Shareholders on Wednesday unplugged the Dolan family’s $10.6 billion bid for Cablevision Systems.
The investor vote leaves Cablevision as an independent company and spells an end, for now, to two years of takeover efforts by the Dolans. Though Cablevision did not provide a breakdown of the vote, large shareholders, proxy advisory firms and analysts had expressed strong reservations about the offer.
Cablevision’s largest outside shareholder, the hedge fund ClearBridge Advisors, and the fund manager Mario Gabelli both opposed the buyout offer, saying the price was too low. Mr. Gabelli went even further, filing notice that he planned to exercise his shareholder appraisal rights, which allow a Delaware court to determine the fair value of his shares.
For their part, despite the latest and most definitive setback they have faced, the Dolans said they remain confident in the company’s future.
“While we are disappointed that shareholders did not approve the transaction, there is really nothing negative about today’s outcome,” the family’s two leading members, Charles Dolan and James Dolan, said in a statement. “We see today’s outcome as a vote of confidence in the prospects of Cablevision, its management team, its 20,000 employees and the industry’s future.”
Go to Cablevision Press Release »
Wednesday, October 24, 2007
Cisco Goes WiMax With Navini Deal
Cisco Systems has finally put its weight squarely behind WiMax wireless broadband technology, announcing on Tuesday a $330 million agreement to buy the privately held Navini Networks.
Dallas-based Navini, founded in 2000, is a leading developer of technologies that improve the performance of WiMax services and that can cut the capital and operational expenditures for service providers by as much as 50 percent, Cisco said.
WiMax, which stands for Worldwide Interoperability for Microwave Access, is a wireless broadband technology that can travel over much greater distances than Wi-Fi.
The deal marks a decent exit for Navini’s many venture capital backers, which poured roughly $200 million into the startup over six rounds. Backers include Austin Ventures; Acapita Ventures, the venture capital arm of Arcapita Bank; Scottwood Capital; Granite Ventures; Investor Growth Capital; Lehman Brothers Venture Partners; Sternhill Partners; Intel Corp.’s Intel Capital and Motorola Ventures, the corporate V.C. arm of Motorola.
Go to Article from The Deal.com »
Dallas-based Navini, founded in 2000, is a leading developer of technologies that improve the performance of WiMax services and that can cut the capital and operational expenditures for service providers by as much as 50 percent, Cisco said.
WiMax, which stands for Worldwide Interoperability for Microwave Access, is a wireless broadband technology that can travel over much greater distances than Wi-Fi.
The deal marks a decent exit for Navini’s many venture capital backers, which poured roughly $200 million into the startup over six rounds. Backers include Austin Ventures; Acapita Ventures, the venture capital arm of Arcapita Bank; Scottwood Capital; Granite Ventures; Investor Growth Capital; Lehman Brothers Venture Partners; Sternhill Partners; Intel Corp.’s Intel Capital and Motorola Ventures, the corporate V.C. arm of Motorola.
Go to Article from The Deal.com »
Monday, October 22, 2007
The Gloomsayers Should Look Up
In his weekly column in The New York Times, Ben Stein argues that while the economy is basically in good shape, the current problems in the credit market can be squarely laid at the door of the investment banking chieftains.
Go to Article from The New York Times»
Go to Article from The New York Times»
Tuesday, October 16, 2007
Tech Companies Ramp Up M&A
Technology companies have ramped up their M&A spending in the last six weeks, and one survey suggests they are just getting started. The 451 Group polled corporate development professionals at actively acquiring companies, and more than 80 percent of them said they planned to maintain or increase their level of M&A in the next year.
Go to Report from The 451 Group»
Go to Report from The 451 Group»
Thursday, October 11, 2007
Private Equity Is on Pace for Record Fund-Raising Year
Posted by Deal Journal on WSJ.com:
Keenan Skelly of Dow Jones Newsletters files this report on fund-raising by private-equity firms.
While trouble in the credit markets led to a pronounced slowdown in buyout deal-making in the third quarter, no corresponding decline has been seen in fund-raising.
Through the third quarter of this year, $199.4 billion has been raised by 295 U.S. private-equity firms, well ahead of the $154.1 billion collected by 232 firms in the year-earlier period, according to data collected by Private Equity Analyst, an industry newsletter published by Dow Jones & Co. The figure is $60 billion ahead of where the industry was at the midpoint of the year.
The data encompass funds raised by buyout, venture capital, and other types of private-equity firms.
With such firms as Apollo Management, the Carlyle Group and Warburg Pincus still in the market raising funds of $10 billion or more each, the tally looks likely to continue rising rapidly through year end, meaning U.S. fund-raising could well break 2006’s record total of $254 billion.
The continued strength is in part a reflection of the fact that it takes time for limited partners and general partners alike to adjust to new circumstances in their markets. It also is driven by the recognition by many LPs that private equity is a long-term investment, and that consistently committing capital to the asset class over time – and not just when market conditions are good – is likely the best way to generate strong returns.
The buyout category continues to dominate, with 132 buyout funds raising $155 billion this year, up from $100.7 billion raised by 96 shops at this point in 2006. Strong fund-raising by firms looking to take advantage of distressed opportunities is a big part of the 2007 picture, with such funds accounting for $29.6 billion of the total raised this year. Distressed firms had already raised a record sum by July of this year.
On the venture-capital side, fund-raising continues to be sluggish. A total of 102 U.S. venture firms have raised $18.8 billion this year, down from $21.3 billion raised by 89 firms in the year-ago period.
In Europe as in the U.S., fund-raising totals remain on track for a record. Through the first nine months of the year, 116 European private equity firms raised a total of $73.1 billion, ahead of the $68.6 billion that 114 funds had raised at this point in 2006. The record for Europe of $100.8 billion was set last year.
Keenan Skelly of Dow Jones Newsletters files this report on fund-raising by private-equity firms.
While trouble in the credit markets led to a pronounced slowdown in buyout deal-making in the third quarter, no corresponding decline has been seen in fund-raising.
Through the third quarter of this year, $199.4 billion has been raised by 295 U.S. private-equity firms, well ahead of the $154.1 billion collected by 232 firms in the year-earlier period, according to data collected by Private Equity Analyst, an industry newsletter published by Dow Jones & Co. The figure is $60 billion ahead of where the industry was at the midpoint of the year.
The data encompass funds raised by buyout, venture capital, and other types of private-equity firms.
With such firms as Apollo Management, the Carlyle Group and Warburg Pincus still in the market raising funds of $10 billion or more each, the tally looks likely to continue rising rapidly through year end, meaning U.S. fund-raising could well break 2006’s record total of $254 billion.
The continued strength is in part a reflection of the fact that it takes time for limited partners and general partners alike to adjust to new circumstances in their markets. It also is driven by the recognition by many LPs that private equity is a long-term investment, and that consistently committing capital to the asset class over time – and not just when market conditions are good – is likely the best way to generate strong returns.
The buyout category continues to dominate, with 132 buyout funds raising $155 billion this year, up from $100.7 billion raised by 96 shops at this point in 2006. Strong fund-raising by firms looking to take advantage of distressed opportunities is a big part of the 2007 picture, with such funds accounting for $29.6 billion of the total raised this year. Distressed firms had already raised a record sum by July of this year.
On the venture-capital side, fund-raising continues to be sluggish. A total of 102 U.S. venture firms have raised $18.8 billion this year, down from $21.3 billion raised by 89 firms in the year-ago period.
In Europe as in the U.S., fund-raising totals remain on track for a record. Through the first nine months of the year, 116 European private equity firms raised a total of $73.1 billion, ahead of the $68.6 billion that 114 funds had raised at this point in 2006. The record for Europe of $100.8 billion was set last year.
