Facing billions in losses from the subprime mortgage crisis, last week Merrill’s chief executive Stan O’Neal reached out to Wachovia about a possible merger, the New York Times reports – an unapproved foray that’s angered the board and raised speculation that the brokerage giant may be in play. CNBC reported that O’Neal is expecting to be out by this weekend, after the Times reported that the board could replace him with BlackRock’s Larry Fink or John Thain of the NYSE. Beyond questions of his job security, O’Neal’s overture shows just how bad things are at the beleagured bank — and how much its flagging performance has put it in play, even if O’Neal’s expected ouster shuts the door on a deal with Wachovia.

**Software maker BEA countered Oracle’s $17 per share offer with a $21 per share $8.2 billion proposal, which Oracle has rejected as “impossibly high”, standing by its $6.7 billion bid, which expires on Sunday. In an increasingly public display of haggling, Oracle countered that BEA’s price represents a 80 percent premium to its shares before activist shareholders started pushing for a sale. With BEA under pressure from Carl Icahn to find a buyer — and Oracle the only announced suitor — can BEA hold out for long?  
     
**Still trying to resolve the Sallie Mae mess, JC Flowers continues to talk with Northern Rock and has secured a team of executives to lead the bank. If a deal is reached, Paul Myners, the former chairman of retailer Marks & Spencer, would head the battered British bank.

**British insurer Standard Life agreed to buy rival Resolution for 4.9 billion pounds ($10.1 billion), topping a competing offer and breaking up Resolution’s planned merger with Friends Provident. The move will transform Standard Life into one of the UK’s leading life and pensions companies with about 7 million UK customers, and create an asset management business with about 191 billion pounds of funds under management.

** The Deal Journal says its attempts to calculate how much revenue Congress can get out of private equity by raising taxes on carried interest were not far off preliminary congressional figures. They estimated it could raise an additional $2 billion in annual revenue by taxing private equity profits as regular income. “The Capitol Hill number-crunchers estimate a tax increase would generate $14.73 billion from 2008 through 2012, which averages out to about $2.95 billion a year.”

You can’t put a price tag on love, but apparently you can put a price tag on BEA Systems.

In an unusual move, BEA Systems on Thursday told its unsolicited suitor Oracle Corp. that it would be open to a merger offer of $21 per share.

BEA had previously relied on the defense tactic most often used by unwilling targets by saying that Oracle’s $17 per share “undervalued” the company, without giving any indication of what number would be more palatable.

“It’s very unusual for a selling firm to identify a price which would be sufficient to close the transaction,” said Allen Michel, a professor of finance and economics at Boston University’s School of Management. “It would not necessarily open themselves up to lawsuits, since a third party could still offer more and presumably the BEA board would entertain such a higher offer.”

Yet, declaring a value could be a risky move since it essentially puts a limit on the amount a company could get, said one investment banker.

“You’ve basically shown your cards very early in the game,” the banker said. “Why would you set a limit?”

BEA said it had set a “value position” because Oracle had “repeatedly asked us for the price at which we would be willing to begin negotiations.”

“Once you say you’re open to $21 per share, it’s going to be hard to say later that it’s an inadequate number,” said Columbia University Law School professor John Coffee.

“You have ended your ability to resist a deal. It’s a strategy aimed at maximizing value, not a scorched-Earth strategy of resisting a takeover entirely,” Coffee said.

Investors apparently didn’t take the $21 per share price tag that seriously since BEA’s stock barely moved on the news. Shares of BEA closed at $17.53, down 2 cents, on Nasdaq.

“BEA’s price is still above the offer price. So, that’s a sign people expect the bid to rise. But the stock didn’t move much, so arbs don’t think $21 is a price Oracle can justify,” Coffee said.

Oracle declined to comment. Oracle, the world’s third-largest software maker, had set a Sunday deadline for its $6.7 billion bid for BEA.

