The broad popularity of Facebook has reached the point to where investment banks have blocked employees from using the social networking site. But a financial trade publication has found that, in fact, thousands of banking staff continue to use it. 
  
Citigroup, Goldman Sachs, Lehman Brothers  Holdings, JPMorgan, Bear Stearns and UBS deny access to Facebook because of concerns employees  spend too much time on it, Financial News reported. 
  
Still, nearly 20 percent of Goldman’s employees are members of the Goldman-only network on Facebook, the publication said.  Deutsche Bank was second with 11.3 percent signed up  to the bank’s network and Lehman third with 10.4 percent.

The fact that investment banks are cracking down on Facebook usage comes with a certain amount of irony, considering that Wall Street is throwing itself at the company in hopes of roping in the company and its founder Mark Zuckerberg as a client. Though Facebook has said it’s not up for sale, bankers await the day it files to go public or is sold to a corporate /private equity buyer. Facebook just named an ex YouTube finance chief as its CFO, in a sign the company may be ramping up its IPO plans. 

(Reporting by Jeffrey Goldfarb in London)

(Photo: Facebook founder, Mark Zuckerberg. Wikipedia)

Sumner Redstone just won’t stop dancing.

CBS Corp. and Viacom Inc.’s executive chairman keeps getting questions about whether he would take one of his media companies private — and he keeps dodging the issue.

His latest dance came during a conference call to discuss CBS’ quarterly earnings, when he was asked what would “trigger” a decision to go private. Back in June, he fielded a similar question during an interview on CNBC.

Here’s what he said on Tuesday: 

“(We) like the companies the way they are. We think there is an enormous amount of growth in them without any great strategic change. 
However, and I’m very clear on this, we do consider all alternatives. There has been a lot of discussion inside and outside about taking one of these companies private. 
What I can say is, I’ve said it before, it’s not on the front burner. But you can rest assured it will receive the consideration it should as we always consider what’s good for these companies.”

Why the equivocation? Given the the skittishness of the debt markets, this would seem a reasonable time to rule out going private. What do you think? What’s Redstone got in mind?
   

Are the banks ready to yank TXU’s financing in favor of paying a break up fee and walking away?    

According to this Wall Street Journal blog entry on July 26, a novel theory is circulating on Wall Street that banks could decide to pull megabuyout financing deals, pay the break up fees, and walk away. Doing that would be cheaper in the long run than being stuck with all that unwanted debt on their balance sheets, so the theory goes.

An interesting theory, no doubt, but one that sources tell DealZone is far-fetched, or in British terms: “bollocks.” Banks should be able to survive any “hanging” from bridge loans, according to this Reuters article.  In addition, the comments section of the Journal’s blog entry is filled with people throwing cold water on the theory.

Nevertheless, the theory has spilled over into KKR and TPG’s $32 billion leveraged buyout of Texas utility TXU, prompting a London-based article from AFX News/Thomson Financial headlined: “Lenders mull pulling out of TXU and pay 1 bln usd break-up fee”      

From the article:
    
    “Banks led by Citigroup are considering whether they should offer to pay a 1 bln usd break-up fee in order to get the buyout bidders for Dallas-based energy company TXU to break the agreement, according to sources.  
     The lenders are trying to avoid being stuck with 37.2 bln usd in committed debt to fund the purchase of TXU. The lead arrangers for the debt are understood to be Citigroup Inc., Lehman Brothers, JP Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley.”  

Reached by DealZone, TPG, KKR and Citigroup declined to comment.      

For what it’s worth, TXU shares were flat most of the morning, and down just 19 cents by midday, so the market doesn’t seem to be giving the report much credit. Shares of TXU have been trading lower in the last few days, but that’s not surprising given the broad credit market concerns. The reputional risk banks face by walking away from their prized private equity clients would seem too high to pull such a move.
     
Jon Najarian, co-founder of option information Web site optionmonster.com in Chicago, says:
   
“The lack of transparency in the credit market has pushed option volatility higher across the board, especially deal stocks such as TXU and First Data.”
   
