DealJournal, WSJ.com, August 27, 2008:
Providers of loans to start-up and other venture-backed companies are feeling the pinch of the credit problems plaguing Wall Street.
The latest is publicly traded venture debt provider Hercules Technology Growth Capital, which on Monday said it secured a $50 million line of credit from Wells Fargo–much smaller than the $250 million in available credit it secured from Citigroup and Deutsche Bank last year. “We’ve been in discussions, and continue to be in discussions [with Citigroup and Deutsche Bank] about continuing the existing facility, but their appetite to expand the facility we have with them is somewhat limited,” said Scott Harvey, Hercules Technology’s chief legal officer.
Most venture debt providers use a combination of equity and debt to provide loans to small, privately held life science and technology businesses. These firms will still be able to make loans from their own equity, but expect fewer venture-backed companies to be on the receiving end of those loans. “The best companies can still find credit at attractive terms, but as the available credit shrinks, the marginal companies are having more trouble getting deals done,” as are those companies looking for bigger financings, said Maurice Werdegar, an investment partner with Western Technology.
But even the highest-quality venture-backed companies might begin to see tougher terms and higher interest rates as the credit crunch continues. “It’s fair to say that this is starting to trickle down into the borrowing base. As the cost of capital goes up, that has to get passed along,” said Harvey, who added that he expects to begin seeing higher rates in the next three to six months.
Harvey said $50 million is adequate to meet the firm’s needs, and Hercules won’t be looking to add to the facility for at least another three months, but could raise as much as $300 million over the next two years. Harvey added that the company is being cautious about expanding the line of credit because there is a nonuse fee built into it.
Hercules, which has made about $1.3 billion in commitments to life science and technology companies since its inception in 2003, isn’t alone. This month, Western Technology Investment disclosed that its $125 million credit facility is being pulled by J.P. Morgan Chase and Deutsche Bank. “This is not isolated to us or our industry. Basically, the banks are unwinding the lending process,” said Ron Swenson, Western Technology’s chief executive.
Western Technology still has $220 million in equity remaining in its twelfth and most recent fund, which closed in February 2007.
–Scott Denne is a reporter at VentureWire, a Dow Jones publication and a contributor to Deal Journal.
Wednesday, August 27, 2008
Tuesday, August 26, 2008
A Record Pace for Buying Minority Stakes in Companies
WSJ DealJournal, August 26, 2008:
Takeover activity may be down in the dumps, but acquisitions of minority stakes in companies are on a record pace, with financial industry purchases dominating the category.
Roughly $496 billion has been spent this year buying minority stakes in companies, the highest year-to-date figure recorded by data provider Dealogic, and 30% more than the $381 million of deals struck in the year-earlier period. The financial sector is the most targeted industry, with acquisitions totaling $88.9 billion, followed by mining sector and oil-and-gas companies, at $49.8 billion and $44.4 billion, respectively.
The largest completed acquisition of a minority stake this year is Aluminium Corp. of China and Alcoa’s spending $14.3 billion to buy a 12% stake in miner Rio Tinto. Last month’s $9.1 billion purchase by German ball-bearing concern Schaeffler Group of a stake in tire maker Continental is the most recent large deal.
U.S. companies have been the most targeted, with deals valued at $83.9 billion completed this year, followed by the U.K. at $60 billion and Germany at $37.1 billion.
Goldman Sachs Group tops the rankings for advising on minority acquisitions, with deal credits totaling $49.5 billion, $6 million ahead of second-place Credit Suisse Group.
–Harry Wilson is investment banking editor at Financial News, a Dow Jones publication and a contributor to Deal Journal.
Takeover activity may be down in the dumps, but acquisitions of minority stakes in companies are on a record pace, with financial industry purchases dominating the category.
Roughly $496 billion has been spent this year buying minority stakes in companies, the highest year-to-date figure recorded by data provider Dealogic, and 30% more than the $381 million of deals struck in the year-earlier period. The financial sector is the most targeted industry, with acquisitions totaling $88.9 billion, followed by mining sector and oil-and-gas companies, at $49.8 billion and $44.4 billion, respectively.
The largest completed acquisition of a minority stake this year is Aluminium Corp. of China and Alcoa’s spending $14.3 billion to buy a 12% stake in miner Rio Tinto. Last month’s $9.1 billion purchase by German ball-bearing concern Schaeffler Group of a stake in tire maker Continental is the most recent large deal.
U.S. companies have been the most targeted, with deals valued at $83.9 billion completed this year, followed by the U.K. at $60 billion and Germany at $37.1 billion.
Goldman Sachs Group tops the rankings for advising on minority acquisitions, with deal credits totaling $49.5 billion, $6 million ahead of second-place Credit Suisse Group.
–Harry Wilson is investment banking editor at Financial News, a Dow Jones publication and a contributor to Deal Journal.
When will Lehman Brothers die?
NYT DealBook, by Andrew Ross Sorkin, August 26, 2008:
Judging by the headlines, you’d think the troubled investment bank would go belly up any day now. In fact, it probably never will.
Lehman may not be too big to fail, but it may be too important to fail. Why? Because Richard S. Fuld Jr., Lehman’s chairman and chief executive, is too important. He is a member of an exclusive club: the board of directors of the Federal Reserve Bank of New York.
It’s hard to believe that the Fed would let one of its own fail the way Bear Stearns did. Another member of club Fed, James Dimon, JPMorgan Chase’s chief executive, was handed the deal of a lifetime. Alan D. Schwartz of Bear Stearns? Not a member.
Given Mr. Fuld’s access to Fed chief Ben S. Bernanke and Mr. Bernanke’s man on Wall Street, Timothy F. Geithner, Mr. Fuld is in a much better position than his rivals to keep his firm alive. A prediction: Watch the Fed’s discount window for loans to brokerage firms. It won’t close until Mr. Fuld is out of the woods.
Judging by the headlines, you’d think the troubled investment bank would go belly up any day now. In fact, it probably never will.
Lehman may not be too big to fail, but it may be too important to fail. Why? Because Richard S. Fuld Jr., Lehman’s chairman and chief executive, is too important. He is a member of an exclusive club: the board of directors of the Federal Reserve Bank of New York.
It’s hard to believe that the Fed would let one of its own fail the way Bear Stearns did. Another member of club Fed, James Dimon, JPMorgan Chase’s chief executive, was handed the deal of a lifetime. Alan D. Schwartz of Bear Stearns? Not a member.
Given Mr. Fuld’s access to Fed chief Ben S. Bernanke and Mr. Bernanke’s man on Wall Street, Timothy F. Geithner, Mr. Fuld is in a much better position than his rivals to keep his firm alive. A prediction: Watch the Fed’s discount window for loans to brokerage firms. It won’t close until Mr. Fuld is out of the woods.
Monday, August 25, 2008
PE Sales to Strategic Buyers Defy Weak Exit Market
WSJ DealJournal, August 25, 2008:
With a lackluster IPO market and continued weakness in the appetite of financial buyers, strategic acquirers have been a key source of liquidity for firms that look to sell assets.
U.S. sales to strategic, or corporate, buyers by private-equity firms are up 46% to $63.1 billion through Aug. 20, from $43.1 billion a year earlier, according to data provider Dealogic. though the number of such deals fell to 70 from 88.
This theme is playing out more modestly around the globe. Sales to corporate buyers world-wide are up 8% to $107.5 billion from $99.4 billion, with the number of deals falling to 255 from 356. By contrast, secondary buyouts–or sales to other PE firms–are down 93% in the U.S. and 83% globally.
