Biggest Dividend

posted by Kenneth Li on Jun 19

What a difference a day makes. The sudden departure of Yahoo CEO Terry Semel and elevation of co-founder Jerry Yang to the helm has stoked talks of Yahoo casting about for partners again, with just about every big media company appearing on the potential suitors list.

But shares sunk a day after the announcement as it appeared that Yang’s appointment could spell more of the same. Perhaps it had something to do with Yang pledging a commitment to keeping Yahoo a “vibrant independent company.”

Here’s a roundup:

Jefferies & Co analyst Youssef Squali:
“We find Yahoo! to be exceedingly attractive for a media/technology buyer looking to establish leadership online. The recent management shake up increases the chances for a sale in our view. Potential suitors include Microsoft, Viacom, News Corp. and Comcast.”

RBC analyst Jordan Rohan:
“We believe Yahoo will consider partnerships with Comcast, ATT, AOL, News Corp./MySpace and Microsoft. We believe an acquisition of Facebook would also be interesting, although a more likely acquirer of Facebook may be Microsoft.”

Goldman Sachs analyst Anthony Noto:
“We also believe this announcement implies that the near-term probability of a sale of the company is low. Our rationale is that this management team is very close to Terry Semel and, as such, if a deal was going to happen in the near term, they would likely have weathered the financial shortfalls until it was announced.”

Fortune writer Tim Arango:
Billionaire supermarket mogul Ron Burkle could be trying to tap Yahoo for a run at snatching Dow Jones from Rupert Murdoch, citing an unnamed source close to Burkle.
“Given the Internet company’s struggles competing on search with Google, an entry in to the slow-growth newspaper industry appears unlikely. That hasn’t stopped Burkle from trying to make the case to Yahoo!, according to a source, who said that Burkle is also considering various other partnerships in conjunction with Dow Jones’ union.”

CNBC reporter David Faber (via MSNBC.com):
Close to two hours before Yahoo’s management shake up was public, Faber reported Yahoo could face an activist shareholders group that could force the company to explore “strategic alternatives” that could include seeking a deal with News Corp., AT&T, AOL, Microsoft and Comcast. According to Faber’s sources, News Corp. is mulling a scenario whereby they would combine MySpace with Yahoo for a 25 percent stake in the new company. That would value MySpace at around $10 billion.

posted by Megan Davies on Jun 18

Selling off its $3.2 billion Bobcat machines business could make manufacturer Ingersoll-Rand a private equity target itself, Bear Stearns analyst Ann Duignan writes in a research report issued Monday. Ingersoll-Rand said in May it was reviewing a sale or spinoff of Bobcat as it shifts away from capital-intense heavy machinery.

Duignan forecasts that a sale of Bobcat would leave Ingersoll-Rand an attractive takeover candidate for private equity firms, adding that buyout firms could realize a return on equity of around 14 percent by paying $60 a share for Ingersoll-Rand. “With $11/share cash from the sale of Bobcat, we believe there is a significant possibility of a leverged buyout transaction,” she wrote.

The company should consider accelerating share repurchases or risk a takeover, she wrote.

According to a Financial Times report earlier this month, U.S. mining equipment manufacturer Terex Corp. is a leading Bobcat suitor, while other interest could come from agricultural equipment maker Deere & Co, other strategic bidders and private equity firm Cerberus.

The company’s shares were up 3 percent on Monday at $53.95.

posted by Michael Flaherty on Jun 18

For the second week in a row, Monday morning produced only a minor flurry of acquisition activity compared to prior weeks in the second quarter.

That may just be a seasonal fluke. But it’s hard not to wonder if merger activity is slowing because of the pressures facing the private equity world.

LBO shops saw huge deal flow in the first few months of this year. But debt is getting more expensive, prices for companies are going higher, interest rate worries loom, and lawmakers are mulling higher taxes for at least part of the industry.

So will M&A volume take a hit as a result? Well, there are plenty of big deals in the chutes, including the $10 billion auction for Home Depot’s supply business and the $15.8 billion auction for Cadbury Schweppes U.S. beverage unit. And bankers typically like to get second quarter transactions wrapped up by July 4, so Monday’s M&A cycle may heat up in the next few weeks.

But for now, chew on these statistics below from Dealogic, showing a drop off in Monday merger mania. The below deals include Sunday and Monday announced M&A.

Key to remember is that the worries of rising interest rates heated up around June 6/7.