Wednesday, October 10, 2007
Plaintiffs Face Skeptical Court in Key Fraud Case
With Chief Justice John G. Roberts Jr. taking the lead in arguments in the Stoneridge case -- one of the most closely watched business cases in years -- the Supreme Court appeared strongly inclined to leave it to Congress to define the circumstances under which secondary players like investment banks, auditors and vendors can be sued in private securities fraud actions. Go to Article from The New York Times»
Tuesday, October 09, 2007
Justices to Consider the Liability of Bankers, Vendors
Submitted by: Ted Allen, RiskMetrics Group - Risk & Governance blog:
The U.S. Supreme Court will hear arguments today in Stoneridge Investment Partners v. Scientific-Atlanta, a high-profile case that concerns the liability of bankers, vendors, and other third parties who help companies commit securities fraud.
The Stoneridge case stems from claims by shareholders of Charter Communications against Motorola and Scientific-Atlanta, which manufactured set-top boxes used by Charter’s cable television subscribers. The investors allege that the two vendors engaged in “wash” transactions in 2000 to help Charter meet its annual operating cash flow goals.
The closely watched case, which one industry group has called “the most important case in a generation,” has attracted 30 amicus briefs from investor advocates, state officials, and industry groups.
The Council of Institutional Investors, the North American Securities Administrators Association, the University of California, the New York State Teachers’ Retirement System, the Change to Win labor federation, and 30 state attorneys general have filed briefs in support of investors. The Bush administration disregarded the recommendation of the Securities and Exchange Commission and filed a brief in support of the Charter vendors.
While the Supreme Court previously barred suits against “aiders and abettors” in its 1994 Central Bank of Denver decision, the Charter investors argue that they should be able to bring “scheme liability” claims against vendors, bankers, and others who knowingly participate in transactions that help companies mislead shareholders, even if the third parties didn’t publicly mislead anyone. Billions of dollars may be at stake in the case, as the high court’s decision likely will have far-reaching implications and affect the ability of Enron investors to pursue a class lawsuit against the company’s former investment banks.
On Sept. 20, the Supreme Court announced that Chief Justice John Roberts would take part in the court’s deliberations in Stoneridge. Roberts, along with Justice Stephen Breyer, earlier recused himself from the high court’s decision on whether to hear the case. Both justices reported in their 2006 financial disclosure forms that they own shares in Cisco Systems, the parent of Scientific-Atlanta, Legal Times reported. The Supreme Court did not disclose the basis for the chief justice’s decision to rejoin the case.
Roberts’ participation in the case presumably will help the defendants. During the past year, the chief justice joined court majorities in several rulings that favored business interests.
The U.S. Supreme Court will hear arguments today in Stoneridge Investment Partners v. Scientific-Atlanta, a high-profile case that concerns the liability of bankers, vendors, and other third parties who help companies commit securities fraud.
The Stoneridge case stems from claims by shareholders of Charter Communications against Motorola and Scientific-Atlanta, which manufactured set-top boxes used by Charter’s cable television subscribers. The investors allege that the two vendors engaged in “wash” transactions in 2000 to help Charter meet its annual operating cash flow goals.
The closely watched case, which one industry group has called “the most important case in a generation,” has attracted 30 amicus briefs from investor advocates, state officials, and industry groups.
The Council of Institutional Investors, the North American Securities Administrators Association, the University of California, the New York State Teachers’ Retirement System, the Change to Win labor federation, and 30 state attorneys general have filed briefs in support of investors. The Bush administration disregarded the recommendation of the Securities and Exchange Commission and filed a brief in support of the Charter vendors.
While the Supreme Court previously barred suits against “aiders and abettors” in its 1994 Central Bank of Denver decision, the Charter investors argue that they should be able to bring “scheme liability” claims against vendors, bankers, and others who knowingly participate in transactions that help companies mislead shareholders, even if the third parties didn’t publicly mislead anyone. Billions of dollars may be at stake in the case, as the high court’s decision likely will have far-reaching implications and affect the ability of Enron investors to pursue a class lawsuit against the company’s former investment banks.
On Sept. 20, the Supreme Court announced that Chief Justice John Roberts would take part in the court’s deliberations in Stoneridge. Roberts, along with Justice Stephen Breyer, earlier recused himself from the high court’s decision on whether to hear the case. Both justices reported in their 2006 financial disclosure forms that they own shares in Cisco Systems, the parent of Scientific-Atlanta, Legal Times reported. The Supreme Court did not disclose the basis for the chief justice’s decision to rejoin the case.
Roberts’ participation in the case presumably will help the defendants. During the past year, the chief justice joined court majorities in several rulings that favored business interests.
Sallie Mae Sues to Force a Buyout
By ANDREW ROSS SORKIN and MICHAEL J. de la MERCED
Published: October 9, 2007, The New York Times
The SLM Corporation, parent of the student lender Sallie Mae, filed a lawsuit yesterday against a group of firms that had agreed to buy it for $25 billion but now are trying to renegotiate the deal.
The suit, filed last night in Delaware Chancery Court, comes one day ahead of a self-imposed deadline by the buyers to reach a new agreement. Failing that, the buyers — the private equity firms J. C. Flowers & Company and Friedman Fleischer & Lowe and the banks JPMorgan Chase and Bank of America — were prepared to walk away. Under the terms of the deal negotiated in April, the firms would pay a $900 million breakup fee.
The lawsuit is the harshest turn yet in one of the most bitter buyout fights this year. Buyers in other deals have clashed privately with their targets over price and terms of the acquisitions, but Sallie Mae and its suitors have been unafraid to slug it out in public.
Published: October 9, 2007, The New York Times
The SLM Corporation, parent of the student lender Sallie Mae, filed a lawsuit yesterday against a group of firms that had agreed to buy it for $25 billion but now are trying to renegotiate the deal.
The suit, filed last night in Delaware Chancery Court, comes one day ahead of a self-imposed deadline by the buyers to reach a new agreement. Failing that, the buyers — the private equity firms J. C. Flowers & Company and Friedman Fleischer & Lowe and the banks JPMorgan Chase and Bank of America — were prepared to walk away. Under the terms of the deal negotiated in April, the firms would pay a $900 million breakup fee.
The lawsuit is the harshest turn yet in one of the most bitter buyout fights this year. Buyers in other deals have clashed privately with their targets over price and terms of the acquisitions, but Sallie Mae and its suitors have been unafraid to slug it out in public.
Friday, October 05, 2007
Open Season on American Companies
WSJ.COM/DealJournal, October 4, 2007, 1:05 pm:
U.S. voters are getting increasingly nervous about free trade, reports this most recent edition of the WSJ-NBC News Poll. Here’s another reason for them to pay notice.
It turns out 2007 is shaping up as the most-active year for foreign acquisitions into the U.S. since 1990, according to recently released statistics from Thomson Financial. Seventeen years ago, there were jitters about Japanese buyers scooping up American icons from Rockefeller Center to Columbia Pictures.
Today, the list of buyers is incredibly diverse, with English, Russian, German, Chinese and Finnish companies getting into the mix.
In all, foreign buyers were responsible for more than 21% of U.S. acquisitions this year, a total of $275 billion of the record-setting $1.3 trillion in overall deals. Since 1990 — when the foreign buyers accounted for 28% of the M&A world — the percentage has fluctuated largely in the teens. See what effects this has had in New England, via this Boston Globe story.
There are a series of mixed political and economic messages in these numbers: The first is that the weakening U.S. dollar is creating a ripe opportunity for buyers around the world. The past week alone, for instance, has seen Canada’s TD Bank spend $8.5 billion on Commerce Bank and Finland’s Nokia Oyj buy digital map maker firm Navteq Corp. for roughly $8 billion.
Is this good or bad for the U.S. economy? There’s a thesis in this question. We’ll try to sum it up in two paragraphs.
It’s positive in that American companies continue to attract the best capital from around the world. This preumably keeps the American economy in its dynamic state, which is essential to overall growth and wealth creation. Want to see what happens when global capital dries up? Take a look at Asia after the currency crisis about 10 years ago.