Buyout shop executives and intermediaries alike say since the credit markets seized up, strategic buyers have come back with a vengeance, after previously losing auctions repeatedly to cash-rich financial sponsors. For PE firms, it is a silver lining in an otherwise bleak exit environment.
Chicago Growth Partners and ClearLight Partners stand to receive more than three times their money when their sale of campus-services company U.S. Education to education concern DeVry for $290 million is complete. while Carlyle Venture Partners, Wachovia Capital Partners and Spire Capital Partners sold security company Sonitrol to Stanley Works last month for $276 million, or about 10 times earnings before interest, taxes, depreciation and amortization. That is more than twice what the PE firms paid for Sonitrol in 2004 and on top of a sonitrol dividend the sponsors paid themselves in 2005.
With a lackluster IPO market and continued weakness in the appetite of financial buyers, strategic acquirers have been a key source of liquidity for firms that look to sell assets.
U.S. sales to strategic, or corporate, buyers by private-equity firms are up 46% to $63.1 billion through Aug. 20, from $43.1 billion a year earlier, according to data provider Dealogic. though the number of such deals fell to 70 from 88.
This theme is playing out more modestly around the globe. Sales to corporate buyers world-wide are up 8% to $107.5 billion from $99.4 billion, with the number of deals falling to 255 from 356. By contrast, secondary buyouts–or sales to other PE firms–are down 93% in the U.S. and 83% globally.
Buyout shop executives and intermediaries alike say since the credit markets seized up, strategic buyers have come back with a vengeance, after previously losing auctions repeatedly to cash-rich financial sponsors. For PE firms, it is a silver lining in an otherwise bleak exit environment.
Chicago Growth Partners and ClearLight Partners stand to receive more than three times their money when their sale of campus-services company U.S. Education to education concern DeVry for $290 million is complete. while Carlyle Venture Partners, Wachovia Capital Partners and Spire Capital Partners sold security company Sonitrol to Stanley Works last month for $276 million, or about 10 times earnings before interest, taxes, depreciation and amortization. That is more than twice what the PE firms paid for Sonitrol in 2004 and on top of a sonitrol dividend the sponsors paid themselves in 2005.
Wednesday, August 20, 2008
Germany backs law to protect firms from foreigners
BERLIN, Aug 20 (Reuters) - Germany's cabinet agreed on Wednesday to bring in rules to protect domestic firms from foreign buyers, notably sovereign wealth funds (SWFs), who could exert political influence, a German government official said.
Under the new rules, the government will be able to review and veto purchases of stakes of 25 percent or more in German firms made by buyers outside the EU or European Free Trade Association if it deems German security is at risk.
The rules, to stop cash-rich SWFs from countries including Russia, China and Gulf states exerting leverage in strategic sectors, extend the law -- which currently applies only to the arms industry -- to all sectors.
SWFs control an estimated $3 trillion in assets globally.
Economists and some industry groups have warned that any signs the government of the world's No.1 goods exporter is taking steps which could be viewed by markets as protectionist may frighten off foreign investors.
The government has stressed it would intervene only in exceptional cases.
The Economy Ministry will be able to look at a purchase up to three months after the acquisition is made or the intention to make an acquisition is made public. It then has two months to decide whether to veto the purchase.
Parliament still has to pass the plans. For a factbox on the rules, please click on [ID:nLJ374737] (Reporting by Madeline Chambers; Editing by Louise Ireland)
Under the new rules, the government will be able to review and veto purchases of stakes of 25 percent or more in German firms made by buyers outside the EU or European Free Trade Association if it deems German security is at risk.
The rules, to stop cash-rich SWFs from countries including Russia, China and Gulf states exerting leverage in strategic sectors, extend the law -- which currently applies only to the arms industry -- to all sectors.
SWFs control an estimated $3 trillion in assets globally.
Economists and some industry groups have warned that any signs the government of the world's No.1 goods exporter is taking steps which could be viewed by markets as protectionist may frighten off foreign investors.
The government has stressed it would intervene only in exceptional cases.
The Economy Ministry will be able to look at a purchase up to three months after the acquisition is made or the intention to make an acquisition is made public. It then has two months to decide whether to veto the purchase.
Parliament still has to pass the plans. For a factbox on the rules, please click on [ID:nLJ374737] (Reporting by Madeline Chambers; Editing by Louise Ireland)
Monday, August 18, 2008
In an Ohio State of Mind
August 15, 2008, NYT Times DealBook, by Steven M. Davidoff, The Deal Professor.
In light of Delaware’s dominance of takeover regulation, it is easy to forget that other states have their own, sometimes very different, takeover laws and procedures.
California rejects Delaware’s Revlon doctrine, which requires that a board obtain the highest price reasonably available when a break-up or sale of the company is inevitable; Texas requires a two-thirds vote to approve a takeover via a merger; and Pennsylvania has the toughest antitakeover laws in the nation, the result of an attempt in the 1980s to protect its industrial enterprises from out-of-state acquirers.
I was thinking about this in light of Thursday’s moves by Harbinger Capital Management.
Harbinger, a hedge-fund firm much in the headlines these days, has delivered a control share acquisition statement to Cleveland-Cliffs under Ohio’s Control Share Acquisition Statute, proposing to acquire up to one-third of Cleveland-Cliffs.
Cleveland-Cliffs is a mining company incorporated under the laws of Ohio and therefore governed by Ohio’s takeover laws. Harbinger took this step in order to block Cleveland’s pending acquisition of Alpha Natural Resources.
Cleveland is the proposed acquirer of Alpha, but it is required to hold a vote to approve the acquisition under Ohio law (and New York Stock Exchange rules, for that matter).
A quirky Ohio antitakeover statute (Section 1701.83 of the Ohio General Corporate law) requires Cleveland-Cliffs to have a vote of its shareholders to approve any issuance of its shares in an acquisition transaction in which it issues stock representing more than than one-sixth of its voting power.
The vote requirement is not the quirk; NYSE rules require a similar vote if a company issues more than 20 percent of its voting power. But rather the quirk is that two-thirds of Cleveland’s shareholders must approve the acquisition under the statute.
This is a problem for Cleveland. Harbinger already owns 15.57 percent of the company. If it acquires all of the shares it seeks, or even a significant portion of them, it will be able to block Cleveland-Cliffs’ acquisition of Alpha.
But before Harbinger can acquire this position, it must comply with another Ohio law, the Ohio Control Share Acquisition Statute (Section 1701.831 of the Ohio General Corporate Law).
This species of law is common in many states, but is not the law of Delaware. Control share acquisition statutes, along with other state antitakeover laws, were often passed in the 1980s to stem hostile takeovers of local enterprises.
Ohio’s version of the control share acquisition statute requires that shareholders pre-approve any acquisition that, when added to the proposed buyer’s current share ownership, would equal one-fifth or more of the company’s voting power as relates to the election of directors.
So, Harbinger’s delivery of a control share acquisition statement is the first step required in this process.
Ultimately, the statute requires that Harbinger’s acquisition be approved by a majority of those shares that are present at the shareholder meeting voting on this acquisition. However, the count excludes all interested shares; interested shares are defined to include the acquiring person’s shares (in this case Harbinger).
Notably, Ohio, in its infinite wisdom, has also adopted an anti-arbitrageur provision to this statute. This so-called “arb” provision was added in 2003 after Northrop Grumman’s acquisition of TRW, which was based in Ohio. It effectively disenfranchises from voting at the meeting, for the purposes of the control share acquisition statute, any shareholder who acquires a block of shares constituting more than 0.5 percent of the company — in this situation, Cleveland-Cliffs — after the announcement of the control share acquisition.