The trade group formed this year to represent the private equity industry released a statement on Thursday addressing the legislation on the way from Charles Rangel (D-NY), chairman of the House Ways and Means Committee.

For those just tuning in, a carried interest tax hike will be included in a wide-ranging tax bill scheduled to be unveiled by the House’s top tax writer, Ways and Means Committee Chairman Charles Rangel, sources told Reuters on Wednesday.

The measure would more than double taxes on the profits private investment fund managers make. But it looks like an uphill climb for final passage of the measure, Reuters reported, with skeptics saying it will die in the Senate.

Here’s what the trade group, the Private Equity Council, has to say on the matter.  This is turning into one heck of a lobbying battle.

“Private equity has helped power growth in the economy and made scores of companies more competitive.  Ernst & Young recently reported that private equity investment results in stronger businesses that significantly outperform their equivalents in the public sector.  Congress should not raise private equity taxes by 130 percent and create the risk that some of the benefits of this economic activity could be discouraged.   
 
“Leading European countries, including the United Kingdom, France, Ireland, and Spain, tax carried interest as a capital gain. By heading the other direction, Congress would put U.S. investment firms at a competitive disadvantage, risking a migration of investment in U.S. businesses to jurisdictions with more hospitable tax climates. 
 
“The proposal would undo decades of established partnership tax law and create a new standard that  reserves capital gains rates only for those with the wherewithal to invest equity into an enterprise.  Meanwhile, those partners who invest their time and effort to add value to an asset they own - the very people who often are mainly responsible for any capital gains generated — would be taxed at ordinary rates.  We do not believe that is an equitable outcome.” 
 
The National Venture Capital Association put out a similar statement on Thursday, calling the current capital gains tax treatment on venture capital  ”the right tax and public policy.” It goes on to say that this measure will “likely have negative implications for the start-up companies that fuel America’s economic growth.”

(Photo. Charles Rangel, Reuters file)

The credit markets were moving along, the banks’ quarterly numbers weren’t quite as bad as expected and then…Merrill Lynch.

Private equity and banking sources say that Merrill’s doozy of a write down has spread fresh worries that another shoe is about to drop on the credit markets. The credit system that drove the leveraged buyout wave was showing signs of improvement since the Labor Day holiday last month. JPMorgan and Citigroup’s quarterly numbers weren’t great, but even they turned out a profit. Goldman issued what appeared to be another great quarter. But Merrill’s numbers left some wondering if more banks would follow with another round of big hits to their balance sheets. 

“The magnitude of MER’s relative losses lead us to suspect that this is a MER specific issue, but it may lead people to believe other investment banks were not conservative enough in their quarter-end marks,” according to a Sandler O’Neill note.
    
Another round of write-downs, particularly if it’s worse than expected, would probably pump more jitters into the credit world. That in turn would thicken the debt logjam currently limiting banks from lending to private equity players. In short, it’d be ugly for all involved, including buyout firms, their banks, institutional investors, the overall market….

So is there another shoe to drop?

(Photo. Shoes worn by actress Jennifer Connelly, Reuters file).

**Microsoft beat Google in a battle to invest in socializing Web site Facebook, agreeing to pay $240 million for a 1.6 percent stake — a poke that values the Web phenomenon at $15 billion, on par with the market cap of retailer Gap and hotel chain Marriott.

Microsoft also clinched exclusive rights to sell ads on Facebook outside of the U.S. as part of the investment, but analysts said it paid a steep price on a bet that the three-year-old company would be able to transform itself into a hub for all sorts of Web activity.
 
**In the biggest foreign investment ever in Africa, China’s ICBC is spending $5.6 billion in cash on a 20 percent stake of South Africa’s Standard Bank. The move by China’s biggest lender is also the biggest overseas acquisition by a Chinese commercial bank — coming as Beijing encourages major state firms to expand abroad, particularly in developing countries and on the heels of a deal between China’s CITIC and Bear Stearns.
 
