Princely Sums
(fixes typo in third paragraph)
Talk about the end of the salad days. The White House is pledging action against “irresponsible” bonuses for executives at bailed-out Wall Street companies and Senator Claire McCaskill has proposed a law to cap their compensation to $400,000 a year.
Masters of Wall Street should not make more money than the president of the United States, she argues, at least not until they wean themselves from government aid. So what’s a Wall Street executive to do on only $400,000 a year? Here are some ideas – precluding paying rent, buying food, putting gas in the car or getting the poodle a trim:
REAL ESTATE: Thank goodness the property market crash has opened some affordability gaps for the newly upper-middle-class executive. The prospective banking executive could pick up a one bedroom, one bathroom co-op condo on West 45th street, or see if she could get a mortgage on Bernard Madoff’s Montauk $3.3 million East Hampton estate. In this market? Unlikely. Plus, agents will tell you the market price is actually much higher. Pity.
OFFICE OR HOME DECORATION: He could spend a year’s salary on four painted portraits of billionaire investor Warren Buffet. In May, performance artist Michael Israel painted a portrait of the head of Berkshire Hathaway in 10 minutes flat. Six months later, a Minneapolis executive bought it for $100,000 in an eBay auction, with the proceeds going to the non-profit Girls Inc program.
PARTY PARTY PARTY: The future titan of Wall Street may not be able to afford Rod Stewart, who played at Steve Schwarzman’s big birthday bash in 2007 for $1 million, but he could gorge on 10,000 or so of the Blackstone chief’s favorite crab claws, which were going for $40 per claw back in the heyday of high finance.
SUPERBOWL: StubHub had a Super Bowl luxury suite going for $83,340, so a bank exec could still easily play the part of overpaid sports junky and still have more than $300,000 to lose on the outcome of the game. If he wants to be a bit more frugal, club premium seats are going for $10,511 a pop. If ego demanded, he could afford 4 seconds of TV advertising.
IPOs on horizon in February, but scant new filings in January
Bankers desperate for signs of life in the U.S. IPO market are likely to be buoyed that three are on the calendar in a single week in February, including a $562.5 million offering by Bristol-Myers Squibb offshoot Mead Johnson Nutrition. Hardly a deluge, but not bad after only one IPO in the past six months.
That flurry doesn’t mean there will be major reopening of the market anytime soon: new filings, which indicate companies think the market might soon be ready for their IPO, remained anemic in January.
In fact, the first month of 2009 saw only two, according to Thomson Reuters’ monthly snapshot, and they were small deals at that. And on the last business day of the month, Magnachip Semiconductor withdrew its $575 million IPO.
In January, Medidata Solutions, a New York-based company that serves pharmaceuticals and contract research organizations, filed for a $86.3 million IPO, while OpenTable, an online reservation taking service for restaurants and their patrons, filed for a $40 million IPO Friday.
The OpenTable deal is being led by Merrill Lynch, the top underwriter of U.S. IPOs. In 2008 — Merrill worked on deals worth $3.7 billion, earning it fees of about $84 million.
In normal times, a major banker like Merrill would pass on a small deal like OpenTable. But the pickings are slim these days and you have to keep your bankers busy somehow. Still, the IPO is likely to yield fees of only about $1.2 million, or barely enough to redecorate an office in some circles.
IPOs are expected to remain small for the time being, at least until the stock markets recover. And follow ons by already public companies are set to dominate the equities issuance landscape- January saw a total of $2.7 billion in follow on offerings, compared to zero for IPOs.
Terra Industries’ Maryland defense
Even though fertilizer maker Terra Industries rejected a more than $2 billion takeover offer from rival CF Industries earlier this week, CF has said it is still committed to doing a deal.
While CF said it prefers a negotiated transaction, it could launch a hostile bid. So, how are Terra’s defenses against a possible hostile takeover?
Fair, according to research firm FactSet SharkRepellent. Terra does not have a poison pill, but it does have a classified board with staggered terms. And the company is incorporated in Maryland, which has some takeover laws that are favorable to targets.
“They are one of the states that have a lot more protection than others. In ’99 they actually approved legislation that added protection for their constituent companies,” said John Laide of FactSet SharkRepellent. ”It’s a lot of procedural things and Terra has taken advantage of most of those.”
(PHOTO:University of Maryland’s James Gist (R) stops Duke University’s DeMarcus Nelson short of the basket during the second half of their NCAA basketball game in Durham, North Carolina, February 28, 2007. REUTERS/Ellen Ozier )
Credit crisis advantage?
The credit crisis may just be the leverage Roche needs in its bid for Genentech.