Najarian acknowledged the Citigroup-TXU rumor, but said traders were not giving it much thought anymore.
   
“TXU October 60 puts were active, trading 8,100 contracts all for 85 cents a contract with the stock at $66.02. The price of those options are unchanged so far and there is no indication that there was any panic to the put purchase earlier today.”      

If by chance banks do take the plunge and pull financings in exchange for break-up fees, Justin Monteith, market analyst, KDP Investment Advisors says the bright side is that it ”would certainly go a long way towards reducing the overhang of anticipated bond and loan supply this year.”  
   
(With reporting by Doris Frankel in Chicago and Dena Aubin in New York)
(Photo: Reuters file)

How do you make money when stocks are falling, the credit markets are frozen, private equity titans are muted, and investment banks are treading water in an ocean of debt? All is not lost, Goldman Sachs promises. 

Late last week, Goldman published a note titled “US Equity Views: Hung bridges and deathly hallows.” Below the headline were the words: Sentiment, fundamentals, and three trade ideas.  The note’s tongue-in-cheek Harry Potter references caught the attention of Thomson’s Dan Primack, who concurred wholeheartedly with trade idea No. 1.
     
From Goldman’s note, the top “trade idea” in this credit market craziness:

    “1. Buy 22 pending LBO deals for 36% percent average annualized return. It is  impossible even for a wizard like Harry Potter to reconcile two facts: Stocks cannot BOTH melt down because the market fears financial institutions will have to fund and hold levered loan commitments while at the same time shares of target companies sell off on the belief the same transactions will not close. This inconsistency presents an attractive entry point for investors. The stock market assigns a roughly 62% probability that the deals will be consummated. We believe the likelihood of closing is much higher. ”

In other words, snap up shares of TXU, Alltel, FirstData, because the deals are going to get done, despite the credit market shake-up.

Interestingly, Goldman’s “hung bridge” reference points to not just bridge loans in the market, but a host of equity bridge loans for which banks are on the hook. Goldman, knowing its M&A power keeps it from bending too far for sponsors, has avoided the low risk, low return equity bridges like the plague, unlike competitors JPMorgan and Citigroup.

While trade ideas No. 2 and No. 3 are not M&A related, per se, here they are anyway.

    “2. Buy the 20 most Concentrated Hedge Fund holdings. Stocks in the S&P 500 with the highest hedge fund ownership concentration trailed the market by an average of 113 bp during seven previous pullbacks. But stocks in the hedge fund holdings basket outpaced the S&P 500 during the month following the pullback on 6 of 7 occasions. The illiquidity of some of these positions may explain why during sharp sell-offs the shares lag. S&P 500 has retreated 4.5% since peaking on July 19th while the “crowded” hedge fund positions have dropped more than 8%, a difference of more than 352 bp. When the rebound comes, these stocks should outperform.

    3. Buy US stocks with high percentage of foreign sales. The world is growing faster than the US, and investors should buy stocks that capitalize on this trend. Our basket of 45 stocks in nine sectors is expected to generate faster sales and faster earnings than the S&P 500 but the shares trade at a market multiple. ”

(Image: Goldman Sachs Website) 
     
    

The queasy credit markets is bad news for private equity buyers and the M&A banking groups that have financed the leveraged buyout boom.  Stocks have sold off partly on the assumption that the LBO premium is wearing off all sectors.

But Bear Stearns says don’t count the oil service and equipment industry out of the M&A game.

Bear Stearns analyst Robin Shoemaker predicts the sector will soon experience a “transformation” through mergers and acquisitions.

The prediction comes as corporate buyers are feeling emboldened amid rising pressure on private equity firms and the dozens of leveraged buyouts they have in the pipeline.  In short, while LBO shops may have a hard time getting deals done, don’t count strategic buyers out.

