Consumers may still be deleveraging, but at big corporations it’s liquidity galore. How else to explain the curious case of the bidding war over 3PAR, a data storage company coveted by Dell and Hewlett-Packard? There’s no sound mathematical rationale for the 3PAR frenzy, which has now reached $2 billion with HP’s third counter-offer to Dell.
Only a highly creative financier with a spreadsheet and a bong could justify the valuation on HP’s latest bid — the sixth for the company in three weeks. HP is offering $30 a share — more than three times 3PAR’s $9.65 undisturbed price as of Aug. 13. Plus, HP will pay a $72 million termination fee if it clinches the deal.
Conventional wisdom has it that bulging corporate cash balances will bring a spate of deal-making. Yet many companies announcing deals of late have gotten an old-fashioned ass-whupping from shareholders. That reflects a mood in which cash, caution and skepticism dominate, making expectations of an M&A boom look overdone.
Not that investors should be jumping for joy. Most of August’s big deals — from Intel’s $7.7 billion deal for security software group McAfee to BHP Billiton’s $39 billion hostile bid for Canadian fertilizer maker Potash Corp — are fraught with risk and don’t offer the cost-cutting opportunities investors usually prize.
Mark Hurd, the Hewlett-Packard chief executive, turned out to be a man of hearty appetites — including for deals. Before leaving HP earlier this month under a cloud, Hurd spearheaded an M&A tear that included the purchases of 3Com, Palm, and EDS. But any bankers worried that the tech group’s appetite for deals might wane after Hurd’s departure can breathe easier.
HP’s unsolicited bid for 3PAR, unveiled on Monday, could even be taken as a sign the company’s takeover libido has been given a boost. If that were to prove sustainably the case, though, shareholders might find it troubling.
Goldman Sachs has been at the vanguard of Wall Street firms in accepting the realities of the marketplace. During the crisis, Goldman chief Lloyd Blankfein noticeably stood out among his investment banking brethren arguing vociferously against an industry-wide push to relax mark-to-market accounting. But on matters relating to its image, Goldman has been stubbornly resistant. That may be about to change.
When it comes to public perception, Goldman has been to hell and back. Its financial success coming out of the 2008 panic and subsequent market rescue by governments made it a public whipping boy for all who detest Wall Street, and blame it for sinking America into an economic crisis. Goldman has been pilloried by politicians, labeled a blood-sucking cephalopod in the press and henpecked by regulators.
By Rob Cox and Robert Cyran
It’s easy to frame the debate over net neutrality as an ideological battle between forces who want unfettered Internet access and those who would prevent it. Actually, like most good fights, it’s largely a dispute over money. Some pretty basic numbers illustrate the point — and provide an idea of where the debate should logically wind up.
There are two broad constituencies facing off in this quarrel. On the one side are providers of Web access. Call them the Pipes. They include telecoms giants AT&T and Verizon, who have a combined 142 million wireless customers and provide fiber and DSL connections to more homes than anyone else. Alongside them are the cable operators, led by Comcast and Time Warner Cable, who together reach into 30 million American homes.
It stands to reason that the more money flowing to a particular investment strategy, the more likely returns will diminish. By logical extension, fund managers should therefore occasionally say no to new cash to keep from hurting performance. But in the money business, that’s easier said than done, especially when considering the growing number of alternative asset managers that are publicly traded.
For a fund manager with shareholders to please, this makes for a potential conflict of interest with investors in its funds. The more assets a firm gathers, the greater its earnings. That’s particularly true in more specialized arenas of the investment world, such as private equity, distressed debt, event-driven and convertible arbitrage, where the fees typically amount to 2 percent a year plus a 20 percent slice of any profit.
One of Hollywood’s biggest flops has been Metro-Goldwyn-Mayer. So Tinseltown financiers are understandably puzzled over what looks like a forthcoming sequel to the MGM solvency horror story: a buyout of Miramax.
From the opening credits, the $660 million deal resembles the 2004 takeover of the studio behind James Bond by Providence Equity Partners and TPG. The starring roles this time go to Colony Capital and a California real estate executive, Ronald Tutor. They paid substantially more than other bidders — including Miramax founders Bob and Harvey Weinstein — were offering.
Picking the chief of an investment bank used to be a relatively straightforward process. By and large the business that made the most money got to put its man forward. So when trading profits ruled the day, the shirt-sleeved denizens of the desk won out over the pinstriped dispensers of financial advice — and vice versa when mergers and IPOs reeled in the big bucks. That relatively simple duel of thumb may, however, be a casualty of the recent crisis.
The past decade favored Wall Street executives with trading backgrounds. But that’s all supposed to change as a result of the recent U.S. financial regulation bill and looming changes to international capital standards. The so-called Volcker Rule, part of the law signed by President Barack Obama earlier this month, is supposed to put an end to U.S. banks trading for their own accounts.
By Rob Cox and Richard Beales
Wall Street can now officially start its summer. Goldman Sachs has settled with the Securities and Exchange Commission over fraud charges. The U.S. Senate has passed financial reform legislation. Even hapless BP appears to have finally capped its oil gusher in the Gulf of Mexico. All that on Thursday afternoon — rounded out on Friday morning with the first profit increase in nine quarters for economic bellwether General Electric. The financial community can afford to take a breather, and maybe even to party.
True, there are lots of open questions. The U.S. economy, for instance, isn’t out of the woods. GE boss Jeff Immelt said the environment “continues to improve,” but the company’s revenue still declined in the second quarter against a year earlier. And while Bank of America, Citigroup and JPMorgan all beat expectations for their second-quarter earnings, they found the going less easy than in the first three months of the year.
Who’s still afraid of Live Nation? The merger in January of America’s leading concert promoter with the dominant ticket-seller, Ticketmaster, was supposed to create a dangerously powerful monster in the rock’n'roll business. That’s why critics like Bruce Springsteen turned the dial up to 11 on their unsuccessful protests against the deal.
But a handful of stumbles — and a decline of as much as 40 percent in the market value of the combined company since April — have humbled the music behemoth, led by Chairman Irving Azoff, which is hosting an investor day on Thursday at New York’s Irving Plaza.