Yet there’s understandably a worry underneath these investments. From a political standpoint, might a backlash against investments into the U.S. push the U.S. government to install its own trade roadblocks — thus blocking off U.S. capital from foreign markets? Even more important is the dilemma of our own economic habits: Are our trade imbalances so great that we’ve set up the seeds for our own cherry-picking?
U.S. voters are getting increasingly nervous about free trade, reports this most recent edition of the WSJ-NBC News Poll. Here’s another reason for them to pay notice.
It turns out 2007 is shaping up as the most-active year for foreign acquisitions into the U.S. since 1990, according to recently released statistics from Thomson Financial. Seventeen years ago, there were jitters about Japanese buyers scooping up American icons from Rockefeller Center to Columbia Pictures.
Today, the list of buyers is incredibly diverse, with English, Russian, German, Chinese and Finnish companies getting into the mix.
In all, foreign buyers were responsible for more than 21% of U.S. acquisitions this year, a total of $275 billion of the record-setting $1.3 trillion in overall deals. Since 1990 — when the foreign buyers accounted for 28% of the M&A world — the percentage has fluctuated largely in the teens. See what effects this has had in New England, via this Boston Globe story.
There are a series of mixed political and economic messages in these numbers: The first is that the weakening U.S. dollar is creating a ripe opportunity for buyers around the world. The past week alone, for instance, has seen Canada’s TD Bank spend $8.5 billion on Commerce Bank and Finland’s Nokia Oyj buy digital map maker firm Navteq Corp. for roughly $8 billion.
Is this good or bad for the U.S. economy? There’s a thesis in this question. We’ll try to sum it up in two paragraphs.
It’s positive in that American companies continue to attract the best capital from around the world. This preumably keeps the American economy in its dynamic state, which is essential to overall growth and wealth creation. Want to see what happens when global capital dries up? Take a look at Asia after the currency crisis about 10 years ago.
Yet there’s understandably a worry underneath these investments. From a political standpoint, might a backlash against investments into the U.S. push the U.S. government to install its own trade roadblocks — thus blocking off U.S. capital from foreign markets? Even more important is the dilemma of our own economic habits: Are our trade imbalances so great that we’ve set up the seeds for our own cherry-picking?
Venture Capital's Hidden Calamity
BusinessWeek.com, October 3, 2007, 12:01AM EST :
A closer look at otherwise strong investment growth shows many firms are getting all the drawbacks of a hot market, with few of the benefits. by Sarah Lacy
This is a bad time to be a venture capitalist. Anyone who says different is raising a new fund—or works at one of the few firms having a good year.
Sure, the numbers look great on the surface. The value of deals rose a solid, yet not bubbly, 8% in the second quarter, with investors pumping $7.4 billion into emerging companies, according to Dow Jones VentureOne. And the money is funding some legitimately exciting frontiers, including Web 2.0, which attracted $500 million in the first half. Companies specializing in clean tech got $1.1 billion in the same period.
Initial public offerings are up for the year, too. In the second quarter, venture-backed companies tapped the public markets for $2.73 billion, the most raised in a three-month period since the go-go days of 2000. And researchers expect the current period to be another banner quarter, with a whopping 46 companies looking to file.
IPOs and Acquisitions Tell a Different Story
But a closer look at the numbers reveals some disturbing trends. Consider IPOs. Most of the initial share sales getting done are mainly one-off companies that were founded years ago and have slogged away at building solid businesses for a half-decade or more. This year's biggest hits were MetroPCS (PCS) of Dallas and EMC's (EMC) spin-out of VMware (VMW)—hardly your classic Silicon Valley startups. There's simply no big overall tech movement getting Wall Street revved up, and among entrepreneurs, the feeling is mutual. Sarbanes Oxley and other regulations have made the prospect of going public far less appealing.
The picture looks worse among acquisitions. Sure, the usually sleepy third quarter saw $10 billion come in acquisition proceeds, but that was spread among 90 deals. Companies like TellMe, the voice recognition software company founded in the late 1990s that snagged $800 million from Microsoft (MSFT), are in the minority this year. Far more common is the tech company that plodded along for more than six years, chewing through some $30 million in venture cash to eventually get bought for $50 million or so. Indeed, the median length of time it took companies to get bought was the longest Dow Jones VentureOne has seen since it started measuring the industry 20 years ago. Meanwhile, valuations keep rising, as billions of dollars in VCs’ coffers fight to get in what few great companies are out there.
more...
A closer look at otherwise strong investment growth shows many firms are getting all the drawbacks of a hot market, with few of the benefits. by Sarah Lacy
This is a bad time to be a venture capitalist. Anyone who says different is raising a new fund—or works at one of the few firms having a good year.
Sure, the numbers look great on the surface. The value of deals rose a solid, yet not bubbly, 8% in the second quarter, with investors pumping $7.4 billion into emerging companies, according to Dow Jones VentureOne. And the money is funding some legitimately exciting frontiers, including Web 2.0, which attracted $500 million in the first half. Companies specializing in clean tech got $1.1 billion in the same period.
Initial public offerings are up for the year, too. In the second quarter, venture-backed companies tapped the public markets for $2.73 billion, the most raised in a three-month period since the go-go days of 2000. And researchers expect the current period to be another banner quarter, with a whopping 46 companies looking to file.
IPOs and Acquisitions Tell a Different Story
But a closer look at the numbers reveals some disturbing trends. Consider IPOs. Most of the initial share sales getting done are mainly one-off companies that were founded years ago and have slogged away at building solid businesses for a half-decade or more. This year's biggest hits were MetroPCS (PCS) of Dallas and EMC's (EMC) spin-out of VMware (VMW)—hardly your classic Silicon Valley startups. There's simply no big overall tech movement getting Wall Street revved up, and among entrepreneurs, the feeling is mutual. Sarbanes Oxley and other regulations have made the prospect of going public far less appealing.
The picture looks worse among acquisitions. Sure, the usually sleepy third quarter saw $10 billion come in acquisition proceeds, but that was spread among 90 deals. Companies like TellMe, the voice recognition software company founded in the late 1990s that snagged $800 million from Microsoft (MSFT), are in the minority this year. Far more common is the tech company that plodded along for more than six years, chewing through some $30 million in venture cash to eventually get bought for $50 million or so. Indeed, the median length of time it took companies to get bought was the longest Dow Jones VentureOne has seen since it started measuring the industry 20 years ago. Meanwhile, valuations keep rising, as billions of dollars in VCs’ coffers fight to get in what few great companies are out there.
more...
Thursday, October 04, 2007
Time for a New Corporate Buying Spree?
BusinessWeek.com, October 3, 2007, 3:57PM EST
As earnings take a nosedive, analysts expect to see more companies turn to M&A to pick up the slack. They certainly have the cash. by Steve Rosenbush
The slowdown in U.S. corporate profits has been swift and stunning. While earnings for companies in the Standard & Poor's 500-stock index grew a robust 14.7% in 2006, profit growth has screeched to a halt amid the troubled financial climate of 2007. With the income-reporting season kicking off the week of Oct. 8, average earnings for the S&P 500 companies are on track to grow just 1.9% during the third quarter, the slowest pace in more than five years, according to senior S&P index analyst Howard Silverblatt. That's down from 7.9% for the first quarter and 9.6% in the second. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)
The slowdown creates a dilemma for corporations, which face an imperative to "grow or die," Silverblatt says. How will they address their profit-growth problem? Many experts believe they will increasingly turn to mergers and acquisitions. "I don't think there's any question that growth will be harder to come by and that many companies will attempt to compensate for that by using M&A," says Hal Ritch, the former co-head of M&A at Citi (C); Donaldson, Lufkin & Jenrette; and Credit Suisse (CS), which acquired DLJ. He's now co-CEO of Sagent Advisors, an M&A advisory shop.