Shoemaker points out that private equity’s role in this sector has been limited so far:  

“Strategic buyers account for essentially all recent M&As in oilfield services. Financial buyers are observing from the sidelines, at least for now. Strategic buyers are able to factor operational synergies into their valuations of target companies, giving them an
advantage over financial buyers.”

Shoemaker adds:

“Since the beginning of 2006, the most rapidly consolidating industry subsectors have been manufacturing (38% of transaction value), drillers/drilling rigs (19%), and
geophysical/reservoir services (12%). Recent deals also encompass engineering/construction and production/well services.”

“We believe that the surge in M&As in oilfield services that began in early 2006 will continue, and possibly accelerate very soon,” the note read.

An acute skilled labor shortage, a high-stakes race for technological leadership,  overcapitalization, and undervaluation are the reasons cited.

Recent deals that could spark the Oil M&A spurt include the $18 billion combination between Transocean and GlobalSantaFe, two of the largest oil drillers, and the $2.1 billion takeover of Lone Star Technologies Inc. by U.S. Steel Corp. 

Companies Bear Stearns highlights as having the most attractive characteristics for a potential acquirer are Grant Prideco, Pride International, Noble Corp., Rowan, Tesco Corp., Key Energy, Hornbeck Offshore, Willbros Group, T-3 Energy Services and Dresser-Rand.

Bear Stearns said it changed its recommendation on the sector to “market overweight” from “market weight”.

(Photo: Reuters file)

If American Home Mortgage Investment Corp. makes a noise on a Friday night, and nobody is there to hear, does it fall? 
 
The answer would seem to be yes. The mortgage lender’s shares plummeted 40 percent on Monday morning, after the company put out a press release at 10:19 p.m. EDT on Friday saying that it was writing down assets and receiving margin calls on credit facilities.

The move comes as the subprime mortgage bond market enters deep freeze mode amid a broad credit market pullback hitting everyone from newlywed home buyers to leveraged buyout artists.
 
There are sometimes fair reasons for putting out a press statement late at night before a weekend or a holiday. For example, parties may agree to a merger deal late at night, and may want to put out a statement immediately.  Or maybe rumors are moving a company’s stock, forcing a release.
 
But timing a release for when people are unlikely to see it is a time-honored practice for companies hoping to evade scrutiny. 
 
Buyout giant KKR & Co. LP filed for its IPO late on July 3 the day before the U.S. Independence Day holiday, in a move likely designed to minimize publicity for a sector that had received unwanted Congressional attention after Blackstone’s IPO. That move prompted this DealZone blog post. 
 
American Home Mortgage has been a reluctant communicator in the past. On July 19, its shares dropped more than 20 percent on a rumor that one of its banks had withdrawn a credit facility. The New York Stock Exchange requested the company issue a statement indicating whether there were any corporate developments to explain the move, and the company declined to comment.  The company was not immediately available for comment for this blog post.
 
Whether the company chooses not to communicate, or to communicate late at night, its shares are undoubtedly suffering–they were quoted on Mondy morning at about a fifth of their value at the beginning of the year. 

(Photo: Reuters file)

Investors may have been terrorized by housing busts, credit market meltdowns and tumbling stock prices but for the quote-smiths of the week it was more about food, creatures and greenery - about cream cakes, gruel, mammoths, snakes, owls and potted plants. And we were even told that Rupert isn’t a moron.
 

“We’ve put an enticing cream cake on the table for ABN shareholders, we are not going to top it up with cream.” — John Varley, Barclays CEO, on its revised bid for ABN Amro (July 23).
 
“Set against banking consolidation worldwide and the globalization of services, the policy is an anachronism, a woolly mammoth dug from the Siberian tundra and shipped still frozen to Australia as a structure for banking.” — Westpac Banking Corp. CEO David Morgan on rules preventing mergers among Australia’s four biggest banks (July 26).
 