**The Federal Trade Commission is trying to disrupt a merger between the largest natural-foods grocers in the U.S. after the deal has already been completed, the Wall Street Journal reports. In the unusual move, the FTC is asking an appellate court to overturn a ruling in August that allowed Whole Foods to acquire rival Wild Oats for $565 million. The agency opposes the deal on antitrust grounds and is asking for a review — but that’s considered a long shot, the Journal says. 

** The New York Times’ DealBook links to a New York Post article citing unnamed sources as saying high-level merger talks are underway between American Media and Ron Burkle’s Source Interlink Companies. The merger would “combine American Media’s titles, which include Star, the National Enquirer and Men’s Fitness, with Source Interlink’s magazine titles, which range from Motor Trend to Soap Opera Digest,” the Post says.

** BEA Systems said it would be willing to begin discussing a sale for $21 per share, setting a deal value well in excess of an offer from Oracle Corp. BEA said Oracle has been after the company over the last several weeks for a price. Oracle has set a Sunday deadline for BEA to accept its offer of $17 per share, but BEA has so far rejected the approach. BEA sells programs that help connect business computer systems.

** The Deal.com says Sam Zell’s $8.2 billion deal for Tribune is on track. Citing Private Equity Industry watchers as saying the publisher should be able to meet Zell’s requirements. But two U.S. senators have threatened to introduce bipartisan legislation that would block the FCC from acting quickly to ease rules governing media ownership, which could throw a spanner in the works for Zell. Consumer groups and Democrats on the FCC have expressed reservations about easing ownership rules, fearing that more consolidation in the industry would eliminate independent voices and degrade local news coverage.

(Image: Facebook founder Mark Zuckerberg, Reuters file)
 

Wall Street’s investment banks say they don’t concern themselves with league tables, those lists that rank the industry leaders of market share for M&A and underwriting activity, but we know better. 

They’ll be excused, though, if they avert their eyes  from DealZone’s “Biggest Losers” rankings, which show which banks posted the biggest credit and trading write-downs during the third quarter.

 Better luck in the fourth quarter, guys. And let’s be careful out there.

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(Image credit. “Biggest Loser” logo, NBC. http://www.nbc.com/The_Biggest_Loser/)

The collapse of the Dolan family’s latest effort to take their cable and sports empire private is one more piece of bad news for the family, which has been plagued by losing teams and a high profile sexual harrasment scandal. But it’s a glimmer of good news for Merrill Lynch on an otherwise dark day for the brokerage. It’s also a plus for Bear Stearns and Bank of America, the other two investment banks which shared responsibility for coming up with $15.5 billion in debt to get the deal done.

When the deal was announced in May, such deals — with the Dolans themselves kicking in just $2.1 billion in equity — were run of the mill. With credit markets swimming in liquidity, syndicating such quantities of debt was easy.

Not so anymore. Merrill’s whopping $2.3 billion third quarter loss announced today mostly resulted from bad bets on CDOs and subprime mortgages, but the bank also took $967 million in writedowns for $31 billion in leveraged loan commitments.  A successful Cablevision deal could have simply added to that headache, part of more than $300 billion of debt Merrill and other banks accumulated during the private equity boom which came to a screeching halt in July. 

Banks have started whittling down this mountain of debt lately by selling down loans that financed deals like the leveraged buyouts of First Data and Texas utility TXU, now known as Energy Future Holdings,  but the vast majority of it has yet to be syndicated.

Analysts say they expect the Dolans to make yet another LBO attempt when the debt markets improve. But given that the banks are breathing a big sigh of relief at their narrow escape from the last one, that’s not likely to happen any time soon.  

Top U.S. telephone company AT&T Inc. has publicly said it does not need to own satellite assets, yet behind the scenes the company may have other ideas.