Announced Date  Value $bln  #deals
2-Apr                 111.51        229
9-Apr                 ? ? 10.32          96
16-Apr                 49.25        161
23-Apr*             134.66        151
30-Apr                 29.80        145
7-May                  64.22        106
14-May                35.94        164
21-May              107.54        167
28-May**              8.38           93
4-Jun                  48.23        147
11-Jun                14.18          52
* first bid for ABN AMRO announced ($91.2 billion) ** Memorial Day holiday

So far on Monday, June 18, deals include the sale of BUPA to buyout firm Cinven and Finish Line buying Genesco for $1.5 billion. Not bad, but hardly a merger Monday worthy of note. 

(Photo: NYSE trader, Reuters file)

posted by Tim McLaughlin on Jun 18

     Even if you’re a bigshot on Wall Street, drugs will scramble your brain. Here’s a look at another side to Wall Street’s push to keep up record profits. Boom times are fueling drug use within investment banks. And it’s not just young analysts who are using.                      

On the flip side are the dealers feeding the drug use, who know how to market their product well. When they deal with their Wall Street clients, dealers wear nice suits and use preppy names such as “Nelson” to build their brand. It also helps them fit in better.

“My customers were all business individuals,” convicted drug dealer Juan Rodriguez recounted in courtroom testimony. “I didn’t deal with any street individuals, if you will. … I would create a, you know, take it away from the street image and create a business-like atmosphere so there would be no attention or no heat drawn to me.” 

Rodriguez said even as the price of cocaine escalated his clients didn’t complain. But when his supplier started diluting the purity of his onions (an ounce of cocaine), his clients howled that their highs weren’t as good as before.

Mental health experts who counsel Wall Street executives with drug problems say the pressure to perform can lead them to alcohol abuse, dope smoking, cocaine snorting and shopping for prescription drugs.

Wall Street has seen boom times and drugs before, but this time around, the prevalance of OxyContin (AKA hillbilly heroin) is a new twist for some guys and gals with loads of cash.

And you don’t need drugs for a meltdown. Sometimes anxiety and pressure will do a number on some of the Street’s rising stars.

David Becker was the global chief of Citigroup’s commodities desk when the pressure to meet targets led to cooking the books and a 15-month prison sentence. This didn’t happen overnight. He started seeing one psychiatrist for his anxiety in late 2001, or a few years before he got his top job.

He told his doctor about a painting he owned that depicted a man being pulled by all four limbs. He identified with this tortured man, the psychiatrist told the federal judge handling Becker’s case.

He later got rid of the painting. 

posted by Robert MacMillan on Jun 15

Reporters who cover the story of News Corp. chief Rupert Murdoch’s $5 billion bid to buy Dow Jones tend to refer to the family that controls the company as “The Bancrofts.” But not all of them are named “Bancroft,” nor do the some three-dozen named members of the family share the same views on Murdoch’s offer. In fact, it can seem like herding cats.

That makes it somewhat difficult for the family’s advisers to come up with a plan they can all agree will preserve the editorial independence of Dow Jones’s news operations should Murdoch buy it. That was the bottom line of a story in Friday’s New York Times, which said the family had rejected the latest proposal.

Roy Winnick, a spokesman for the trustees who supervise the Bancrofts’ shares, released a statement to us and the Times, and then issued a revised statement on Friday. It seeks to find a balance between the family’s desire for independent journalism as well as Murdoch’s rights as an owner should he buy Dow Jones:

“Reflecting the continuing and extensive dialogue between and among the Bancroft family members and their advisers, the draft proposal as it currently stands continues to evolve from the draft proposal as it stood earlier this week.

Whatever the details of the proposal as finalized and sent to News Corp., its purpose will be the same, namely, to preserve and protect the editorial independence and integrity of the Journal and its sister Dow Jones publications while respecting the legitimate business interests of the owner. 

Winnick also released a statement that took issue with the Times’s use of the word “rejection.” Here it is:

“[T]he Timess characterization of the familys position as a “rejection” of the advisers proposed plan is in my view a gross mischaracterization of the process currently under way. The Bancroft familys advisers and the family members are working together, and working in a very thoughtful and deliberate way, to develop a proposed structure that would, if implemented, achieve the familys overarching objective of preserving the editorial independence and integrity of the Journal and its sister publications over the long term. The result of this process will be a proposed structure that the family and its advisers can both wholeheartedly embrace and recommend.”

posted by Michael Flaherty on Jun 15

When it rains, it pours…awards.

As Blackstone Group CEO Stephen Schwarzman prepares to reap billions of dollars from the impending IPO of the firm he co-founded, various organizations wishing to heap honors on him keep piling up. Coincidence? Well, you can be the judge of that.