The Swiss drug maker went hostile with its bid to buy the 44 percent of Genentech it doesn’t already own. But in a rather unusual move, it has gone to shareholders with an offer that is actually lower than the $44 billion bid it initially made for the U.S. biotech group.
Investors now have a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, down from $89 per share earlier.
After the initial announcement in July, Genentech shares rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, giving Roche the leeway to lower its bid.
Roche had initially aimed to acquire the remaining shares through a negotiated settlement — an offer rejected by Genentech — and decided to appeal directly to shareholders after further talks failed to reach an agreement.
Genentech could have been trying to delay the process until key clinical data on its blockbuster cancer drug Avastin due in April — when positive results could drive up the company’s value, analysts said.
DEALS OF THE DAY
Dow’s game theory
Dow Chemical may have yet to lay out its legal strategy for walking away or delaying its more than $15 billion takeover of Rohm and Haas, but its strategy makes sense from a game-theoretic standpoint, according to JP Morgan analyst Jeffrey Zekauskas.
If the court orders Dow to close the transaction after a trial, it would be no worse off than it would be today, except for legal fees, he argued in a research note earlier this week.
There also could be a benefits: “It may be that the court rules in its favor to a smaller or larger degree; it may be that Rohm and Haas grants it a financial concession as part of the legal process,” he wrote.
Still, Dow could back itself into a corner in terms of financing if it closes the deal too late.
The company is working to renegotiate the terms of its $13 billion, one-year term loan it would use to finance the deal. But as the terms of the loan are currently written, the loan will either mature a year after the deal closes or April 14, 2010, which ever date is earlier.
So if the deal doesn’t close by mid-April, Dow’s financing issues could be made more difficult, not easier, by the delay.
(PHOTO: Pensioners play outdoor chess as they enjoy a sunny autumn morning in Sarajevo November 3, 2008. REUTERS/Danilo Krstanovic)
JPMorgan: Stop talking about “damn nationalization”
JPMorgan Chase & Co has “plenty of capital” and wants governments to stop talking about nationalizing banks.
“JPMorgan would be fine if we stopped talking about (the) damn nationalisation of banks … we’ve got plenty of capital,” Chief Executive Jamie Dimon said at the annual meeting of the World Economic Forum in Davos, Switzerland.
Underlining the bank’s confidence, Dimon said JP Morgan had lent $150 billion in the last 90 days including $50 billion in the interbank market, also to European and British banks, but added: “It’s scary because at the end of the day you have to survive.”
“I’m hoping by the end of the year we’re coming out of the crisis,” he told journalists.
Dimon admitted bankers had done “some really stupid things” but he also hit out at policy makers and regulators, adding that the Basel II capital rules has flaws and needed to be adjusted.
“I haven’t yet seen people get all the right people in a room, close the damn door and come out with a solution,” he said.
The U.S. and other countries are considering setting up a so-called “bad bank” to mop up the toxic assets of stricken lenders. It would take billions of dollars of the worst assets off banks’ balance sheets.
Nationalize JP Morgan, Goldman Sachs, (and all the “other monsters” who “own & control the US economy”, (it is a falacy and an insult to the intelligence of “most of the people of the USA who “know” that this is a “scam by these monsters”) inclusive of The Federal Reserve, and all 12 Federal Reserve Banks around the USA, “Take Government Control” of the US money, and its distribution, and “re-built” America from the ground up. All, prior to, and after the 1929 crisis(es) have been “deliberately” created by these “monsters” to “debowel” America. If these “monsters” are not nationalized now, they “will do this again, and again”, and “more and more good Americans and the entire world will suffer as a result.
from Funds Hub:
After the storm
The latest update on funds of hedge funds (FoHFs) performance arrives from Fitch Ratings -- and it makes for an unsurprisingly sober read.
We perhaps know already that 2008 was the worst year ever for FoHFs, and that cumulative losses reached an all-time high as the year ended with a Madoff-shaped bang. Fitch also raises a fear that managers have shared after imposing redemption restrictions on clients wanting to stash their cash under the proverbial mattress:
The year has witnessed a wave of managers implementing restraints on clients’ access to their assets, thus putting again into question the business and sales model of the industry
More gloomy prose measures the impact from Bernard Madoff's alleged Ponzi scheme; itself not technically a hedge fund, of course, but those FoHFs that were caught out will force the wider industry to navel gaze its way to a new set of standards:
The whole chain of parties involved in HF management, administration and distribution need to rethink the monitoring of conflicts of interest, governance, independence of third-party service providers and ethics.
