush administration leaves. Are their fears justified?
If you go by the rhetoric, yes.
Both Obama and Democratic rival Hillary Clinton have indicated they don’t see antitrust matters as loosely as they accuse the Bush administration of doing. Obama has been more outspoken, criticizing the Bush administration for what he sees as lax enforcement of the nation’s antitrust laws. Clinton has been less so.
Here is Obama’s first salvo: “We live in a globalized economy and we probably have to update how we approach antitrust to figure out what is truly uncompetitive behavior on the part of monopolies or oligopolies and what are just big successful companies that need to be big in order to compete internationally….Some of the consolidations that have been taking place, I think, may be anticompetitive….We’re going to have an antitrust division in the Justice Department that actually believes in antitrust law. We haven’t had that for the last seven, eight years.”
Of course, Obama is campaigning, and on a Democratic platform you would expect him to talk tough on mergers. The Clinton Administration gave Microsoft a heck of a time, for instance. But some believe that the important courts right now will still be staffed by Republican judges who may not be amenable to antitrust challenges.
Hillary Clinton is a little harder to read. Her only stance on antitrust has come in the form of comments against OPEC. She has promised to amend antitrust law to confront OPEC and has threatened repeatedly to confront the cartel through the World Trade Organization.
But as first lady in the ’90s, Clinton tried to encourage hospitals to communicate with each other as part her push for universal health care; she also promised to dial down any antitrust enforcement that would prevent hospitals from sharing information with each other.
Of course, the antitrust stances of these two candidates don’t extend to their own interests: there is, after all, rampant speculation about a merger of their two campaigns.
Thursday, May 29, 2008
Wednesday, May 28, 2008
LBO Firms Must Return Cash to Change Plan
LBO Firms Must Return Cash to Change Plan, Hands Says
By Edward Evans
May 28 (Bloomberg) -- Leveraged buyout firms should hand back investors' money if they change strategy because of the credit crunch, British financier Guy Hands said.
Buyout firms that once focused on large investments have ``suddenly'' started investing in distressed debt, while other firms with little experience beyond their local markets are targeting Asia to profit from the region's economic growth, Hands wrote in his quarterly report to investors. He didn't identify the firms in the document, which was published on his Web site.
``This approach means using the capital entrusted to one strategy to pursue another,'' Hands said. Firms should return to investors' money they haven't already spent and ask investors' permission to invest it in other ways, he added. ``The firm one chooses to back to do mega-deals may well not be the firm one chooses to back in, for example, the mid-market. The limited partners should have the opportunity to decide.''
The world's largest leveraged buyout firms are struggling to get loans for deals after the collapse of the U.S. subprime- mortgage market spurred investors to flee all but the safest forms of debt. The firms have announced $118 billion of deals this year, about a third as much as in the same period in 2007, according to data compiled by Bloomberg.
Few Return Cash
Few, if any, buyout firms have ever returned cash to investors, apart from a number of venture capital firms that were unable to find investments after the bursting of the dot- com bubble, Hands added.
Hands, who runs London-based private equity firm Terra Firma Capital Partners Ltd., said his firm's only option is to invest in areas less affected by a slowdown in the economy, targeting asset-rich companies that require changes to their management and operations. He warned investors to expect short- term losses from this strategy.
``Whilst following this strategy early in a bear market may still lead to investors suffering mark to market losses in the short term, most private equity investors are more concerned about creating value over the whole economic cycle than they are with achieving performance in any particular part of that cycle,'' Hands added.
Hands, 48, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. Terra Firma is investing a 5.4 billion-euro ($8.4 billion) fund that closed in May last year.
Terra Firma bought EMI Group Plc, the record label whose acts include the Beatles, for 2.4 billion pounds ($4.9 billion) last year. New York-based Citigroup, which financed Terra Firma's bid, postponed plans last month to sell the loans because of investor anxiety about EMI's turnaround under Hands.
``This is not ideal for EMI,'' Hands wrote. ``We have worked hard, and continue to work hard, to see if there are ways to help Citigroup syndicate or sell down this loan.''
By Edward Evans
May 28 (Bloomberg) -- Leveraged buyout firms should hand back investors' money if they change strategy because of the credit crunch, British financier Guy Hands said.
Buyout firms that once focused on large investments have ``suddenly'' started investing in distressed debt, while other firms with little experience beyond their local markets are targeting Asia to profit from the region's economic growth, Hands wrote in his quarterly report to investors. He didn't identify the firms in the document, which was published on his Web site.
``This approach means using the capital entrusted to one strategy to pursue another,'' Hands said. Firms should return to investors' money they haven't already spent and ask investors' permission to invest it in other ways, he added. ``The firm one chooses to back to do mega-deals may well not be the firm one chooses to back in, for example, the mid-market. The limited partners should have the opportunity to decide.''