“The snake does digest the rat. But it has a period of indigestion in the middle, and that’s where you’re at right now.” — Lawrence Schloss, CEO of private equity firm Diamond Castle Holdings LLC, in comparing the current state of financing for leveraged buyouts to a snake digesting a rat (July 27).
 
“He will not have naked bodies in the WSJ — he is not a moron.” — Crawford Hill, a member of the Bancroft family who supports the sale of Dow Jones to Rupert Murdoch’s News Corp., on a way in which Murdoch won’t change the Wall Street Journal (July 27).
 
 ”In some cases we felt that we were potted plants.” — Keith Johnson, president of Clayton Holdings, Inc., a Connecticut-based due-diligence firm, on how sometimes little attention was paid to its warnings about declining quality in subprime mortgage assets. (July 27)
 
“It used to be a one-way street, Nasdaq to NYSE, but what we have now is a back-and-forth slugfest.” — Patrick Healy, whose company Issuer Advisory Group, advises companies on where to list. (July 23) 
 
“This is yet another case involving a husband and wife. There have been a dozen over the last year or two.” — John Stark, chief of the SEC’s Office of Internet Enforcement, after the SEC charged a former employee of MDS Inc. and his wife with insider trading. (July 24) 
 
“The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market.” — Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co.  He said money managers had snatched up bonds and loans for leveraged buyouts “as if they were prisoners in an isolation ward looking forward to their daily gruel passed unemotionally three times a day through the cellblock window. ‘Here, take this’ their investment banker jailers seemed to say, ‘and be glad that you’ve got at least something to eat!’” (July 26)
 
“I think it could get bloody.” — John Carter, a Wall Street recruiter at New York’s Hagan-Ricci Group Inc., in commenting on growing demand for credit risk specialists and a likely drop in demand for traders of structured credit products. (July 27)

Leave it to the Bancrofts to energize a sleepy Friday afternoon. As the family tries to decide whether it will sell Dow Jones to Rupert Murdoch’s News Corp., some of its internal wrangling is starting to show up in public.

The latest to go on record is Crawford Hill, who sent a nearly 4,000-word letter to his relatives on Thursday. The letter, which appears on The Wall Street Journal’s Web site, supports selling to Murdoch, and is equal parts Thomas Pynchon and John Cheever. Here are some of our favorite excerpts:

- You are all fine humans and we have nothing to be ashamed of about how we have looked in press or any of that nonsense — we are an amazing group of people who have lives that extend way beyond our ownership of Dow Jones. Let’s keep smiling through all of this. We are all lucky folks.

- “Uncle Pit,” she [Jessie B. Cox] would say to Whitney Stone, chair of the U.S. Equestrian Team and her dear friend, “You simply must sit next to Bumpy today so he can tell you all about the swimmers!”

- We are actually now paying the price for our passivity over the past 25 years.

- Our real legacy was an inherited lack of awareness as to what it takes to nurture and pass on an effective legacy about what is really required to be responsible, engaged and active owners of a family business. But we got away with this for a long time!!

- It is also so telling that now so many of you have revealed going back quite a long way, that you had serious concerns about the business skills of Peter Kann, but thought he was and still is a fine guy — which he is. Peter once cooked me a dinner all by himself at his home in Princeton while we watched Karen on The McLaughlin Group on TV and she arrived later, after the taping, to join us. The reason these split feelings about Peter are significant is they underscore how impotent or unwilling we were as a family do anything about Peter — despite the obvious problems. The emotion involved prevented us from making the prudent business decision.

- Up until the past few months there has never existed a family culture of questioning management. Family directors have not gone out of their way to promote this basic concept — in fact we were always told by them that we need to support management, these things take time and we can’t really talk about anything important. I always wondered what the point of owning something was if you could not even seriously question those who had been hired, in essence by you, to run your business. How screwy is that?

- Murdoch, like it or not, has what it takes to help the business flourish. He will not have naked bodies in the WSJ — he is not a moron

- The fact that we still get a premium is a bonus. And it is a helluva premium. Let us remember that this is America and capitalism is good and that, hello We Own a Business.