Fitch though does not deny itself a glimpse of the brave new world beyond the sackcloth and ashes. We're urged to consider convertible bonds (CBs) as the cherry pick for 2009; canny managers and fund of funds with the capacity and skills to pick the good from the bad should make hay among the "obvious opportunities."
The ratings agency makes a strong case: hedge funds now dominate the CB market following the demise of Lehman and the exit from the scene of main market makers and institututional investors; valuations meanwhile have been laid low by a credit crisis which overwhelmed the entire industry of CBs, whether long only or arbitrage.
Is time on Dow’s side?
(Updates with Dow comment)
Is Dow’s refusal to close its acquisition of Rohm and Haas just a play for more time? The company has yet to lay out a legal defense, but in a series of interviews yesterday Dow CEO Andrew Liveris said the the company was working to revise its bank financing for the deal and was also looking for new partners to replace Kuwait in a failed joint venture it had planned to use to help fund the Rohm deal.
Moreover, in its complaint against Dow filed with the Delaware Court of Chancery, Rohm says that Liveris repeatedly asked for an extension until June 30 to decide whether to close the deal and also alleges that he lobbied for a delay in FTC clearance of the deal.
And yesterday, Delaware Chancellor William Chandler said Dow had argued that the trial in the matter should be delayed until late March or early April. Unfortunately for Dow, Chandler disagreed and set a date for the trial for March 9.
One reason Dow might be looking to delay the trial? Lawyers argue that the merger agreement favors Rohm and Haas’ case.
“At the end of the day, the facts win cases,” said Howard Berkower, a partner at law firm McCarter & English. “And Rohm and Haas has a good hand.”
Still, Berkower said there’s more than a month even until the court case is heard.
from MediaFile:
Hi, I’m Gregory Lee, banker for The New York Times
We've heard in recent days that The New York Times has gotten some interest in its stake in the Boston Red Sox, but it seems like whatever offers are being discussed, they must not be enough for the publisher.
In the murky, mysterious world of mergers and acquisitions, companies and their bankers and financial advisers tend to operate far below the radar -- only surfacing to leak the news in The Wall Street Journal that a deal is close at hand.
Not this time. While the Journal did get the tip-off back in December, the Times on Wednesday simply issued a press release inviting all comers to take a look at the stake. Not only that, the Times published the name of the Goldman Sachs banker handling the sale, along with his phone number. Usually, as a reporter, you have to cash in lots of chips to get digits like that.
Why do it this way? Because no one bit when they did it in the usual way. That means the NYT's price for the stake either will come down, or it will have to wait a while until it finds someone who shares its conception of what the stake must be worth. (We've heard all sorts of numbers, but $200 million seems like one that analysts could agree on. It could go lower from there.)
So in the new spirit of openness and media companies helping media companies, serious buyers can call Gregory Lee at Goldman Sachs, 212-902-7584.
Plane talk
Citi scrapped plans to buy a $50 million corporate jet after it raised eyebrows all the way to the White House. Politicians called the order, which was made in 2005, wasteful.
True, Citi has been propped up by taxpayers, swallowing up $45 billion of capital since October. Its market value is now only about $17 billion. And it has lost more than $28.5 billion in the last 15 months.
But how unusual is it for a company the size of Citi, once the world’s largest bank, to have a corporate jet?
It is not as if Citi placed an order for it in November, when it got the $20 billion emergency cash infusion. Cancelling the Dassault Falcon 7X order is actually going to cost money. The bank placed a deposit on the jet when it agreed to buy it. And it will likely have to pay a penalty for not buying the plane, the amount of which is being negotiated.
Citi is down. And the jet became an excuse to kick it, which is probably well-deserved. But should a bank really be micromanaged by popular vote?
DEALS OF THE DAY
** The world’s top oil seed processor Bunge is in talks to buy a strategic stake in sugar firm GMR Industries to gain entry into sugar making, a newspaper reported citing an unnamed source.
Corporate jets are perks. It’s that simple. Advertisements for luxury jets pander to self-important execs with headliners proclaiming such jets are “THE WINGS YOU EARNED”.
These guys do not “earn” $50 million luxury jets. These execs are more than pampered; they are cons with wildly inflated egos. No corporate CEO “earns” a private jet, or million-dollar salary while the company they manage is taking a nose dive.
Let’s put this in perspective. American workers being laid off are nonetheless paying through taxes for multi-million dollar bonuses and luxury jets.
What’s wrong with this picture?
Bonuses are completely discretionary—conditioned upon the performance of the firm as a whole.
Bonuses are not warranted at all for any firm getting government aid.
How many jobs would the $18 billion have saved?