The world's largest leveraged buyout firms are struggling to get loans for deals after the collapse of the U.S. subprime- mortgage market spurred investors to flee all but the safest forms of debt. The firms have announced $118 billion of deals this year, about a third as much as in the same period in 2007, according to data compiled by Bloomberg.
Few Return Cash
Few, if any, buyout firms have ever returned cash to investors, apart from a number of venture capital firms that were unable to find investments after the bursting of the dot- com bubble, Hands added.
Hands, who runs London-based private equity firm Terra Firma Capital Partners Ltd., said his firm's only option is to invest in areas less affected by a slowdown in the economy, targeting asset-rich companies that require changes to their management and operations. He warned investors to expect short- term losses from this strategy.
``Whilst following this strategy early in a bear market may still lead to investors suffering mark to market losses in the short term, most private equity investors are more concerned about creating value over the whole economic cycle than they are with achieving performance in any particular part of that cycle,'' Hands added.
Hands, 48, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. Terra Firma is investing a 5.4 billion-euro ($8.4 billion) fund that closed in May last year.
Terra Firma bought EMI Group Plc, the record label whose acts include the Beatles, for 2.4 billion pounds ($4.9 billion) last year. New York-based Citigroup, which financed Terra Firma's bid, postponed plans last month to sell the loans because of investor anxiety about EMI's turnaround under Hands.
``This is not ideal for EMI,'' Hands wrote. ``We have worked hard, and continue to work hard, to see if there are ways to help Citigroup syndicate or sell down this loan.''
Study Claims Milberg Weiss Scheme Hurt Shareholders
Anthony Lin, New York Law Journal, May 28, 2008:
As former securities class action king Melvyn I. Weiss awaits sentencing for his role in the payment of kickbacks to named plaintiffs in shareholder suits, a conservative think tank is set to release a study purporting to show that the scheme injured shareholders.
The American Enterprise Institute Legal Center is releasing today an article by professor Michael Perino of St. John's University School of Law that takes on the argument that the Milberg Weiss kickbacks constituted a victimless crime because the payments came out of legal fees awarded to the firm and named plaintiffs had incentive to maximize class recoveries.
Examining a database of 730 Milberg Weiss class action settlements and legal fee awards, Perino compared those that were cited in the indictments against the firm and its partners and those that were not. He found the indictment cases on average actually settled for slightly less than the non-indictment cases, suggesting the kickback incentives did not improve recoveries.
On the other hand, Perino found that the legal fees requested and awarded in the indictment cases were significantly higher than those in the non-indictment cases, and also higher than those in cases handled by firms other than Milberg Weiss.
According to the report, the findings support the notion that class members were hurt by the kickbacks, as they "appear to have received a lower proportion of the settlement proceeds than class members in otherwise substantially similar non-indictment cases."
Federal prosecutors have requested a 33-month sentence for Weiss, who pleaded guilty in March. He is in turn arguing for 18 months. His sentencing is scheduled for June 2.
As former securities class action king Melvyn I. Weiss awaits sentencing for his role in the payment of kickbacks to named plaintiffs in shareholder suits, a conservative think tank is set to release a study purporting to show that the scheme injured shareholders.
The American Enterprise Institute Legal Center is releasing today an article by professor Michael Perino of St. John's University School of Law that takes on the argument that the Milberg Weiss kickbacks constituted a victimless crime because the payments came out of legal fees awarded to the firm and named plaintiffs had incentive to maximize class recoveries.
Examining a database of 730 Milberg Weiss class action settlements and legal fee awards, Perino compared those that were cited in the indictments against the firm and its partners and those that were not. He found the indictment cases on average actually settled for slightly less than the non-indictment cases, suggesting the kickback incentives did not improve recoveries.
On the other hand, Perino found that the legal fees requested and awarded in the indictment cases were significantly higher than those in the non-indictment cases, and also higher than those in cases handled by firms other than Milberg Weiss.
According to the report, the findings support the notion that class members were hurt by the kickbacks, as they "appear to have received a lower proportion of the settlement proceeds than class members in otherwise substantially similar non-indictment cases."
Federal prosecutors have requested a 33-month sentence for Weiss, who pleaded guilty in March. He is in turn arguing for 18 months. His sentencing is scheduled for June 2.
Thursday, May 15, 2008
M&A Optimism: It’s Spreading!
Posted by WSJ Deal Journal, May 15, 2008:
After months of paring back on loans, Wall Street’s banks are finally loosing their lending for private-equity deals, according to bankers speaking at a conference in New York on Wednesday.
Banks have committed $10 billion to $20 billion in new private-equity deals during 2008, meaning the total backlog now stands less than $80B, said John Eydenberg, head of Deutsche Bank’s leveraged finance group, speaking at The Deal’s Private Capital Symposium.