He received the Atlantic Council’s Distinguished Business Leadership Award in April. On Thursday, the Yale School of Management honored him at the New York Stock Exchange.

And in his latest accolade, the New York Public Library will honor Schwarzman at a June 18 “corporate dinner,” according to a press release. The evening’s special guests, both of whom will speak at the event, are Library Trustee and humorist, Calvin Trillin, and CNBC Anchor Maria Bartiromo, according to the release. Bartiromo has apparently shaken off the heat she received in January after a flap involving former Citigroup executive Todd Thomson, which prompted criticism that Bartiromo might be getting too cozy with the business sources she covers.

The public library event is expected  to raise more than $2.1 million with proceeds supporting the Research Libraries of The New York Public Library.

Interesting to note that Library President Paul LeClerc says this is the first time that the Library has honored one of its own Trustees in this way. Six years as a trustee and this kind of honor? Now that’s respect.

The dinner’s vice chairs are a who’s who on Wall Street, Corporate America and even Hollywood. They include Schwarzman’s arch rival Henry Kravis of KKR. Others are:

Warner Music Group CEO Edgar Bronfman, Jr.; Merrill Lynch & Co. co-president of global markets and investment banking Gregory J. Fleming; Lehman Brothers CEO Richard S. Fuld, Jr.; Kohlberg Kravis Roberts & Co. co-founder Henry R. Kravis; Bank of America CEO Kenneth D. Lewis; McGraw-Hill Companies CEO Harold McGraw III; Citigroup investment banking executive Raymond J. McGuire; Bank of New York CEO Thomas A. Renyi; Sony Chairman Sir Howard Stringer; Wachovia CEO G. Kennedy Thompson and William Morris Agency CEO Jim Wiatt, .

The Co-Chairmen of the event are Blackstone Vice Chairman J. Tomlinson Hill and JPMorgan investment banking chief Jimmy Lee.

Sure it’s good to be the current King of Wall Street, as Fortune magazine dubs Schwarzman, but it also means tougher scrutiny. On Thursday, Washington lawmakers dropped a bombshell when they said they were pursuing a bill to tax private equity firms like corporations at a 35 percent rate instead of 15 percent. They cited Blackstone’s upcoming IPO as among the reasons for the scrutiny. But the bill grandfathers firms like Blackstone for at least five years. So perhaps, Schwarzman does have the golden touch, not just on the awards circuit of late but on his dogged pursuit of taking his shop public.

posted by Joseph Giannone on Jun 14

    Goldman Sachs Chief Financial Officer David Viniar is no oracle. Veterans of Goldman’s quarterly conference calls know well his stock response to almost every probing question: “I never try to predict the future.” 
    Incredibly, the bank’s top number-cruncher did just that today when he boldly made the following prediction:
    “The subprime business continues to be weak. We have not seen the bottom in the market. There will be more pain felt by people as it works its way through system,” Viniar told reporters in a conference call.
     He even elaborated: “I think there is pain yet to be felt in some structured vehicles and potential default rates. I don’t think we’re through.”
    The U.S. subprime mortgage market has suffered rising defaults and generated losses for lenders over the past year,  the result of a slowing housing market and rising interest rates. The downturn revealed which lenders had played fast and loose with lending standards, while more than two dozen firms shut down or sold off their businesses.
    Viniar still maintained that subprime woes have not spread to other classes of mortgages or other debt markets, as was widely feared earlier this year. “So far we still have not seen any contagion,” he said. 
    Indeed Wall Street’s senior ranks for months have urged investors to remain calm. That worries about the subprime mortgage market were overdone.
    Yet subprime indeed led to some sub-optimal results among Wall Street’s biggest banks this week. 
    Uptown rivals Lehman Brothers and Bear Stearns reported declined in fixed income results amid mortgage woes. Goldman, which typically blows away analyst estimates, said subprime weakness contributed to a 24 percent plunge in fixed-income trading revenue and the disappointing 1 percent growth in second quarter profit. Goldman’s shares fell 3 percent.
    Perhaps those subprime fears weren’t overblown after all.

posted by Robert MacMillan on Jun 14

It’s not hard to find fables, fiction and clichés to add some literary spice to the story of Rupert Murdoch’s $5 billion bid to separate the Bancroft family from its crown jewel, Wall Street Journal publisher Dow Jones & Co.

The one that leapt to the minds of the folks over at Columbia Journalism Review is the story of the frog and the scorpion. Abridged version:

- Scorpion needs frog to carry him across the river.

- Frog says, “Are you nuts? You’ll sting me.” Scorpion says, “Then we both drown. Why would I do that?” Frog says, “Good point.”