Ritch and other M&A advisers say they have detected a shift in their business during the last few months. The private equity firms that dominated M&A last year and during the first half of 2007 have been doing fewer deals of late. They are having a tougher time securing funding (BusinessWeek.com, 9/17/07).
continue http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db2007103_812197.htm?dlbk
As earnings take a nosedive, analysts expect to see more companies turn to M&A to pick up the slack. They certainly have the cash. by Steve Rosenbush
The slowdown in U.S. corporate profits has been swift and stunning. While earnings for companies in the Standard & Poor's 500-stock index grew a robust 14.7% in 2006, profit growth has screeched to a halt amid the troubled financial climate of 2007. With the income-reporting season kicking off the week of Oct. 8, average earnings for the S&P 500 companies are on track to grow just 1.9% during the third quarter, the slowest pace in more than five years, according to senior S&P index analyst Howard Silverblatt. That's down from 7.9% for the first quarter and 9.6% in the second. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)
The slowdown creates a dilemma for corporations, which face an imperative to "grow or die," Silverblatt says. How will they address their profit-growth problem? Many experts believe they will increasingly turn to mergers and acquisitions. "I don't think there's any question that growth will be harder to come by and that many companies will attempt to compensate for that by using M&A," says Hal Ritch, the former co-head of M&A at Citi (C); Donaldson, Lufkin & Jenrette; and Credit Suisse (CS), which acquired DLJ. He's now co-CEO of Sagent Advisors, an M&A advisory shop.
Ritch and other M&A advisers say they have detected a shift in their business during the last few months. The private equity firms that dominated M&A last year and during the first half of 2007 have been doing fewer deals of late. They are having a tougher time securing funding (BusinessWeek.com, 9/17/07).
continue http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db2007103_812197.htm?dlbk
Wednesday, October 03, 2007
Leveraged Buyout Bust By-Product: Lawsuits
DealLawyers.com Blog
Here is some good stuff from the D&O Diary Blog: As credit market disruption has reached the leveraged buyout world, a number of deals announced earlier this year to great fanfare have been unceremoniously snuffed, while others are on life support. Not too surprisingly, one direct result from this deal derailment has been a spate of lawsuits, as jilted partners and disappointed investors cast blame and seek to recoup their lost expectancy.
The most interesting of these litigation developments is the securities class action lawsuit that a Harman International Industries shareholder filed on October 1, 2007 against the company and three of its officers and directors. (Here is the complaint and the plaintiffs’ lawyers’ press release.) The Harman International lawsuit filing follows hard on the heels of the company’s September 21, 2007 announcement that its erstwhile acquirers, Kohlberg Kravis Roberts and a Goldman Sachs investment fund, had informed the company that they "no longer intend to complete the previously announced acquisition" of the company, and that they "believe a material adverse change in Harman’s business has occurred." Here is a Wall Street Journal’s article discussing the cancellation of the $8 billion deal.
The lawsuit, filed on behalf of shareholders who bought the company’s stock between the time of the company’s April 26, 2007 merger announcement and the September 24 cancellation announcement, alleges among other things that the company failed to disclose that it had breached the merger agreement; that it had R & D and other capital expenses, as well as inventory levels, above disclosed amounts; and that its relationship with a key customer had deteriorated. The complaint further alleges that Harman’s Chairman and controlling shareholder "had a strong personal motive" for the completion of the merger, from which he would received proceeds of $420 million. The implication is that the company withheld the true information to ensure that the merger would be completed, and that the merger fell apart only when the misrepresentations came to light.
In addition to the possibility of shareholder lawsuits, it may also be anticipated that other disappointed targets will sue their former suitors for breach of contract. The current dustup between Genesco and Finish Line provides an example of what this kind of dispute looks like. On June 18, 2007, Finish Line announced that it would be acquiring Genesco in a transaction valued at approximately $1.5 billion. But something happened on the way to the altar; on September 21, 2007, Genesco sued Finish Line in Tennessee state court seeking an order requiring Finish Line to complete the merger and forcing UBS to fulfill its agreement to finance the deal. Here is a CFO.com article describing the parties’ dispute and the Genesco lawsuit.
Finish Line, in turn, has filed a counterclaim asking the court, according to news reports, to compel Genesco to "provide information related to their proposed merger or else rule that a materially adverse event has occurred."
To my knowledge, no lawsuit has yet arisen in connection with the other very prominent deal in which the would-be acquirer invoked the "material adverse change" clause to cancel a deal – that would be the $25 billion deal to take over SLM Corp. (better known as Sallie Mae) that J.C. Flowers cancelled last week. Here is a Wall Street Journal article discussing the kibosh put on the Sallie Mae deal. But while there is no lawsuit yet, Sallie Mae did issue a September 26th press release saying that "the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to the fullest extent of the law." While there apparently remains some hope that the Sallie Mae deal might be salvaged, Sallie Mae yesterday rejected the would-be buyers latest reduced offer. If the deal dies altogether, keep an eye out for a lawsuit -- by somebody against somebody else.
It seems like only yesterday that the business pages were full of stories about increasing numbers of ever-larger buyout bids. Now the papers are covering the same deals as they fall apart. As the Journal noted, the termination of the Harman deal "represents a severe setback for the overall deal market as it tries to close upward of $350 billion of leveraged buyouts amid tightening credit conditions." If buyers’ remorse or tight credit undermines more deals, the disappointed targets can be expected to launch lawyers. Chances are that the lawsuits will live on long after the buyout bubble has become a distant memory. Posted by broc at October 3, 2007 08:06 AM
Here is some good stuff from the D&O Diary Blog: As credit market disruption has reached the leveraged buyout world, a number of deals announced earlier this year to great fanfare have been unceremoniously snuffed, while others are on life support. Not too surprisingly, one direct result from this deal derailment has been a spate of lawsuits, as jilted partners and disappointed investors cast blame and seek to recoup their lost expectancy.
The most interesting of these litigation developments is the securities class action lawsuit that a Harman International Industries shareholder filed on October 1, 2007 against the company and three of its officers and directors. (Here is the complaint and the plaintiffs’ lawyers’ press release.) The Harman International lawsuit filing follows hard on the heels of the company’s September 21, 2007 announcement that its erstwhile acquirers, Kohlberg Kravis Roberts and a Goldman Sachs investment fund, had informed the company that they "no longer intend to complete the previously announced acquisition" of the company, and that they "believe a material adverse change in Harman’s business has occurred." Here is a Wall Street Journal’s article discussing the cancellation of the $8 billion deal.
The lawsuit, filed on behalf of shareholders who bought the company’s stock between the time of the company’s April 26, 2007 merger announcement and the September 24 cancellation announcement, alleges among other things that the company failed to disclose that it had breached the merger agreement; that it had R & D and other capital expenses, as well as inventory levels, above disclosed amounts; and that its relationship with a key customer had deteriorated. The complaint further alleges that Harman’s Chairman and controlling shareholder "had a strong personal motive" for the completion of the merger, from which he would received proceeds of $420 million. The implication is that the company withheld the true information to ensure that the merger would be completed, and that the merger fell apart only when the misrepresentations came to light.
In addition to the possibility of shareholder lawsuits, it may also be anticipated that other disappointed targets will sue their former suitors for breach of contract. The current dustup between Genesco and Finish Line provides an example of what this kind of dispute looks like. On June 18, 2007, Finish Line announced that it would be acquiring Genesco in a transaction valued at approximately $1.5 billion. But something happened on the way to the altar; on September 21, 2007, Genesco sued Finish Line in Tennessee state court seeking an order requiring Finish Line to complete the merger and forcing UBS to fulfill its agreement to finance the deal. Here is a CFO.com article describing the parties’ dispute and the Genesco lawsuit.