“Panic has been behind us,” said Eydenberg. “About three weeks ago, backlog didn’t matter any more. People started to think about fundamentals again.”
Optimism is budding on Wall Street and that’s primarily due to the speed banks with which banks like Citigroup have been able to sell down hung bridge loans. The backlog has decreased to its current level from around $250 billion a few months ago.
People are “less sanguine” than they were at earlier stages of the credit crunch, said Peter Schoenfeld, CEO of P. Schoenfeld Asset Management LLC. “The real horror stories are gone.”
But market participants say the recovery is still at an early stage.
“You will see us walk before we run,” said Alan Jones, co-head of Morgan Stanley’s private equity group. “We will be in a normal, more protected environment,” he said. But the recovery is “going to be gradual. We are in the crawling maybe walking phase.”
After months of paring back on loans, Wall Street’s banks are finally loosing their lending for private-equity deals, according to bankers speaking at a conference in New York on Wednesday.
Banks have committed $10 billion to $20 billion in new private-equity deals during 2008, meaning the total backlog now stands less than $80B, said John Eydenberg, head of Deutsche Bank’s leveraged finance group, speaking at The Deal’s Private Capital Symposium.
“Panic has been behind us,” said Eydenberg. “About three weeks ago, backlog didn’t matter any more. People started to think about fundamentals again.”
Optimism is budding on Wall Street and that’s primarily due to the speed banks with which banks like Citigroup have been able to sell down hung bridge loans. The backlog has decreased to its current level from around $250 billion a few months ago.
People are “less sanguine” than they were at earlier stages of the credit crunch, said Peter Schoenfeld, CEO of P. Schoenfeld Asset Management LLC. “The real horror stories are gone.”
But market participants say the recovery is still at an early stage.
“You will see us walk before we run,” said Alan Jones, co-head of Morgan Stanley’s private equity group. “We will be in a normal, more protected environment,” he said. But the recovery is “going to be gradual. We are in the crawling maybe walking phase.”
Thursday, May 08, 2008
SEC Scrutinizing Investment Bank Liquidity
By Rachelle Younglai and Karey Wutkowski
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is scrutinizing the liquidity of investment banks it supervises and is planning to require the top Wall Street firms to publicly disclose their current liquidity and capital positions, SEC officials said on Wednesday.
Attention has been on funding at the biggest U.S. investment banks since March, when Bear Stearns Cos Inc nearly collapsed after a sharp decline in its liquidity.
Go to Article from The New York Times»
Go to Article from Reuters»
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is scrutinizing the liquidity of investment banks it supervises and is planning to require the top Wall Street firms to publicly disclose their current liquidity and capital positions, SEC officials said on Wednesday.
Attention has been on funding at the biggest U.S. investment banks since March, when Bear Stearns Cos Inc nearly collapsed after a sharp decline in its liquidity.
Go to Article from The New York Times»
Go to Article from Reuters»
IPOs: Back from the Dead?
by Ben Steverman, BusinessWeek.com, May 8, 2008:
A nervous Wall Street scorned initial public offerings for months, but suddenly IPOs are popular again.
Recent stock market debuts have been successful, including the largest IPO ever—Visa's (V) $19.6 billion deal—and a herd of new offerings are hitting the market soon. The next couple weeks are expected to be the busiest time for IPOs so far this year.
Investors seem more and more willing to take chances on small, fast-growing startups. That sort of appetite for risk has been hard to find since last fall, as a bear market and a credit crisis took big bites out of many portfolios.
After a tough start to 2008, the broader stock market recovered a bit. The broad Standard & Poor's 500-stock index gained 3.5% in the month before May 6. But the IPO market is doing even better. Recent IPOs, measured by Renaissance Capital's IPO index, are up 12.2% in the past month.
Go to Article from BusinessWeek»
A nervous Wall Street scorned initial public offerings for months, but suddenly IPOs are popular again.
Recent stock market debuts have been successful, including the largest IPO ever—Visa's (V) $19.6 billion deal—and a herd of new offerings are hitting the market soon. The next couple weeks are expected to be the busiest time for IPOs so far this year.
Investors seem more and more willing to take chances on small, fast-growing startups. That sort of appetite for risk has been hard to find since last fall, as a bear market and a credit crisis took big bites out of many portfolios.
After a tough start to 2008, the broader stock market recovered a bit. The broad Standard & Poor's 500-stock index gained 3.5% in the month before May 6. But the IPO market is doing even better. Recent IPOs, measured by Renaissance Capital's IPO index, are up 12.2% in the past month.