The Wall Street Journal reported that AT&T has been consulting lawyers in Washington about how long it would take to get the government’s blessing to buy EchoStar Communications Corp. or DirecTV Group Inc.

AT&T’s interest in satellites dates back quite a bit. AT&T’s predeccessor SBC Communications made an unsuccessful bid for DirecTV in 2003 and forged a partnership with Echostar in 2004.

Yet when AT&T’s former Chairman and CEO Ed Whitacre stepped down, Wall Street wondered whether the company’s days of bold acquisitions ended with Whitacre’s tenure. Whitacre’s successor Randall Stephenson said AT&T did not need to own satellite television operators. In fact, when asked about possible mergers and acquisitions, Stephenson said in May that the “big pieces are in place” domestically.

AT&T’s finance chief Rick Lindner even told analysts on a conference call this week that “nothing has changed with our satellite strategy.”

Despite AT&T’s public stance, shares of EchoStar and DirecTV have surged as analysts predicted that the phone company would forge its long-coveted union with a satellite company. The speculation intensified after EchoStar said last month it may spin off its technology and wholesale satellite business.

Though an acquisition would fulfill years of AT&T’s satellite lust, it would be costly and highlight the lackluster performance of its own video service U-verse. Is it worth $30+ billion to satisfy a long-held crush?

(Photo. Randall Stephenson, Reuters file)

Don’t look now, but there are a few companies up for grabs.
    
Children’s Place has put themselves up for sale, while P&G is selling off brands like Duracell batteries. Despite the dark clouds hanging over the financial markets, other companies are in play. With private equity firms hamstrung by the credit crunch, are these companies insane for going on the block at a time when buyout firms aren’t there to boost the price?
    
Obviously the companies don’t thing so. And even though the big leveraged buyouts are off the market, it’s clear that the midmarket deal pipeline is still chugging along for both corporate buyers and private equity firms.
    
So here is a look at some of the companies either in play, or at least looking like they’re ripe for the picking.
    
Maguire Properties
The real estate investment trust is seeking financing for a management-led buyout, Reuters has reported. The company has a $1.2 billion market capitalization. 
        
Ameristar Casinos
The estate of Ameristar Casinos Inc. founder Craig Neilsen, which controls a majority of the company’s outstanding shares, is exploring strategic alternatives for Ameristar, according to a public filing on Monday.  
  
Quintana Maritime
Greece’s dry bulk carrier Quintana Maritime Ltd said this week that it plans to evaluate strategic alternatives. The $1.5 billion company is traded on the Nasdaq. 
       
Chemtura
The chemical company went up for auction earlier this year, Reuters reported last week, why not revisit the process. The $2.3 billion company has Nelson Peltz as a shareholder and a Peltz principal on its board.

Waste Industries
The trash picker upper was handed a management-led buyout offer worth $518 million from a group that includes Goldman Sachs.

Goodman Global
The company agreed to be bought by Hellman & Friedman on Monday for $1.8 billion. 

(Photo. Reuters file)

Children’s Place Retail Stores hired Lehman to assist with strategic options, a week after former CEO Ezra Dabah hired Bear Stearns to help with his own bid. Dabah stepped down in September after an internal probe found he wasn’t complying with securities-trading policies and irregularities in his expenses. The retailer’s stock has fallen about 60 percent this year after the bad news, which includes the resignation of its financial auditors.

A deal between Facebook and either Google or Microsoft is expected in the next 24 to 48 hours, according to the the New York Post . The two juggernauts are each vying for a 5 percent to 10 percent stake in the social-networking site, which the Post says could cost between $750 million and $1.5 billion.

Texas Pacific Group is investing in pharmaceutical-research outsourcing company Shanghai ChemPartner, the Wall Street Journal reported. The private equity firm will also invest in ChemPartner’s sister company ChemExplorer, which works mostly for Eli Lilly by taking a minority stake in ShangPharma, the holding company of both. The stake will be greater than $30 million, according to the Journal.