In Cleveland’s case, that cutoff date was Thursday. Be careful out there.
Now, Cleveland is in a race, with two separate shareholder meetings on the horizon. One is to approve or reject the Alpha Natural Resources acquisition. The second will decide whether or not Harbinger can acquire a sufficient number of shares to block the Alpha transaction.
The question is this: Can Cleveland hold a vote to approve the acquisition of Alpha before the vote to authorize Harbinger’s acquisition of more shares in order to block the transaction?
Or, more appropriately, can Cleveland set the record date for the Alpha meeting — the date on which it counts shareholders eligible to vote — before Harbinger acquires the shares it seeks?
If Cleveland can do so, then Harbinger will need to obtain the votes of other shareholders to block the transaction. Harbinger is stuck until then. Though it can conduct a proxy solicitation against the vote, under the law it can’t acquire more than one-fifth of Cleveland without this shareholder approval.
For those handicapping this race, the determinant of whether or not Cleveland can indeed set this record date before the Alpha meeting will be Cleveland’s ability to clear its pending registration statement with the Securities and Exchange Commission in time.
Under Ohio law, the Harbinger meeting can be set by the Cleveland board on a date any day 50 days after Thursday, and the record date any day in that period.
That is a decent amount of time, and so I am betting that Cleveland will win this race.
Of course, Cleveland could simply cut through all this by adopting a poison pill to block the acquisition.
Ultimately, Harbinger is posturing here: At this point, Harbinger can likely pull together the remaining shares to block this deal even if it cannot purchase them. The Alpha deal is unlikely to be completed and the question is whether or not Cleveland actually pushes this to a vote and Alpha, out of hope or simply because they are furious, requires that Cleveland do so.
In the meantime, Alpha disclosed in the Cleveland registration statement that it had other suitors (Arcelor Mittal?) though not at the right price.
Will those suitors return? Of course, there are other questions too, such as, what does Harbinger really want? And why didn’t Cleveland get better assurances from Harbinger before agreeing to this acquisition?
This battle also points to the absurdity of the Ohio Control Share Acquisition statute and similar laws. They were adopted back in the 1980s, before the poison pill, to provide companies a defense against tender offers.
Putting aside the appropriateness of states protecting inefficient enterprises and their doubtful economic efficiency, the threat the tender offer posed back then no longer exists. A company can adopt a poison pill to stop a tender offer in its tracks.
So at this point, these statutes are a needless procedural formality. Though for companies like Cleveland Cliffs and Diebold, which is the subject of a hostile offer by United Technologies, they’re a nice protective boon.
Harbingers control share acquisition statement is available here.
In light of Delaware’s dominance of takeover regulation, it is easy to forget that other states have their own, sometimes very different, takeover laws and procedures.
California rejects Delaware’s Revlon doctrine, which requires that a board obtain the highest price reasonably available when a break-up or sale of the company is inevitable; Texas requires a two-thirds vote to approve a takeover via a merger; and Pennsylvania has the toughest antitakeover laws in the nation, the result of an attempt in the 1980s to protect its industrial enterprises from out-of-state acquirers.
I was thinking about this in light of Thursday’s moves by Harbinger Capital Management.
Harbinger, a hedge-fund firm much in the headlines these days, has delivered a control share acquisition statement to Cleveland-Cliffs under Ohio’s Control Share Acquisition Statute, proposing to acquire up to one-third of Cleveland-Cliffs.
Cleveland-Cliffs is a mining company incorporated under the laws of Ohio and therefore governed by Ohio’s takeover laws. Harbinger took this step in order to block Cleveland’s pending acquisition of Alpha Natural Resources.
Cleveland is the proposed acquirer of Alpha, but it is required to hold a vote to approve the acquisition under Ohio law (and New York Stock Exchange rules, for that matter).
A quirky Ohio antitakeover statute (Section 1701.83 of the Ohio General Corporate law) requires Cleveland-Cliffs to have a vote of its shareholders to approve any issuance of its shares in an acquisition transaction in which it issues stock representing more than than one-sixth of its voting power.
The vote requirement is not the quirk; NYSE rules require a similar vote if a company issues more than 20 percent of its voting power. But rather the quirk is that two-thirds of Cleveland’s shareholders must approve the acquisition under the statute.
This is a problem for Cleveland. Harbinger already owns 15.57 percent of the company. If it acquires all of the shares it seeks, or even a significant portion of them, it will be able to block Cleveland-Cliffs’ acquisition of Alpha.
But before Harbinger can acquire this position, it must comply with another Ohio law, the Ohio Control Share Acquisition Statute (Section 1701.831 of the Ohio General Corporate Law).
This species of law is common in many states, but is not the law of Delaware. Control share acquisition statutes, along with other state antitakeover laws, were often passed in the 1980s to stem hostile takeovers of local enterprises.
Ohio’s version of the control share acquisition statute requires that shareholders pre-approve any acquisition that, when added to the proposed buyer’s current share ownership, would equal one-fifth or more of the company’s voting power as relates to the election of directors.
So, Harbinger’s delivery of a control share acquisition statement is the first step required in this process.
Ultimately, the statute requires that Harbinger’s acquisition be approved by a majority of those shares that are present at the shareholder meeting voting on this acquisition. However, the count excludes all interested shares; interested shares are defined to include the acquiring person’s shares (in this case Harbinger).
Notably, Ohio, in its infinite wisdom, has also adopted an anti-arbitrageur provision to this statute. This so-called “arb” provision was added in 2003 after Northrop Grumman’s acquisition of TRW, which was based in Ohio. It effectively disenfranchises from voting at the meeting, for the purposes of the control share acquisition statute, any shareholder who acquires a block of shares constituting more than 0.5 percent of the company — in this situation, Cleveland-Cliffs — after the announcement of the control share acquisition.
In Cleveland’s case, that cutoff date was Thursday. Be careful out there.
Now, Cleveland is in a race, with two separate shareholder meetings on the horizon. One is to approve or reject the Alpha Natural Resources acquisition. The second will decide whether or not Harbinger can acquire a sufficient number of shares to block the Alpha transaction.
The question is this: Can Cleveland hold a vote to approve the acquisition of Alpha before the vote to authorize Harbinger’s acquisition of more shares in order to block the transaction?
Or, more appropriately, can Cleveland set the record date for the Alpha meeting — the date on which it counts shareholders eligible to vote — before Harbinger acquires the shares it seeks?
If Cleveland can do so, then Harbinger will need to obtain the votes of other shareholders to block the transaction. Harbinger is stuck until then. Though it can conduct a proxy solicitation against the vote, under the law it can’t acquire more than one-fifth of Cleveland without this shareholder approval.
For those handicapping this race, the determinant of whether or not Cleveland can indeed set this record date before the Alpha meeting will be Cleveland’s ability to clear its pending registration statement with the Securities and Exchange Commission in time.
Under Ohio law, the Harbinger meeting can be set by the Cleveland board on a date any day 50 days after Thursday, and the record date any day in that period.
That is a decent amount of time, and so I am betting that Cleveland will win this race.
Of course, Cleveland could simply cut through all this by adopting a poison pill to block the acquisition.
Ultimately, Harbinger is posturing here: At this point, Harbinger can likely pull together the remaining shares to block this deal even if it cannot purchase them. The Alpha deal is unlikely to be completed and the question is whether or not Cleveland actually pushes this to a vote and Alpha, out of hope or simply because they are furious, requires that Cleveland do so.