Go to Article from BusinessWeek»
Thursday, May 01, 2008
Simply Appalling: Good judgment seems to have been short-circuited in the Circuit City boardroom
From Directors & Boards E-Briefing, May, 2008:
A perennial mystery to this longtime governance observer is how a board can seemingly sit silently by and watch a management trash a business. This seems to be what’s been happening at Circuit City Stores Inc. A year ago the company announced a turnaround plan. A centerpiece of the plan was laying off a slew of more experienced salespeople, to be replaced with lower-paid hires. But get this: Those who lost their jobs could reapply for their old jobs, at the lower pay, but had to wait 10 weeks to do so. That’s simply appalling.“That’s the most cynical thing I’ve heard about in a long time,” said Peter Cappelli, in a critique of the plan published by the Wharton School’s Knowledge@Wharton newsletter. Cappelli is a management professor and director of Wharton’s Center for Human Resources . Another Wharton professor, Daniel Levinthal, termed the layoff plan “a massive de-skilling” of the company. I’m all for companies doing what they feel they must do to survive. But let’s be mindful of what Peter Drucker said: “The purpose of a business is to create a customer.”When a company takes steps that are repellent in its treatment of its human resources — its work force and its customers — is it really a business anymore? Or a business that should stay in business?I didn’t write about this abhorrent policy at the time. My personal response was to vow never to set foot in a Circuit City store again, and to leave it at that.I did wait for the follow-on announcement that the current board members all submitted their resignations — so as, in the spirit of their approved turnaround plan, to allow management to replace them with a newer, younger board, which would be paid a lower retainer and fees than the old directors received. Less experienced? Who cares about that? And the current board, after a cool-down period, would be allowed to reapply for their old seats, at the lower scale, of course. Funny … I missed that announcement. Did you, too?Well, a year has gone by, and Circuit City is now much in the news. Perhaps my personal reaction was shared by similarly offended spirits. The turnaround seems to have run aground. Circuit City’s results are punk, the stock price has collapsed, and a hedge fund, which has called the turnaround effort “disastrous,” is at the board’s throat. Then, in a bizarre turn, in mid-April Blockbuster Inc. weighed in with a merger proposal. That’s being charitable to call it bizarre. It’s also being called “crazy,” “reckless,” and “looney” by deals analysts.All I can hope is that there were some dissenting voices in the boardroom — “What are they thinking?!” —when management unveiled the HR components of its turnaround plan. It must be a sad day in the life of a director when he or she sees the company’s business and reputation about to be trashed.
Jim Kristie is the editor and associate publisher of Directors & Boards.
A perennial mystery to this longtime governance observer is how a board can seemingly sit silently by and watch a management trash a business. This seems to be what’s been happening at Circuit City Stores Inc. A year ago the company announced a turnaround plan. A centerpiece of the plan was laying off a slew of more experienced salespeople, to be replaced with lower-paid hires. But get this: Those who lost their jobs could reapply for their old jobs, at the lower pay, but had to wait 10 weeks to do so. That’s simply appalling.“That’s the most cynical thing I’ve heard about in a long time,” said Peter Cappelli, in a critique of the plan published by the Wharton School’s Knowledge@Wharton newsletter. Cappelli is a management professor and director of Wharton’s Center for Human Resources . Another Wharton professor, Daniel Levinthal, termed the layoff plan “a massive de-skilling” of the company. I’m all for companies doing what they feel they must do to survive. But let’s be mindful of what Peter Drucker said: “The purpose of a business is to create a customer.”When a company takes steps that are repellent in its treatment of its human resources — its work force and its customers — is it really a business anymore? Or a business that should stay in business?I didn’t write about this abhorrent policy at the time. My personal response was to vow never to set foot in a Circuit City store again, and to leave it at that.I did wait for the follow-on announcement that the current board members all submitted their resignations — so as, in the spirit of their approved turnaround plan, to allow management to replace them with a newer, younger board, which would be paid a lower retainer and fees than the old directors received. Less experienced? Who cares about that? And the current board, after a cool-down period, would be allowed to reapply for their old seats, at the lower scale, of course. Funny … I missed that announcement. Did you, too?Well, a year has gone by, and Circuit City is now much in the news. Perhaps my personal reaction was shared by similarly offended spirits. The turnaround seems to have run aground. Circuit City’s results are punk, the stock price has collapsed, and a hedge fund, which has called the turnaround effort “disastrous,” is at the board’s throat. Then, in a bizarre turn, in mid-April Blockbuster Inc. weighed in with a merger proposal. That’s being charitable to call it bizarre. It’s also being called “crazy,” “reckless,” and “looney” by deals analysts.All I can hope is that there were some dissenting voices in the boardroom — “What are they thinking?!” —when management unveiled the HR components of its turnaround plan. It must be a sad day in the life of a director when he or she sees the company’s business and reputation about to be trashed.
Jim Kristie is the editor and associate publisher of Directors & Boards.
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