Finish Line, in turn, has filed a counterclaim asking the court, according to news reports, to compel Genesco to "provide information related to their proposed merger or else rule that a materially adverse event has occurred."
To my knowledge, no lawsuit has yet arisen in connection with the other very prominent deal in which the would-be acquirer invoked the "material adverse change" clause to cancel a deal – that would be the $25 billion deal to take over SLM Corp. (better known as Sallie Mae) that J.C. Flowers cancelled last week. Here is a Wall Street Journal article discussing the kibosh put on the Sallie Mae deal. But while there is no lawsuit yet, Sallie Mae did issue a September 26th press release saying that "the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to the fullest extent of the law." While there apparently remains some hope that the Sallie Mae deal might be salvaged, Sallie Mae yesterday rejected the would-be buyers latest reduced offer. If the deal dies altogether, keep an eye out for a lawsuit -- by somebody against somebody else.
It seems like only yesterday that the business pages were full of stories about increasing numbers of ever-larger buyout bids. Now the papers are covering the same deals as they fall apart. As the Journal noted, the termination of the Harman deal "represents a severe setback for the overall deal market as it tries to close upward of $350 billion of leveraged buyouts amid tightening credit conditions." If buyers’ remorse or tight credit undermines more deals, the disappointed targets can be expected to launch lawyers. Chances are that the lawsuits will live on long after the buyout bubble has become a distant memory. Posted by broc at October 3, 2007 08:06 AM
Monday, October 01, 2007
A Parched Month Ends on Hopeful Note
WSJ DealBook, September 28, 2007, 1:13 pm
A few months ago, at the peak of the buyout boom, a $2 billion transaction could have easily slipped under the radar. These days, it is, literally, a big deal.
Case in point is 3Com, which said Friday that it will be taken private by Bain Capital for $2.2 billion. That single announcement accounted for about 11 percent of the world’s buyout volume during the entire month of September, according to data from Dealogic. It was about 16 percent of buyouts in the United States. That gives you an idea how slow this month has been.
Private equity firms rely on borrowed money to fund their acquisitions. After a long period of easy access to credit, buyout firms hit a wall this summer when the debt markets pulled back. The result was a dramatic decline in private equity deals, especially those with big price tags.
It remains to be seen whether 3Com is an isolated event or a sign that the drought of private equity deals is breaking. On Thursday, the banks financing the buyout of First Data — a deal that came before the credit crunch — were able to sell a larger-than-expected amount of loans related to the transaction, which is also a potentially positive sign.
Before the 3Com buyout was announced, Dealogic calculated that global buyout volume in September was about $17.6 billion. In September 2006, a single buyout — that of Freescale Semiconductor — was worth just as much. For all of September 2006, the figure was $57.5 billion, more than three times this September’s total.
The dropoff was similar for private equity activity in the United States, where buyout activity came to $11.4 billion in September (excluding 3Com), compared with $31.7 billion a year ago.
Dealogic also published preliminary third-quarter data, which indicated that overall merger activity — as opposed to just buyouts — actually rose from a year ago. It reported Friday that global announced mergers came to $992 billion in the latest quarter, 24 percent more than the same period a year ago (but down 43 percent from a very busy second quarter).
Go to Article from The Financial Times »
Go to Related Item from DealBook »
A few months ago, at the peak of the buyout boom, a $2 billion transaction could have easily slipped under the radar. These days, it is, literally, a big deal.
Case in point is 3Com, which said Friday that it will be taken private by Bain Capital for $2.2 billion. That single announcement accounted for about 11 percent of the world’s buyout volume during the entire month of September, according to data from Dealogic. It was about 16 percent of buyouts in the United States. That gives you an idea how slow this month has been.
Private equity firms rely on borrowed money to fund their acquisitions. After a long period of easy access to credit, buyout firms hit a wall this summer when the debt markets pulled back. The result was a dramatic decline in private equity deals, especially those with big price tags.
It remains to be seen whether 3Com is an isolated event or a sign that the drought of private equity deals is breaking. On Thursday, the banks financing the buyout of First Data — a deal that came before the credit crunch — were able to sell a larger-than-expected amount of loans related to the transaction, which is also a potentially positive sign.
Before the 3Com buyout was announced, Dealogic calculated that global buyout volume in September was about $17.6 billion. In September 2006, a single buyout — that of Freescale Semiconductor — was worth just as much. For all of September 2006, the figure was $57.5 billion, more than three times this September’s total.
The dropoff was similar for private equity activity in the United States, where buyout activity came to $11.4 billion in September (excluding 3Com), compared with $31.7 billion a year ago.
Dealogic also published preliminary third-quarter data, which indicated that overall merger activity — as opposed to just buyouts — actually rose from a year ago. It reported Friday that global announced mergers came to $992 billion in the latest quarter, 24 percent more than the same period a year ago (but down 43 percent from a very busy second quarter).
Go to Article from The Financial Times »
Go to Related Item from DealBook »
Thursday, September 27, 2007
Private-Equity Firms: Job Creation Machines?
Deal Journal - WSJ.com
September 27, 2007, 10:48 am
Posted by Stephen Grocer
Do private-equity firms create jobs? It’s an essential point as the buyout kings get deeper into the economy and the U.S. Congress gets more eager to tax their pay.
The answer — at least for the most succesful private-equity owned firms — is yes. Accountancy Ernst & Young conducted the new study, examining 100 biggest sales of private-equity portfolio companies in the U.S. and Western Europe in 2006.
Ernst & Young found that the average enterprise value of the companies studied in both Europe and U.S. jumped more than 80% from the time they were acquired. The growth in enterprise value was driven in part by the fact that private-equity-owned companies achieved faster profit growth, two-thirds of which came from business expansion — while a third in Europe — and 23% came from cost reductions.
What does that mean for jobs? The study found that employment was at the same or higher level at the time of exit in 80% of U.S. buyouts and 60% of European buyouts. In the United Kingdom, France and Germany, where fears that the industry will slash jobs has spurred strong opposition and scathing criticism, employment at businesses owned by private-equity firms rose 5% annually. That compares to 3% for equivalent publicly traded companies.
And the performance of the company remains strong after private-equity exits the business.
The study could be used to challenge arguments by private-equity opponents: namely that buyout firms slice up companies and slash jobs all to fatten the wallets of their limited partners. Of course, the study is highly self-selecting, as it identifies what are essentially the most successful deals, not the ones that fail.
Still, the conclusions do get to an interesting point: Whether private-equity firms are better managers than others.
“I think it has been proven that IPOs of private-equity-backed companies perform better post-IPO than comparable companies not backed by private equity,” says John O’Neill, America’s director of private equity with Ernst & Young. “That’s because of their laser-like focus on improving the business and working very closely with management and the board that allows them to jump on things very quickly and make the business better.”
September 27, 2007, 10:48 am
Posted by Stephen Grocer
Do private-equity firms create jobs? It’s an essential point as the buyout kings get deeper into the economy and the U.S. Congress gets more eager to tax their pay.
The answer — at least for the most succesful private-equity owned firms — is yes. Accountancy Ernst & Young conducted the new study, examining 100 biggest sales of private-equity portfolio companies in the U.S. and Western Europe in 2006.
Ernst & Young found that the average enterprise value of the companies studied in both Europe and U.S. jumped more than 80% from the time they were acquired. The growth in enterprise value was driven in part by the fact that private-equity-owned companies achieved faster profit growth, two-thirds of which came from business expansion — while a third in Europe — and 23% came from cost reductions.
What does that mean for jobs? The study found that employment was at the same or higher level at the time of exit in 80% of U.S. buyouts and 60% of European buyouts. In the United Kingdom, France and Germany, where fears that the industry will slash jobs has spurred strong opposition and scathing criticism, employment at businesses owned by private-equity firms rose 5% annually. That compares to 3% for equivalent publicly traded companies.
And the performance of the company remains strong after private-equity exits the business.