In the meantime, Alpha disclosed in the Cleveland registration statement that it had other suitors (Arcelor Mittal?) though not at the right price.
Will those suitors return? Of course, there are other questions too, such as, what does Harbinger really want? And why didn’t Cleveland get better assurances from Harbinger before agreeing to this acquisition?
This battle also points to the absurdity of the Ohio Control Share Acquisition statute and similar laws. They were adopted back in the 1980s, before the poison pill, to provide companies a defense against tender offers.
Putting aside the appropriateness of states protecting inefficient enterprises and their doubtful economic efficiency, the threat the tender offer posed back then no longer exists. A company can adopt a poison pill to stop a tender offer in its tracks.
So at this point, these statutes are a needless procedural formality. Though for companies like Cleveland Cliffs and Diebold, which is the subject of a hostile offer by United Technologies, they’re a nice protective boon.
Harbingers control share acquisition statement is available here.
Friday, August 08, 2008
U.S. Regulations Did Not Hurt Companies, Study Finds
It has become received wisdom on Wall Street that the Sarbanes-Oxley Act has damaged American competitiveness. It made listing in the American market less attractive to foreign companies and drove initial public offerings overseas. It raised costs for American companies without providing any significant benefit.
But do the facts support that wisdom?
The answer, according to The New York Times’s Floyd Norris: No.
A new study of the foreign companies that fled the American market after the Securities and Exchange Commission made it easy for them to do so in 2007 suggests that the companies that left were largely ones whose slow growth, and poor market performance, had reduced their need and ability to attract American capital. There is even some indication that the market punished companies that decided to leave even though they could still use the capital.
What the study shows, said one of the authors, G. Andrew Karolyi, a finance professor at Ohio State, is that the market did not react favorably when companies got out from under American regulation.
Instead, the paper by Mr. Korolyi, along with René M. Stulz, also of Ohio State, and Craig Doidge of the University of Toronto, found that share prices suffered in the few cases where foreign companies with good growth prospects left the American market. “When they choose to leave even though they are benefiting” from the American listing, Mr. Karolyi said in an interview, “shareholders may wonder if there is something sneaky going on.”
There has long been evidence that overseas firms benefit, through a lower cost of capital, when they choose to list their shares in the United States. Their shares trade for higher prices than do those of similar companies that do not choose to list here.
Why is that? The traditional answer is that investors have more faith in companies that comply with American disclosure rules and reconcile their books to United States accounting standards.
The advantage of an American listing faded early in this decade, although it did not vanish. The scandals at Enron and WorldCom did not renew faith in American rules, and it turned out that the American listing premium had soared in the late 1990s in part because foreign technology companies flocked to the United States to take advantage of what turned out to be a bubble. Their collapse made the American premium seem smaller.
The premium hit bottom in 2002, and recovered somewhat after that. Was that a reflection of investor confidence being renewed by passage of Sarbanes-Oxley? Not to hear the critics tell it. The Committee on Capital Markets Regulation, an independent panel whose creation in 2006 was heralded by Treasury Secretary Henry M. Paulson Jr., cited that data as proof that Sarbanes-Oxley hurt the markets. Their logic: The average premium after 2002, when the law passed, was lower than it was before the bubble burst. The committee ignored the fact the premium rose after the law was passed.
There is no question that the costs of complying with Section 404 of the law — requiring audits of corporate internal controls — has scared executives in the United States and abroad. The first year of audits found lots of problems, but for the vast majority of large companies those problems have since been fixed. And the costs of audits, which soared, have stabilized.
That does not prove the audits were worth the cost, although the fact that so many problems were fixed — in some cases requiring substantial accounting restatements — does indicate there was considerable benefit.
Go to Article from The New York Times »
But do the facts support that wisdom?
The answer, according to The New York Times’s Floyd Norris: No.
A new study of the foreign companies that fled the American market after the Securities and Exchange Commission made it easy for them to do so in 2007 suggests that the companies that left were largely ones whose slow growth, and poor market performance, had reduced their need and ability to attract American capital. There is even some indication that the market punished companies that decided to leave even though they could still use the capital.
What the study shows, said one of the authors, G. Andrew Karolyi, a finance professor at Ohio State, is that the market did not react favorably when companies got out from under American regulation.
Instead, the paper by Mr. Korolyi, along with René M. Stulz, also of Ohio State, and Craig Doidge of the University of Toronto, found that share prices suffered in the few cases where foreign companies with good growth prospects left the American market. “When they choose to leave even though they are benefiting” from the American listing, Mr. Karolyi said in an interview, “shareholders may wonder if there is something sneaky going on.”
There has long been evidence that overseas firms benefit, through a lower cost of capital, when they choose to list their shares in the United States. Their shares trade for higher prices than do those of similar companies that do not choose to list here.
Why is that? The traditional answer is that investors have more faith in companies that comply with American disclosure rules and reconcile their books to United States accounting standards.
The advantage of an American listing faded early in this decade, although it did not vanish. The scandals at Enron and WorldCom did not renew faith in American rules, and it turned out that the American listing premium had soared in the late 1990s in part because foreign technology companies flocked to the United States to take advantage of what turned out to be a bubble. Their collapse made the American premium seem smaller.
The premium hit bottom in 2002, and recovered somewhat after that. Was that a reflection of investor confidence being renewed by passage of Sarbanes-Oxley? Not to hear the critics tell it. The Committee on Capital Markets Regulation, an independent panel whose creation in 2006 was heralded by Treasury Secretary Henry M. Paulson Jr., cited that data as proof that Sarbanes-Oxley hurt the markets. Their logic: The average premium after 2002, when the law passed, was lower than it was before the bubble burst. The committee ignored the fact the premium rose after the law was passed.
There is no question that the costs of complying with Section 404 of the law — requiring audits of corporate internal controls — has scared executives in the United States and abroad. The first year of audits found lots of problems, but for the vast majority of large companies those problems have since been fixed. And the costs of audits, which soared, have stabilized.
That does not prove the audits were worth the cost, although the fact that so many problems were fixed — in some cases requiring substantial accounting restatements — does indicate there was considerable benefit.
Go to Article from The New York Times »
Friday, July 25, 2008
Who Should Watch the Investment Banks?
The head of the Securities and Exchange Commission urged lawmakers Thursday to give his agency the power to oversee investment banks -- even as a top Federal Reserve official said the Fed needed similar powers.
Both the S.E.C. chairman, Christopher Cox, and the New York Federal Reserve Bank president, Timothy F. Geithner, told a congressional committee that the decades-old patchwork of regulatory agencies deserved part of the blame for the recent financial market turmoil, which helped bring down Bear Stearns and has hammered the shares of other banks and brokerages.
But there seemed to be a subtle competition in the air on Thursday over which government body should get expanded powers to supervise investment banks, if lawmakers decide that greater regulation is the way to go.
Go to Article from Reuters via The New York Times»
Go to Item from DealBook»
Go to Article from Bloomberg News»
Go to CNBC Video of Timothy Geithner's Testimony
Both the S.E.C. chairman, Christopher Cox, and the New York Federal Reserve Bank president, Timothy F. Geithner, told a congressional committee that the decades-old patchwork of regulatory agencies deserved part of the blame for the recent financial market turmoil, which helped bring down Bear Stearns and has hammered the shares of other banks and brokerages.