- Scorpion stings the frog halfway across the river. They drown. Just before, frog says, “Uh… dude.” Scorpion replies: “Sorry, man, it’s my nature.”

CJR explains: “For our purpose here the frog is the Bancroft family and the scorpion is the charming Rupert Murdoch, who would very much like to own the Bancrofts’ shares in Dow Jones & Company and its jewel, The Wall Street Journal. Family members sensibly fear that he would misuse that paper’s journalistic power. Murdoch’s answer is that to damage the credibility of the Journal would be to destroy it. Why would he do such a thing?”

And: “[Murdoch] has a record that proves that once he had some control he would readily find a way to sacrifice the Journal on the News Corp. altar. It’s his nature.”

If you think about it, part of why many shareholders would like a sale is because they’d probably not see Dow Jones hit $60 share in the near future without Murdoch. That, experts say, has a lot to do with Dow Jones management being slow in its efforts to adjust to changes buffeting the journalism world.

There’s an adage for that: A stitch in time saves nine.

Photo (Reuters): Jiang Musheng, a 66-year-old resident, eats a live tree frog for medicinal reasons at a village in Shangrao, in eastern China’s Jiangxi province in a May 21, 2007 picture

posted by Michael Flaherty on Jun 14

You know that a newly popular, LBO financing arrangement has gotten out of control when bankers themselves say it’s crazy. That is the case with equity bridge loans, an arrangement that gets investment banks to commit cash up front to a private equity deal. Why would banks agree to this? Because private equity firms are Wall Street fee machines, and banks are throwing themselves at their feet. Buyout firms don’t want to do deals with other buyout firms, so they’re telling the banks to share the equity check with them. We, the sponsors, will fork over $2 billion each, and you the banks put in another $1 billion into the equity check, okay? In this no-control, low return loan, the banks are taking huge risks. And they are doing it because they want to keep the buyout firms happy.
 
Are some banks saying ‘no’ to bridge loans? Sure they are. But they’re also saying ‘yes’ more and more to larger and larger deals. Bankers say this is a scary prospect. If they are unable to sell down the equity, they’re left holding the bag. How big is the bag? Well, some equity bridge loans last year required a few hundred million. But as Reuters reports, the Ontario Teachers-Providence Equity group pursuing BCE is asking bankers for a $4 billion bridge, or around $800 million per bank. It’s gotten to the point where Goldman Sachs has told it’s bankers to keep away from equity bridges, according to a source who works with the bank.
 
Assuming the banks are able to quickly sell down the equity, they get a measly point and a half for the bridge. But let’s say the LBO market tightens up in the next few months and they can’t. Imagine being stuck with $800 million, at 95 cents on the dollar after fees? It could be years before the company gets sold again, and even then it’s not guaranteed it will trade at a premium. 
 
The equity bridge loan phenomenon is a short term thing for sure. One bad deal and banks can point to that and tell the sponsors, “no way. I’m not having THAT happen to us.” Yet the simple fact that nothing has blown up is what fuels the trend. You’ve got to do the bridge if you want to stay in the lucrative private equity banking game, so the thinking goes. Business is so good, so why risk upsetting the sponsors?  
 
And so it goes until the private equity party stops. An LBO slowdown will hit the banks hard in the bottom line. But an over-exposure to equity bridges would make the impact worse should private equity waters come under any trouble. 

(Photo: Reuters file)

posted by Caroline Humer on Jun 13

Talk of Alcan, which is the subject of a more than $28 billion hostile takeover bid by Alcoa, pulling a Pac-Man move and trying to take over Alcoa instead, just won’t quit.

In part, the notion is being perpetuated by Alcan itself, which suggested such a move was on its list of possibile defense when it rejected the Alcoa offer last month. Again on Wednesday, a company executive said the move, which is named after the video game in which the Pac-Man being pursued by ghosts turns and gobbles them up instead, is one of the options it is considering, according to news reports. A company spokesman would not confirm the reports.

Bear Stearns also got in on the act on Wednesday with a research note in which it said that it believes Alcan could make a stock and cash counteroffer for Alcoa at $50 per share.

The firm also downgraded Alcan to a “peer perform” rating. The company’s stock is trading more than 10 percent above the current value of the offer. A white knight bid might be in the offing, Bear Stearns said, but it questioned whether there would be the same level of synergies. Possible buyers Bear cited are the ones that have turned up across multiple news outlets – BHP Billiton, Rio Tinto, CVRD, Xstrata and Anglo American.

(Photo: Reuters file)