The study could be used to challenge arguments by private-equity opponents: namely that buyout firms slice up companies and slash jobs all to fatten the wallets of their limited partners. Of course, the study is highly self-selecting, as it identifies what are essentially the most successful deals, not the ones that fail.
Still, the conclusions do get to an interesting point: Whether private-equity firms are better managers than others.
“I think it has been proven that IPOs of private-equity-backed companies perform better post-IPO than comparable companies not backed by private equity,” says John O’Neill, America’s director of private equity with Ernst & Young. “That’s because of their laser-like focus on improving the business and working very closely with management and the board that allows them to jump on things very quickly and make the business better.”
Wednesday, September 26, 2007
Sallie Mae CEO’s Counterattack Against Waffling LBO Buyers
WSJ DealJournal, September 26, 2007:
Sallie Mae is the odds-on favorite to be the next deal after Harman and Genesco where the buyers try to slip away scot-free by arguing that a so-called Material Adverse Change has occurred to the business. The Sallie Mae buyers — private-equity firm J.C. Flowers & Co. as well as Bank of America and J.P. Morgan Chase — already have said education-finance legislation expected to be signed by President Bush may trigger the MAC clause in their merger agreement with SLM, the student lender’s parent.
With SLM saying last week, effectively, that a deal is a deal, if Flowers & Co. call a MAC — as many in the deal community expect they will — the parties could be headed to court (likely the Delaware Chancery Court, according to this post from Steven Davidoff from M&A Law Prof. Blog). That would be the biggest such deal ever to land there.
Here’s the key part: We spoke to someone who is familiar with the thinking of SLM Chairman Albert Lord, who is said by people who know him to be combative and competitive. He is expected to argue the following points: 1) Disclosures in the company’s 10-K annual filing with the SEC about possible legislation prevent the buyers from calling a MAC; and 2) Flowers sung the deal’s praises to potential equity partners after agreeing to the deal, and after it became clear that the legislation would be worse for the company than previously expected. How could he do that and at the same time argue that a material adverse change has occurred, the argument goes.
The Flowers camp won’t comment publicly. Privately they argue that the MAC clause in the deal does allow for an out if legislation for the industry is worse than what’s contemplated in the 10-K.
Of course, the two sides ultimately could settle their differences quietly and agree to a lower price for the deal. BofA chief Ken Lewis signaled that is what his bank wants in this interview published today in the Charlotte Observer.
At stake is the $900 million reverse break-up fee the buyers are on the hook for if they want to walk and can’t prove a MAC — and that will buy a lot of fireworks.
Sallie Mae is the odds-on favorite to be the next deal after Harman and Genesco where the buyers try to slip away scot-free by arguing that a so-called Material Adverse Change has occurred to the business. The Sallie Mae buyers — private-equity firm J.C. Flowers & Co. as well as Bank of America and J.P. Morgan Chase — already have said education-finance legislation expected to be signed by President Bush may trigger the MAC clause in their merger agreement with SLM, the student lender’s parent.
With SLM saying last week, effectively, that a deal is a deal, if Flowers & Co. call a MAC — as many in the deal community expect they will — the parties could be headed to court (likely the Delaware Chancery Court, according to this post from Steven Davidoff from M&A Law Prof. Blog). That would be the biggest such deal ever to land there.
Here’s the key part: We spoke to someone who is familiar with the thinking of SLM Chairman Albert Lord, who is said by people who know him to be combative and competitive. He is expected to argue the following points: 1) Disclosures in the company’s 10-K annual filing with the SEC about possible legislation prevent the buyers from calling a MAC; and 2) Flowers sung the deal’s praises to potential equity partners after agreeing to the deal, and after it became clear that the legislation would be worse for the company than previously expected. How could he do that and at the same time argue that a material adverse change has occurred, the argument goes.
The Flowers camp won’t comment publicly. Privately they argue that the MAC clause in the deal does allow for an out if legislation for the industry is worse than what’s contemplated in the 10-K.
Of course, the two sides ultimately could settle their differences quietly and agree to a lower price for the deal. BofA chief Ken Lewis signaled that is what his bank wants in this interview published today in the Charlotte Observer.
At stake is the $900 million reverse break-up fee the buyers are on the hook for if they want to walk and can’t prove a MAC — and that will buy a lot of fireworks.
Strategics Return to M&A Market
from Corporate Dealmaker Forum by Basdeo Hiralal
Strategic buyers are returning to the market in force after being outbid and crowded out by private equity buyers since 2004. However, strategic buyers will be more selective than private equity buyers and won’t pay the premiums and multiples that sellers have come to expect. Moreover, strategic transactions will be considerably smaller than the megadeals announced during the boom years.
Low interest rates, great liquidity and rising asset values fueled the greatest mergers and acquisition boom in history, with approximately $11.4 trillion in announced transactions on a worldwide basis since the beginning of 2004 (see table). Private equity accounted for a large percentage of these transactions. The credit crisis that developed in the summer of 2007 sharply reduced the number of private equity deals and the volume of M&A activity (see table).
Historically, sellers faced a trade-off between private equity and strategic buyers. Private equity buyers traditionally offered sellers a lower bid, but no antitrust risk of a delay or challenge by a competition agency in the U.S. or abroad. Strategic buyers, in contrast, traditionally offered a higher bid than private equity by sharing some of the synergies of a proposed transaction with the seller. That premium, however, was sometimes accompanied by antitrust risk. Over the last couple of years, private equity buyers were able to offer sellers both higher prices and no antitrust risk, effectively trumping strategic buyers and largely crowding them out of the market.
This dynamic has now changed. Most significantly, the credit crisis has restricted the availability of capital and raised uncertainty in the credit markets. Second, some private equity buyers also now present antitrust risk due to prior acquisitions.
We expect to see consolidation in the energy, steel, chemicals, pharmaceutical and healthcare industries. A number of strategic transactions have been recently announced, including Transocean Inc.-GlobalSantaFe Corp. (offshore drilling rigs); US Steel Corp.-Stelco Inc. (Canadian steelmaker) and Medco Health Solutions Inc.-PolyMedica Corp. (diabetes-care services and products). Bloomberg LP has reported speculation that Arcelor Mittal may bid for Tenaris SA (steel pipe). We see more strategic acquisitions in the pipeline and expect the weak dollar to attract foreign buyers. — Tom Fina
Tom Fina is a partner in the antitrust practice in the Washington office of international law firm Howrey LLP.
Strategic buyers are returning to the market in force after being outbid and crowded out by private equity buyers since 2004. However, strategic buyers will be more selective than private equity buyers and won’t pay the premiums and multiples that sellers have come to expect. Moreover, strategic transactions will be considerably smaller than the megadeals announced during the boom years.
Low interest rates, great liquidity and rising asset values fueled the greatest mergers and acquisition boom in history, with approximately $11.4 trillion in announced transactions on a worldwide basis since the beginning of 2004 (see table). Private equity accounted for a large percentage of these transactions. The credit crisis that developed in the summer of 2007 sharply reduced the number of private equity deals and the volume of M&A activity (see table).
Historically, sellers faced a trade-off between private equity and strategic buyers. Private equity buyers traditionally offered sellers a lower bid, but no antitrust risk of a delay or challenge by a competition agency in the U.S. or abroad. Strategic buyers, in contrast, traditionally offered a higher bid than private equity by sharing some of the synergies of a proposed transaction with the seller. That premium, however, was sometimes accompanied by antitrust risk. Over the last couple of years, private equity buyers were able to offer sellers both higher prices and no antitrust risk, effectively trumping strategic buyers and largely crowding them out of the market.
This dynamic has now changed. Most significantly, the credit crisis has restricted the availability of capital and raised uncertainty in the credit markets. Second, some private equity buyers also now present antitrust risk due to prior acquisitions.