But there seemed to be a subtle competition in the air on Thursday over which government body should get expanded powers to supervise investment banks, if lawmakers decide that greater regulation is the way to go.
Go to Article from Reuters via The New York Times»
Go to Item from DealBook»
Go to Article from Bloomberg News»
Go to CNBC Video of Timothy Geithner's Testimony
Tuesday, July 08, 2008
Second Half Brings More Of The Same
MergerMogul, July 8, 2008:
In the first quarter, many M&A professionals were hopeful that things would improve in the second or third quarter. Then the second quarter came, and some forecasted recovery was going to happen in the third or fourth quarters. But now that the third quarter is officially upon us, most people I talk to expect the second half will bring more of the same.
For large deals that heavily rely on debt, that means a scant number of transactions. Banks just don’t have the appetite for risk right now. And while the middle market is definitely faring better, the dropoff from a year ago is substantial. The latest statistics I saw showed just 226 private equity deals in 2008 through June 13, 2008, compared with 669 during the same time period the year before.
The good news is, even if things remain the same for the second half, market conditions are far from dire. For example, cross border M&A activity is only slightly lower for the first half of 2008 than it was in 2007. And certain industries, such as financial, healthcare and energy remain hot spots for investment. (However, when I say hot spots, that’s relative—those sectors are holding their own, but probably still won't reach 2007 transaction levels.
In the short term, things really can’t get much better as we enter the dog days of summer. But perhaps where the middle market is today is the new reality, something that everyone just needs to get used to. No sense of waiting around for the hay days to return. Whatever the extent of the next recovery, in the meantime it’s best to focus on getting quality deals done at decent multiples, a task that is clearly easier said than done. Let me know what you think about the second half.Danielle Fugazy danielle.fugazy@sourcemedia.com
In the first quarter, many M&A professionals were hopeful that things would improve in the second or third quarter. Then the second quarter came, and some forecasted recovery was going to happen in the third or fourth quarters. But now that the third quarter is officially upon us, most people I talk to expect the second half will bring more of the same.
For large deals that heavily rely on debt, that means a scant number of transactions. Banks just don’t have the appetite for risk right now. And while the middle market is definitely faring better, the dropoff from a year ago is substantial. The latest statistics I saw showed just 226 private equity deals in 2008 through June 13, 2008, compared with 669 during the same time period the year before.
The good news is, even if things remain the same for the second half, market conditions are far from dire. For example, cross border M&A activity is only slightly lower for the first half of 2008 than it was in 2007. And certain industries, such as financial, healthcare and energy remain hot spots for investment. (However, when I say hot spots, that’s relative—those sectors are holding their own, but probably still won't reach 2007 transaction levels.
In the short term, things really can’t get much better as we enter the dog days of summer. But perhaps where the middle market is today is the new reality, something that everyone just needs to get used to. No sense of waiting around for the hay days to return. Whatever the extent of the next recovery, in the meantime it’s best to focus on getting quality deals done at decent multiples, a task that is clearly easier said than done. Let me know what you think about the second half.Danielle Fugazy danielle.fugazy@sourcemedia.com
Friday, June 27, 2008
Deal Volume Falls, but Corporate Buyers Keep Rising
NYT DealBook, June 27, 2008:
Already, one report has noted doom and gloom in the deal-making world. Now Dealogic is adding its own take on the slump that has overtaken the world of mergers and acquisitions.
Global M&A volume fell 30 percent in the first half of 2008 from the same period last year, according to preliminary data just released by Dealogic. Much of the decline came from an 88 percent drop in private equity transactions.
But it looks like things may be on the upswing as strategic buyers are stepping in and doing increasingly larger deals now that private equity has exited the stage.
The first half of 2007 may be considered the Golden Age of M&A by financial historians. The credit crunch had yet to hit and banks were tripping over themselves to lend countless billions of dollars to buyout shops. The result was nearly $2.7 trillion worth of announced transactions. Deals in the tens of billions were commonplace, like the $45 billion buyout of power provider TXU.
In contrast, the first half of 2008 was marred by the failure of Bear Stearns, restricted lending, skyrocketing commodity prices and fears about inflation. But despite this, $1.87 trillion of deals were announced during that time. That is more than the volume announced for the entire years of 2001, 2002, and 2003.
Much of the deal volume stemmed from strategic buyers that were willing to pony up billions of their own capital to acquire a competitor. In fact, strategic M&A volume in the United States fell just 2 percent in the first half of 2008 compared to same period last year. InBev’s $46.4 billion hostile bid for Anheuser-Busch and Mars‘ $22.64 billion offer for Wm. Wrigley Jr. were two examples of mega-strategic deals that were announced in the first half of the year.
Many deals were done in non-cyclical sectors that are somewhat protected from a downturn in the economy. Consumer products, telecom, and food and beverages were the sectors that saw the most deal volume in the United States. That compares to last year which saw financial services, real-estate, and utilities lead the way.
So don’t pity the bankers; there are still deals getting done and fees to be reaped. Goldman Sachs was again the top dog in global M&A advisory, announcing $530 million worth of deals through June 26th of this year. Morgan Stanley, which was nipping at Goldman’s heels last year, was slammed, falling to number six in the league tables and announcing half of Goldman’s M&A volume at just $278 million.
But in Asia, the only region that showed growth in M&A volumes, with a 5 percent gain over last year, Goldman was not even in the top five. Leading the pack was JPMorgan Chase, with $61 billion in announced deals. In a sign of the times, newcomer China International Capital swept onto the stage at the number four spot, with $47 billion in announced deals.
Already, one report has noted doom and gloom in the deal-making world. Now Dealogic is adding its own take on the slump that has overtaken the world of mergers and acquisitions.
Global M&A volume fell 30 percent in the first half of 2008 from the same period last year, according to preliminary data just released by Dealogic. Much of the decline came from an 88 percent drop in private equity transactions.
But it looks like things may be on the upswing as strategic buyers are stepping in and doing increasingly larger deals now that private equity has exited the stage.
The first half of 2007 may be considered the Golden Age of M&A by financial historians. The credit crunch had yet to hit and banks were tripping over themselves to lend countless billions of dollars to buyout shops. The result was nearly $2.7 trillion worth of announced transactions. Deals in the tens of billions were commonplace, like the $45 billion buyout of power provider TXU.
In contrast, the first half of 2008 was marred by the failure of Bear Stearns, restricted lending, skyrocketing commodity prices and fears about inflation. But despite this, $1.87 trillion of deals were announced during that time. That is more than the volume announced for the entire years of 2001, 2002, and 2003.
Much of the deal volume stemmed from strategic buyers that were willing to pony up billions of their own capital to acquire a competitor. In fact, strategic M&A volume in the United States fell just 2 percent in the first half of 2008 compared to same period last year. InBev’s $46.4 billion hostile bid for Anheuser-Busch and Mars‘ $22.64 billion offer for Wm. Wrigley Jr. were two examples of mega-strategic deals that were announced in the first half of the year.
Many deals were done in non-cyclical sectors that are somewhat protected from a downturn in the economy. Consumer products, telecom, and food and beverages were the sectors that saw the most deal volume in the United States. That compares to last year which saw financial services, real-estate, and utilities lead the way.
So don’t pity the bankers; there are still deals getting done and fees to be reaped. Goldman Sachs was again the top dog in global M&A advisory, announcing $530 million worth of deals through June 26th of this year. Morgan Stanley, which was nipping at Goldman’s heels last year, was slammed, falling to number six in the league tables and announcing half of Goldman’s M&A volume at just $278 million.