- His signoff: Crawford, Dad, #1 son, brother, cuz, nephew, “who’s he?,” heretic to some, born in Boston but Eagles fan all the way and now I am again proud to say, fellow alum of St. George’s with my “born again” in-law cousin Buzzy! p.s. Life is too short not to keep on seeing the irony and humor in virtually everything!

Bausch & Lomb may favor a deal with Warburg Pincus, but the ties between rival suitor American Medical Optics runs deep. How do we know? NewsVisual is a website we just discovered that shows the links between key individuals involved in mergers and acquisitions. The diagrams can be sort of overwhelming but the Website is pretty darn interesting for M&A wonks.
    
Each deal they dissect comes with a chart that connects people and companies involved. Click on the person and a detailed box comes up with their biographical information, including employment history and education. 
    
For example, NewsVisual points out that Advanced Medical’s SVP/chief accounting officer Robert Gallagher was a vice president at Bausch & Lomb until 2001. Also, Franklin Jepson, a 16-year Bausch & Lomb veteran who was there until 1999, has past ties to Robert Palmisano and William Link, who are both current members of the board at Advanced Medical, according to NewsVisual. 
     
NewsVisual’s latest entry focuses on connections between Warrenn Buffett and Kraft. Buffett has reportedly acquired a stake in the company, at a time when Nelson Pelz is also scooping up shares.

So does Buffett have an “in” there? According to NewsVisual its Marla Gottschalk, the CEO of Pampered Chef–a Berkshire Hathaway company.  Gottschalk spent more than a decade at Kraft, most recently as Senior Vice President, Financial Planning and Investor Relations, the Website says. 
 
As for the Transocean and GlobalSantaFe tie up, NewsVisual says look no further than the board of directors for connections:

“Michael Talbert (Transocean’s Chairman) and John Whitmore (a director at GlobalSantaFe) strikes us as the most compelling relationship that got these two oil drillers together; both are longtime directors of El Paso Corp.” 
     
“Another connection that may have helped push the companies into an agreement is shared between GlobalSantaFe Chairman Robert E. Rose and Transocean director and former Chairman Victor Grijalva - both are currently directors of the American Petroleum Institute.” 

(Photo credit: Warren Buffett, Reuters file)

(Image credit: Kraft corporate Website)    
    

This is starting to get grim. 
       
Stocks are plummeting. Loan deals are faltering and banks, unable to pass the buck, are getting stuck holding on to a lot of unwanted junk. How will it all end?
    
Very badly, warns analyst Richard Bove, who has followed the banking and brokerage industries since the 1970s. When banks can’t move their inventories of corporate loans, it clogs up their balance sheets. That can limit their ability to extend new financing. And that could mean, according to Bove, a decade-long, Japanese-style credit crisis.
    
“(Banks) are putting the unsold debt onto their balance sheets. This is poisonous. The Japanese banks did this in the late 1980s and the early 1990s and then refused to mark the debt to market,” Bove said.
    
“The result,” he continued, “is that the liquidity of these companies was destroyed and the Japanese economy took 10 years to obtain the bank funding it needed. This process is beginning in the United States.”
    
The leveraged buyout market has a big supply-demand imbalance: more than $200 billion worth of debt financing has been announced amid the boom in private equity deals. But debt investors apparently have put their check books away until at least Labor Day. The credit markets are effectively closed, buyout executives say.
    
Junk bond spreads have widened in the past two months to 3 percentage points over high-grade corporate bonds. Credit protection costs have zoomed, making it prohibitively expensive to hedge.
    
The result, Bove told his Punk Ziegel & Co. clients in a note earlier this week, is that we’re not having a sub-prime crisis but a full blown credit crisis. Late on Thursday he told Reuters that regulators should force banks to mark down their assets, take their licks and move on.
    
Break out the sake, Wall Street. You may need it.

(Photo. Japanese traders in Tokyo. Reuters file)