We expect to see consolidation in the energy, steel, chemicals, pharmaceutical and healthcare industries. A number of strategic transactions have been recently announced, including Transocean Inc.-GlobalSantaFe Corp. (offshore drilling rigs); US Steel Corp.-Stelco Inc. (Canadian steelmaker) and Medco Health Solutions Inc.-PolyMedica Corp. (diabetes-care services and products). Bloomberg LP has reported speculation that Arcelor Mittal may bid for Tenaris SA (steel pipe). We see more strategic acquisitions in the pipeline and expect the weak dollar to attract foreign buyers. — Tom Fina
Tom Fina is a partner in the antitrust practice in the Washington office of international law firm Howrey LLP.
Monday, September 24, 2007
M&A Deal Credit Crunches
TheCorporateCounsel.net Blog
The Practical Corporate & Securities Law Blog, Broc Romanek and Dave Lynn are Editors of TheCorporateCounsel.net
September 24, 2007
Despite the Fed's reduction in interest rates last week, a number of deals are in trouble and have produced some interesting developments and disclosures. As a result, caselaw regarding MAC clauses and other merger provisions will likely be fleshed out over the next year (remember the September-October issue of the Deal Lawyers print newsletter opens with a related piece: "The 'Downturn' Roadmap: Parsing the Shift in Deal Terms").
Here are some of the notable developments and disclosures:
1. Harman International's Form 8-K (expected soon) - According to this article, late Friday, Goldman Sachs and Kohlberg Kravis Roberts scuttled their pending $8 billion buyout of Harman International after discovering details about Harman that raised concerns about its business. You may recall that this deal was one of the first to introduce "stub equity."
2. Genesco's Form 8-K (filed 9/20/07) - As noted in this article, Genesco is suing to force Finish Line and UBS to complete the deal it made to buy Genesco (here is the Form 8-K regarding the lawsuit filed Friday).
3. Reddy Ice Holding's Proxy Statement (filed 9/12/07) - As noted in this article, Morgan Stanley, the deal's solo underwriting bank, claimed in late August that the financing agreements had been breached and said that it was "reserving its rights." According to the proxy, Morgan Stanley argued that GSO Capital Partners, the buyout's equity sponsor, and a special committee altered some dates in the original deal agreement and, specifically, stretched out the debt marketing period without Morgan Stanley's consent. Morgan Stanley insisted that GSO had breached the debt financing contract by doing that.
4. Accredited Home Lenders Holding Co.'s Form 8-K (filed 9/20/07) - As noted in this article, Accredited Home Lenders compromised on its price tag in order to save its sale to the Lone Star Fund.
5. SLM Corp.'s Additional Soliciting Material (filed 8/7/07) - As noted in this article, Sallie Mae's purchase by a consortium led by JC Flowers & Co. might tank as the buyers are having second thoughts.
Maximizing Value (and Controlling Risk) in Distressed and Special Situations Investing
Join DealLawyers.com tomorrow for a webcast – “Maximizing Value (and Controlling Risk) in Distressed and Special Situations Investing” – to hear Tim O'Connor of Imperial Capital, and Mark Palmer and Jonathan Gill of Bracewell Giuliani discuss the latest trends and developments regarding the opportunities and strategies available in distressed situations. Given what’s happening in the credit markets – this program is particularly timely!
Coming Soon: On November 1st, join us for the webcast: “Compensation Arrangements for Private Equity Deals.”
Act Now: To catch these programs, try a 2008 no-risk trial to DealLawyers.com today – and get the "Rest of 2007" at no charge.
Delaware Supreme Court: Rejects Deepening Insolvency Cause of Action
A few weeks ago, the Delaware Supreme Court decided - in Trenwick America Litigation Trust v. Billet, No. 495, 2006 (Del. Aug. 14, 2007) - that no cause of action asserting deepening insolvency exists under Delaware law. Sitting en banc, the court didn't issue its own decision - rather, it relied on the lengthy opinion of Vice Chancellor Strine issued in August of last year, where he looked carefully at the underlying theory (and other available causes of action) and concluded that the deepening insolvency theory was incoherent. We have posted memos regarding this decision in our "Bankruptcy & Reorganization" Practice Area.
- Broc RomanekPosted by broc at 06:42 AMPermalink: Some Notable Credit Crunch Disclosures and Developments...
The Practical Corporate & Securities Law Blog, Broc Romanek and Dave Lynn are Editors of TheCorporateCounsel.net
September 24, 2007
Despite the Fed's reduction in interest rates last week, a number of deals are in trouble and have produced some interesting developments and disclosures. As a result, caselaw regarding MAC clauses and other merger provisions will likely be fleshed out over the next year (remember the September-October issue of the Deal Lawyers print newsletter opens with a related piece: "The 'Downturn' Roadmap: Parsing the Shift in Deal Terms").
Here are some of the notable developments and disclosures:
1. Harman International's Form 8-K (expected soon) - According to this article, late Friday, Goldman Sachs and Kohlberg Kravis Roberts scuttled their pending $8 billion buyout of Harman International after discovering details about Harman that raised concerns about its business. You may recall that this deal was one of the first to introduce "stub equity."
2. Genesco's Form 8-K (filed 9/20/07) - As noted in this article, Genesco is suing to force Finish Line and UBS to complete the deal it made to buy Genesco (here is the Form 8-K regarding the lawsuit filed Friday).
3. Reddy Ice Holding's Proxy Statement (filed 9/12/07) - As noted in this article, Morgan Stanley, the deal's solo underwriting bank, claimed in late August that the financing agreements had been breached and said that it was "reserving its rights." According to the proxy, Morgan Stanley argued that GSO Capital Partners, the buyout's equity sponsor, and a special committee altered some dates in the original deal agreement and, specifically, stretched out the debt marketing period without Morgan Stanley's consent. Morgan Stanley insisted that GSO had breached the debt financing contract by doing that.
4. Accredited Home Lenders Holding Co.'s Form 8-K (filed 9/20/07) - As noted in this article, Accredited Home Lenders compromised on its price tag in order to save its sale to the Lone Star Fund.
5. SLM Corp.'s Additional Soliciting Material (filed 8/7/07) - As noted in this article, Sallie Mae's purchase by a consortium led by JC Flowers & Co. might tank as the buyers are having second thoughts.
Maximizing Value (and Controlling Risk) in Distressed and Special Situations Investing
Join DealLawyers.com tomorrow for a webcast – “Maximizing Value (and Controlling Risk) in Distressed and Special Situations Investing” – to hear Tim O'Connor of Imperial Capital, and Mark Palmer and Jonathan Gill of Bracewell Giuliani discuss the latest trends and developments regarding the opportunities and strategies available in distressed situations. Given what’s happening in the credit markets – this program is particularly timely!
Coming Soon: On November 1st, join us for the webcast: “Compensation Arrangements for Private Equity Deals.”
Act Now: To catch these programs, try a 2008 no-risk trial to DealLawyers.com today – and get the "Rest of 2007" at no charge.
Delaware Supreme Court: Rejects Deepening Insolvency Cause of Action
A few weeks ago, the Delaware Supreme Court decided - in Trenwick America Litigation Trust v. Billet, No. 495, 2006 (Del. Aug. 14, 2007) - that no cause of action asserting deepening insolvency exists under Delaware law. Sitting en banc, the court didn't issue its own decision - rather, it relied on the lengthy opinion of Vice Chancellor Strine issued in August of last year, where he looked carefully at the underlying theory (and other available causes of action) and concluded that the deepening insolvency theory was incoherent. We have posted memos regarding this decision in our "Bankruptcy & Reorganization" Practice Area.
- Broc RomanekPosted by broc at 06:42 AMPermalink: Some Notable Credit Crunch Disclosures and Developments...
Tuesday, September 18, 2007
Trouble in the Private Equity Market
DealLawyers.com, September 18, 2007:
That there is much trouble in the private equity market is clear and well-documented. No credit available for signed deals. Private equity partners suing each other. Shareholders suing funds. The troubles will likely continue for some time.