But in Asia, the only region that showed growth in M&A volumes, with a 5 percent gain over last year, Goldman was not even in the top five. Leading the pack was JPMorgan Chase, with $61 billion in announced deals. In a sign of the times, newcomer China International Capital swept onto the stage at the number four spot, with $47 billion in announced deals.
As Markets Plunge, Deal-Making Plummets
NYT DealBook, June 27, 2008:
Gloom has descended over Wall Street once again. While the price of oil is rising, the health of the financial sector is flagging, taking yet another heavy toll on the markets.
And that has hit deal-making hard as well: Global mergers and acquisitions activity fell 35 percent in the year to date to $1.579 trillion, according to the latest 2008 data from Thomson Reuters. The pain doesn’t stop there: Mergers and acquisitions bankers are bracing for more job cuts as volumes fail to recover from their first-quarter tumble, and the markets seem unlikely to recover this year.
Among the reasons for the deal-making malaise, Reuters said, is that the credit crunch kept buyout firms away from large deals and economic uncertainty made companies reluctant to push the button.
Private equity buyout activity, which underpinned the recent M&A boom, fell 66 percent in Europe to $48 billion and slumped by 86 percent in the United States to $42 billion in the first half.
With inflation rising and no end in sight for economic woes in the U.S. and Europe, it seems unlikely that volumes will recover quickly to the record levels seen for the year until June 2007, observers said.
“We won’t see a boom like early 2007 again for another three or four years,” Hermann Prelle, joint-head of EMEA investment banking at UBS, told Reuters.
Several banks, including Citigroup and Goldman Sachs have already shed M&A jobs to try to adapt to the slower market, and there could be more cuts as the slowdown in activity eats into banks’ income.
In the U.S., the world’s biggest economy, a slowdown and bleak outlook were compounded this week as U.S. consumer confidence hit a 16-year low and housing prices suffered a record annual drop.
The slowdown that started with the credit crunch last summer has spread and is now undermining much of the economic stability in Europe and the U.S. that allowed the M&A boom.
Go to Article from Reuters via The New York Times »
Gloom has descended over Wall Street once again. While the price of oil is rising, the health of the financial sector is flagging, taking yet another heavy toll on the markets.
And that has hit deal-making hard as well: Global mergers and acquisitions activity fell 35 percent in the year to date to $1.579 trillion, according to the latest 2008 data from Thomson Reuters. The pain doesn’t stop there: Mergers and acquisitions bankers are bracing for more job cuts as volumes fail to recover from their first-quarter tumble, and the markets seem unlikely to recover this year.
Among the reasons for the deal-making malaise, Reuters said, is that the credit crunch kept buyout firms away from large deals and economic uncertainty made companies reluctant to push the button.
Private equity buyout activity, which underpinned the recent M&A boom, fell 66 percent in Europe to $48 billion and slumped by 86 percent in the United States to $42 billion in the first half.
With inflation rising and no end in sight for economic woes in the U.S. and Europe, it seems unlikely that volumes will recover quickly to the record levels seen for the year until June 2007, observers said.
“We won’t see a boom like early 2007 again for another three or four years,” Hermann Prelle, joint-head of EMEA investment banking at UBS, told Reuters.
Several banks, including Citigroup and Goldman Sachs have already shed M&A jobs to try to adapt to the slower market, and there could be more cuts as the slowdown in activity eats into banks’ income.
In the U.S., the world’s biggest economy, a slowdown and bleak outlook were compounded this week as U.S. consumer confidence hit a 16-year low and housing prices suffered a record annual drop.
The slowdown that started with the credit crunch last summer has spread and is now undermining much of the economic stability in Europe and the U.S. that allowed the M&A boom.
Go to Article from Reuters via The New York Times »
Thursday, June 26, 2008
AMT Relief Bill
From PE Week Wire, June 26, 2008:
The U.S. House of Reps yesterday passed an AMT relief bill, which would partially be “paid” for by changing the tax treatment of carried interest from capital gains to ordinary income. Unclear if it can pass the Senate, and President Bush has promised a veto. So why are Charlie Rangel et. all going through the charade? My theory is twofold: (1) Carried interest is going to become a bargaining chip this year. Most everyone acknowledges that AMT must be dealt with at least on a temporary basis, so Rangel has preemptively created a sacrificial lamb. (2) There is now a legislative framework in place for 2009, when it’s expected that Democrats will have a few more Senators and a President Obama. With that, this change passes like taxis on a freeway.
The U.S. House of Reps yesterday passed an AMT relief bill, which would partially be “paid” for by changing the tax treatment of carried interest from capital gains to ordinary income. Unclear if it can pass the Senate, and President Bush has promised a veto. So why are Charlie Rangel et. all going through the charade? My theory is twofold: (1) Carried interest is going to become a bargaining chip this year. Most everyone acknowledges that AMT must be dealt with at least on a temporary basis, so Rangel has preemptively created a sacrificial lamb. (2) There is now a legislative framework in place for 2009, when it’s expected that Democrats will have a few more Senators and a President Obama. With that, this change passes like taxis on a freeway.
S.E.C. Seeks to Reduce Reliance on Credit Ratings
Securities regulators proposed weaning investors and Wall Street institutions from over-reliance on credit ratings, part of changes to the rating industry prompted by the subprime mortgage crisis.
The Securities and Exchange Commission voted 3-0 on Wednesday in favor of reducing reliance on credit ratings, including proposing to eliminate a requirement that money market funds hold highly-rated securities.
“The official recognition of credit ratings… may have played a role in encouraging investors’ overreliance on ratings,” S.E.C. Chairman Christopher Cox told an open meeting of the commission.
Rating agencies such as Moody’s, McGraw-Hill’s Standard & Poor’s and Fimalac’s Fitch Ratings have been blamed for contributing to the crisis by assigning top ratings to mortgage-backed securities that later deteriorated.
“The recommendations we consider today are consistent with the objective of having investors make an independent judgment of the risks associated with a particular security,” Mr. Cox said.
Mr. Cox said high credit ratings are often not an indication of liquidity or low price volatility for structured financial products, such as mortgage-backed securities.
Fund managers would be required under the proposals to assess a security’s liquidity, or how easily the security can be bought or sold, before buying it for a money market fund.
The new rules would allow the asset to be valued based not only on credit ratings, but also on other subjective standards to determine credit risk.
Go to Article from Reuters via The New York Times »
The Securities and Exchange Commission voted 3-0 on Wednesday in favor of reducing reliance on credit ratings, including proposing to eliminate a requirement that money market funds hold highly-rated securities.
“The official recognition of credit ratings… may have played a role in encouraging investors’ overreliance on ratings,” S.E.C. Chairman Christopher Cox told an open meeting of the commission.
Rating agencies such as Moody’s, McGraw-Hill’s Standard & Poor’s and Fimalac’s Fitch Ratings have been blamed for contributing to the crisis by assigning top ratings to mortgage-backed securities that later deteriorated.
“The recommendations we consider today are consistent with the objective of having investors make an independent judgment of the risks associated with a particular security,” Mr. Cox said.
Mr. Cox said high credit ratings are often not an indication of liquidity or low price volatility for structured financial products, such as mortgage-backed securities.
Fund managers would be required under the proposals to assess a security’s liquidity, or how easily the security can be bought or sold, before buying it for a money market fund.
The new rules would allow the asset to be valued based not only on credit ratings, but also on other subjective standards to determine credit risk.
Go to Article from Reuters via The New York Times »
Wednesday, June 25, 2008
The Return of Stealth Mode
PE Week Wire - Wednesday, June 25:
Josh Kopelman of First Round Capital is one of the better VC bloggers, and yesterday posted something called The Death of Stealth Mode. Here’s his intro:
A pre-launch, stealth-mode company just closes a seed round of funding. Three weeks go by, and the news of the company's funding starts appearing in VentureBeat, peHUB and Venturewire. The story is then picked up by mainstream tech bloggers and press.The CEO starts getting phone calls from journalists.I then receive frantic, angry phone calls and emails from the CEO that go something like this: "Dude! Did you announce the funding? We wanted to stay under the radar..."
I want to reply, "No. I didn't announce the funding. Your lawyer did."
What Josh is talking about, of course, is an SEC requirement that companies falling under Regulation D exemptions must submit a brief filing after raising capital. It should include the company’s name, business description, executive officers, significant shareholders, placement agents, amount of capital raised and what the capital will be used for. These are called Form D filings, and are what I regularly use to sniff out unannounced deals and fundraisings (when doing so, I cite “regulatory filings”).
Now Josh correctly asserts that these filings make it more difficult to keep a company in stealth mode. He also laments the fact that issuers soon will be required to submit Form D filings electronically, which will make them far more public than the current system of paper filings and reference room scouring. In other words, every blogger and their cousin will be able to “out” stealth mode companies. No need to have a colleague in DC.
But let me make a counter argument, which I’ll call The Rebirth of Stealth Mode.
What all of these Form D newbies are about to find out is that there can be more than 100 Form D filings in a single day. The majority of those have little to do with venture capital. Instead, they are capital raises from hedge funds, REITs, energy exploration companies and banks. Or small-time businesses that got $50k from Uncle Al (you can spot these quickly, because they’re often hand-written instead of typed). In other words, it takes lots of time to separate the wheat from the chafe.
Making matters worse, there are a lot of issuers that file for small Series A funding rounds that may or may not have institutional VCs behind them. I currently can identify the “real” ones because the company must list its significant shareholders. But the revised SEC restrictions remove that requirement, which means that my job is about to become much, much more difficult. For every one VC-backed deal I find via the SEC, there are another five companies I ignore because there does not appear to be institutional backing. Now the only way I can make the distinction will be through shoe-leather journalism. Not complaining about having to work hard, but pointing out that I’ll be unable to identify nearly as many deals as I do now.
The result, of course, is that more companies may slip through the cracks and remain in stealth mode. Yes there will be more people looking, but I think the change still favors secrecy. This is particularly true if/when clever lawyers tell their clients to make up bogus holding company names, so that the jazzy Web 2.0 startup funded by Sequoia now becomes Maple Holding Co. funded by anonymous. Unless I recognize the executive’s name, I’m probably skipping over it. So will most everyone else.
Josh Kopelman of First Round Capital is one of the better VC bloggers, and yesterday posted something called The Death of Stealth Mode. Here’s his intro:
A pre-launch, stealth-mode company just closes a seed round of funding. Three weeks go by, and the news of the company's funding starts appearing in VentureBeat, peHUB and Venturewire. The story is then picked up by mainstream tech bloggers and press.The CEO starts getting phone calls from journalists.I then receive frantic, angry phone calls and emails from the CEO that go something like this: "Dude! Did you announce the funding? We wanted to stay under the radar..."
I want to reply, "No. I didn't announce the funding. Your lawyer did."
What Josh is talking about, of course, is an SEC requirement that companies falling under Regulation D exemptions must submit a brief filing after raising capital. It should include the company’s name, business description, executive officers, significant shareholders, placement agents, amount of capital raised and what the capital will be used for. These are called Form D filings, and are what I regularly use to sniff out unannounced deals and fundraisings (when doing so, I cite “regulatory filings”).
Now Josh correctly asserts that these filings make it more difficult to keep a company in stealth mode. He also laments the fact that issuers soon will be required to submit Form D filings electronically, which will make them far more public than the current system of paper filings and reference room scouring. In other words, every blogger and their cousin will be able to “out” stealth mode companies. No need to have a colleague in DC.
But let me make a counter argument, which I’ll call The Rebirth of Stealth Mode.
What all of these Form D newbies are about to find out is that there can be more than 100 Form D filings in a single day. The majority of those have little to do with venture capital. Instead, they are capital raises from hedge funds, REITs, energy exploration companies and banks. Or small-time businesses that got $50k from Uncle Al (you can spot these quickly, because they’re often hand-written instead of typed). In other words, it takes lots of time to separate the wheat from the chafe.
Making matters worse, there are a lot of issuers that file for small Series A funding rounds that may or may not have institutional VCs behind them. I currently can identify the “real” ones because the company must list its significant shareholders. But the revised SEC restrictions remove that requirement, which means that my job is about to become much, much more difficult. For every one VC-backed deal I find via the SEC, there are another five companies I ignore because there does not appear to be institutional backing. Now the only way I can make the distinction will be through shoe-leather journalism. Not complaining about having to work hard, but pointing out that I’ll be unable to identify nearly as many deals as I do now.
The result, of course, is that more companies may slip through the cracks and remain in stealth mode. Yes there will be more people looking, but I think the change still favors secrecy. This is particularly true if/when clever lawyers tell their clients to make up bogus holding company names, so that the jazzy Web 2.0 startup funded by Sequoia now becomes Maple Holding Co. funded by anonymous. Unless I recognize the executive’s name, I’m probably skipping over it. So will most everyone else.
McCain Joins "Say on Pay" Wagon
Recently, Senator John McCain has been speaking out against excessive executive compensation and has now joined Senator Obama in calling for mandatory "say on pay." Here is a Business Week article about this - and here is an excerpt from McCain's June 10th speech:
"Americans are right to be offended when the extravagant salaries and severance deals of CEOs ... bear no relation to the success of the company or the wishes of shareholders," says McCain, adding that some of those chief executives helped bring on the country's housing crisis and market troubles. "If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO's pay, including any severance arrangements, must be approved by shareholders."
The proposals that both Senators Obama and McCain support not only would provide shareholders an annual non-binding vote on executive pay, they would also provide shareholders with a separate non-binding vote when a company gives a golden parachute to executives while simultaneously negotiating to buy or sell the company.
With H&R Block joining the list, there are now nine companies that have agreed to a non-binding vote on pay.
"Americans are right to be offended when the extravagant salaries and severance deals of CEOs ... bear no relation to the success of the company or the wishes of shareholders," says McCain, adding that some of those chief executives helped bring on the country's housing crisis and market troubles. "If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO's pay, including any severance arrangements, must be approved by shareholders."
The proposals that both Senators Obama and McCain support not only would provide shareholders an annual non-binding vote on executive pay, they would also provide shareholders with a separate non-binding vote when a company gives a golden parachute to executives while simultaneously negotiating to buy or sell the company.
With H&R Block joining the list, there are now nine companies that have agreed to a non-binding vote on pay.
Tuesday, June 24, 2008
Hedge Funds Results Take a Beating in 2007
Hedge funds around the world became more cautious, reducing the amount of debt they took on to buy assets by the end of last year as returns took a beating from turmoil in global credit markets, according to a study released on Monday by Greenwich Associates.
Hedge fund leverage ratios declined to about 2.1 at the end of 2007 from 2.3 a year earlier, the Greenwich Associates/Global Custodian study showed. Meanwhile, the study showed the share of hedge managers reporting returns of more than 10 percent dropped to 52 percent in 2007 from 62 percent in calendar year 2006.