On Sunday, the NY Times ran this column with some interesting remarks from Michael Jensen, professor emeritus at the Harvard Business School, leading scholar in finance and management, and the man whom many consider to be the intellectual father of private equity. Here is an excerpt:
“We are going to see bad deals that have been done that are not publicly known as bad deals yet, we will have scandals, reputations will decline and people are going to be left with a bad taste in their mouths,” Mr. Jensen said in an interview last week. “The whole sector will decline.”
Mr. Jensen was elaborating on the trenchant comments he made last month in a forum on private equity convened by the Academy of Management. There, he excoriated private equity titans who sell stock in their companies to the public — a non sequitur in both language and economics, he said — and warned that industry “innovations,” like deal fees that encourage private equity managers to overpay for companies, will destroy value at these firms, not create it.
He also said that private equity managers who sell overvalued company shares to the public, whether in their own entities or in businesses they have bought and are repeddling, are breaching their duties to those buying the stocks.
“The owners who are selling the equity are in effect giving their word to the market that the equity is really worth what it is being priced at,” he said. “But the attitude on Wall Street is that there is no responsibility to the buyers of the equity on the part of the managers who are doing the selling. And that’s a recipe for nonworkability and value destruction.”
That there is much trouble in the private equity market is clear and well-documented. No credit available for signed deals. Private equity partners suing each other. Shareholders suing funds. The troubles will likely continue for some time.
On Sunday, the NY Times ran this column with some interesting remarks from Michael Jensen, professor emeritus at the Harvard Business School, leading scholar in finance and management, and the man whom many consider to be the intellectual father of private equity. Here is an excerpt:
“We are going to see bad deals that have been done that are not publicly known as bad deals yet, we will have scandals, reputations will decline and people are going to be left with a bad taste in their mouths,” Mr. Jensen said in an interview last week. “The whole sector will decline.”
Mr. Jensen was elaborating on the trenchant comments he made last month in a forum on private equity convened by the Academy of Management. There, he excoriated private equity titans who sell stock in their companies to the public — a non sequitur in both language and economics, he said — and warned that industry “innovations,” like deal fees that encourage private equity managers to overpay for companies, will destroy value at these firms, not create it.
He also said that private equity managers who sell overvalued company shares to the public, whether in their own entities or in businesses they have bought and are repeddling, are breaching their duties to those buying the stocks.
“The owners who are selling the equity are in effect giving their word to the market that the equity is really worth what it is being priced at,” he said. “But the attitude on Wall Street is that there is no responsibility to the buyers of the equity on the part of the managers who are doing the selling. And that’s a recipe for nonworkability and value destruction.”
Wednesday, September 12, 2007
Smaller M&A Deals
WSJ DealJournal, September 11, 2007:
Need more proof of the impact the credit markets are having on global deal making? Look no further than the average size of deals announced last month.
With investment banks now balking at financing megadeals, the theory went that buyers would turn to the middle market to make deals. (See this post.) Data from August on the average deal size seems to bear that out.
Not only were the number of deals and deal volume down in August, but the average deal size tumbled world-wide to $121 million. That was the lowest average since November 2004, a 65% drop from July and a 32% slide from August 2006. Last month also had just one deal larger than $5 billion, the first time that had happened since September 2004, according to Thomson Financial.
Not surprisingly, the tumble in average deal size was most pronounced among private-equity-led buyouts, which fell to $197.8 million – a far cry from $881.8 million in July or even the $476 million in August 2006. It also represented the lowest average LBO size since February 2005, according to the data.
This was even more pronounced in the U.S., where the size of the average LBO deal tumbled to $239.6 million. By way of comparison, in only one other month this year (January) did the average buyout size fall below $1 billion and, at $748.5 million, January’s average still was more than three times as much as August.
Corporate buyers also announced smaller deals last month. The average size of strategic transactions globally fell 28% from a year ago to $114.4 million. That was the lowest since March 2005 and suggests – along with the fact that corporate deal volume fell to the lowest monthly total since January 2006 – that corporate buyers didn’t fill the void left by the now less-active private-equity firms.
In the U.S., the average size of strategic transactions did rise 6% from a year earlier, though it was down 26% from July.
Need more proof of the impact the credit markets are having on global deal making? Look no further than the average size of deals announced last month.
With investment banks now balking at financing megadeals, the theory went that buyers would turn to the middle market to make deals. (See this post.) Data from August on the average deal size seems to bear that out.
Not only were the number of deals and deal volume down in August, but the average deal size tumbled world-wide to $121 million. That was the lowest average since November 2004, a 65% drop from July and a 32% slide from August 2006. Last month also had just one deal larger than $5 billion, the first time that had happened since September 2004, according to Thomson Financial.
Not surprisingly, the tumble in average deal size was most pronounced among private-equity-led buyouts, which fell to $197.8 million – a far cry from $881.8 million in July or even the $476 million in August 2006. It also represented the lowest average LBO size since February 2005, according to the data.
This was even more pronounced in the U.S., where the size of the average LBO deal tumbled to $239.6 million. By way of comparison, in only one other month this year (January) did the average buyout size fall below $1 billion and, at $748.5 million, January’s average still was more than three times as much as August.
Corporate buyers also announced smaller deals last month. The average size of strategic transactions globally fell 28% from a year ago to $114.4 million. That was the lowest since March 2005 and suggests – along with the fact that corporate deal volume fell to the lowest monthly total since January 2006 – that corporate buyers didn’t fill the void left by the now less-active private-equity firms.
In the U.S., the average size of strategic transactions did rise 6% from a year earlier, though it was down 26% from July.
Monday, September 10, 2007
The Ranks of the Comfortable Are Still Thinning
By ANDREW ROSS SORKIN, New York Times, Sunday, September 9, 2007:
BY now, all of Wall Street understands that the private-equity gravy train has jumped the tracks. But few seem to realize how ugly the pile-up could become.
With the buyout market in free fall, lots of attention has focused on a few obvious pressure points, like which investment banks will rack up big losses on the $330 billion in debt that they committed to pay for leveraged buyouts over the last year.
For the most part, though, Wall Street seems to be taking it all in stride. James Dimon, the chief executive of JPMorgan Chase, said last month that he was “comfortable.”
Comfortable? Let me offer a more dour view: wide swaths of Wall Street, and many of the industries that serve it, are in for some serious collateral damage. Not only has private equity been out of business for the last two months, but that activity is not likely to resume with any significance soon. And when it does, it will be at a fraction of its recent peak.
So what does that mean? For much of Wall Street, a severe case of withdrawal. Forget about cutting the size of bonuses: let’s start really thinking about the possibility of slashing jobs.
See the article at: http://www.nytimes.com/2007/09/09/business/09deal.html?_r=1&dlbk&oref=slogin
BY now, all of Wall Street understands that the private-equity gravy train has jumped the tracks. But few seem to realize how ugly the pile-up could become.
With the buyout market in free fall, lots of attention has focused on a few obvious pressure points, like which investment banks will rack up big losses on the $330 billion in debt that they committed to pay for leveraged buyouts over the last year.
For the most part, though, Wall Street seems to be taking it all in stride. James Dimon, the chief executive of JPMorgan Chase, said last month that he was “comfortable.”
Comfortable? Let me offer a more dour view: wide swaths of Wall Street, and many of the industries that serve it, are in for some serious collateral damage. Not only has private equity been out of business for the last two months, but that activity is not likely to resume with any significance soon. And when it does, it will be at a fraction of its recent peak.
So what does that mean? For much of Wall Street, a severe case of withdrawal. Forget about cutting the size of bonuses: let’s start really thinking about the possibility of slashing jobs.
See the article at: http://www.nytimes.com/2007/09/09/business/09deal.html?_r=1&dlbk&oref=slogin
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