Go to Article from The Associated Press via The Guardian »
Hedge fund leverage ratios declined to about 2.1 at the end of 2007 from 2.3 a year earlier, the Greenwich Associates/Global Custodian study showed. Meanwhile, the study showed the share of hedge managers reporting returns of more than 10 percent dropped to 52 percent in 2007 from 62 percent in calendar year 2006.
Go to Article from The Associated Press via The Guardian »
Monday, June 23, 2008
Will Higher Fees Hurt Riverside’s Latest Fund-Raising?
Posted by Deal Journal @ WSJ.com, June 23, 2008, 9:34 am
Plans by Cleveland private-equity firm Riverside Co. to raise the carried-interest fee on its latest fund to 25% from 20% are causing some static on the fund-raising trail.
There are three or four past investors who will likely not re-up with the new fund, which aims to raise $900 million, several people familiar with the fund said. Stanford Management Co., which manages the endowment of Stanford University, is among them, these people said.
According to these people, Riverside said its past performance and large investment team–170 professionals across the globe–justified the increase. Riverside says on its Web site it has generated gross internal rates of return of over 50% on realized investments in North America and Europe. Riverside focuses on the lower middle market and invests in companies that have enterprise values of as much as $150 million.
According to public data from Oregon State Treasury, the 2000 Riverside Capital Appreciation Fund generated a net internal rate of return of 23.6% as of June 30. That is roughly in line with the 23.8% median return to limited partners from similar vintage funds, according to Cambridge Associates data, which is from the end of the year.
Despite the LP push back, Riverside Capital Appreciation Fund V LP is meeting with some interest. Fund V has had a first closing, one person said, declining to provide details on size. The City of Philadelphia Board of Pensions and Retirement, a new investor, has pledged $25 million to the fund.
The predecessor fund closed at $750 million in 2004.
Carried-interest fees of 25% and 30% remain rare among buyout firms. Only the best firms with the most loyal LP bases have been able to push through such a fee structure. Both Abry Partners LLC and Bain Capital LLC take 30% of their funds’ profits.
Plans by Cleveland private-equity firm Riverside Co. to raise the carried-interest fee on its latest fund to 25% from 20% are causing some static on the fund-raising trail.
There are three or four past investors who will likely not re-up with the new fund, which aims to raise $900 million, several people familiar with the fund said. Stanford Management Co., which manages the endowment of Stanford University, is among them, these people said.
According to these people, Riverside said its past performance and large investment team–170 professionals across the globe–justified the increase. Riverside says on its Web site it has generated gross internal rates of return of over 50% on realized investments in North America and Europe. Riverside focuses on the lower middle market and invests in companies that have enterprise values of as much as $150 million.
According to public data from Oregon State Treasury, the 2000 Riverside Capital Appreciation Fund generated a net internal rate of return of 23.6% as of June 30. That is roughly in line with the 23.8% median return to limited partners from similar vintage funds, according to Cambridge Associates data, which is from the end of the year.
Despite the LP push back, Riverside Capital Appreciation Fund V LP is meeting with some interest. Fund V has had a first closing, one person said, declining to provide details on size. The City of Philadelphia Board of Pensions and Retirement, a new investor, has pledged $25 million to the fund.
The predecessor fund closed at $750 million in 2004.
Carried-interest fees of 25% and 30% remain rare among buyout firms. Only the best firms with the most loyal LP bases have been able to push through such a fee structure. Both Abry Partners LLC and Bain Capital LLC take 30% of their funds’ profits.
Former U.S. Attorneys Assail McNulty Memo
Joe Palazzolo, Legal Times, June 23, 2008
In the latest assault on the McNulty memo, a bipartisan group of 32 former U.S. Attorneys has written a letter to the chairman of the Senate Judiciary Committee, asking him to hold a vote on a bill that would shore up attorney-client privilege for corporations.
The letter to Sen. Patrick Leahy, D-Vt., marks the first time a group of the Justice Department’s own have panned the memo, which allows federal prosecutors to pressure, and in some circumstance force, corporations to waive their privilege, usually in return for leniency.
"The widespread practice of requiring waiver has led to the erosion not only of the privilege itself, but also to the constitutional rights of the employees who are caught up, often tangentially, in business investigations," the letter says.
The bill would bar the practice. Prosecutors would no longer be able to use a waiver as a factor in determining whether to indict a corporation, and they would also be prohibited from compelling a corporation to submit its attorneys' work product. The House passed a similar bill last fall.
Justice officials have argued that the legislation would weaken the government's ability to uncover corporate fraud and wrongdoing to the detriment of pension holders and investors. "There are some people who favor legislation. We think and continue to think that the McNulty memo is working and has worked," Attorney General Michael Mukasey told reporters earlier this month. "There were either no or very, very, very small numbers for actual requests of waiver of the privilege. There were requests for information."
In the latest assault on the McNulty memo, a bipartisan group of 32 former U.S. Attorneys has written a letter to the chairman of the Senate Judiciary Committee, asking him to hold a vote on a bill that would shore up attorney-client privilege for corporations.
The letter to Sen. Patrick Leahy, D-Vt., marks the first time a group of the Justice Department’s own have panned the memo, which allows federal prosecutors to pressure, and in some circumstance force, corporations to waive their privilege, usually in return for leniency.
"The widespread practice of requiring waiver has led to the erosion not only of the privilege itself, but also to the constitutional rights of the employees who are caught up, often tangentially, in business investigations," the letter says.
The bill would bar the practice. Prosecutors would no longer be able to use a waiver as a factor in determining whether to indict a corporation, and they would also be prohibited from compelling a corporation to submit its attorneys' work product. The House passed a similar bill last fall.
Justice officials have argued that the legislation would weaken the government's ability to uncover corporate fraud and wrongdoing to the detriment of pension holders and investors. "There are some people who favor legislation. We think and continue to think that the McNulty memo is working and has worked," Attorney General Michael Mukasey told reporters earlier this month. "There were either no or very, very, very small numbers for actual requests of waiver of the privilege. There were requests for information."
SEC Approves One-Year Delay for Smaller Companies' Auditor Attestations
As proposed back in February, the SEC has approved another one-year extension of the compliance date for smaller companies to meet the Section 404(b) auditor attestation requirement of Sarbanes-Oxley. Smaller companies will now be required to provide the attestation reports in their annual reports for fiscal years ending on or after December 15, 2009.
In addition, the Office of Management and Budget is allowing the SEC to proceed with data collection for a study of the costs/benefits of Section 404, focusing on the consequences for smaller companies and the effects of the auditor attestation requirements.
In addition, the Office of Management and Budget is allowing the SEC to proceed with data collection for a study of the costs/benefits of Section 404, focusing on the consequences for smaller companies and the effects of the auditor attestation requirements.
Thursday, June 12, 2008
Lieberman Seeks Limits to Reduce Speculation
A prominent Washington lawmaker said Wednesday that he would propose next week to ban large institutional investors, including index funds, from the nation’s booming commodity markets.
The idea is one of several outlined by Senator Joseph I. Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee. That committee will hold a hearing on June 24 to continue examining whether financial speculation is affecting the prices of crops and fuel.
Go to NYT article - http://www.nytimes.com/2008/06/12/washington/12trade.html?dlbk
The idea is one of several outlined by Senator Joseph I. Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee. That committee will hold a hearing on June 24 to continue examining whether financial speculation is affecting the prices of crops and fuel.
Go to NYT article - http://www.nytimes.com/2008/06/12/washington/12trade.html?dlbk
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