___________________________________ DEAL JOURNAL from The Wall Street Journal Online
October 26, 2009 -- 5:00 p.m.
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TODAY'S POSTS - Carl Icahn to Yahoo CEO Carol Bartz: 'I Wish You Could Be Cloned' - An Adviser on CIT's Restructuring Moves to Barclays - Tracking Bank Failures: The Number Zooms Past 100 - What Goldman Sachs Can Learn From Bill Belichick - Mean Street: It's Official -- Obamanomics Isn't Working - Deals of the Day: Is a Comcast-NBCU Tie-Up a Good Idea? - Galleon Case: The Richard Grodin File - Psst...Here's Where Bankers Are Getting A Pay Raise - Evening Reading: Why Are Bankers Paid So Much?
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MARKETS VIDEO
Senate Majority Leader Harry Reid says a public health-care option is back on the table and will include an opt-out provision for states. WSJ's Janet Adamy tells The News Hub that opt-out provision is a compromise aimed at moderate Democrats. Plus, an update on the Northwest pilots who overshot their destination.
*** Carl Icahn to Yahoo CEO Carol Bartz: 'I Wish You Could Be Cloned'
The WSJ's Jessica Vascallero and Jeffrey McCracken file this dispatch:
Activist investor Carl Icahn earned his way onto the Yahoo board last year through epistolary warfare, sending Yahoo chairman Roy Bostock letter after letter blasting him and the board for "sabotaging" Microsoft's attempts to acquire the company.
How apt that as Mr. Icahn stepped down from the board last week, citing other demands on his time, he sent Mr. Bostock one more letter, with a very different tone.
Associated Press Carl Icahn "I did not believe I would be saying this when I first came on board, but I believe you have acted with great wisdom in guiding the board during the year I have been a member," Mr. Icahn wrote, according to the copy of the letter. "I should like to thank you for inviting me to stand for election to the board this year and it is with a certain sadness that I am resigning."
Mr. Icahn concludes his short one paragraph letter by saying "I mean it sincerely when I say it has been a pleasure to work with you."
It is an anticlimactic end to a letter-writing duel in which Mr. Icahn accused the Yahoo board of creating "self-destructive doomsday machines" to thwart Microsoft's attempted acquisition and for trying to "entrench their positions."
Mr. Icahn began building his Yahoo stake last year, while Yahoo was trading around $25 a share, in anticipation that the company would sell all or parts of its business to Microsoft. Yahoo shares closed Friday, down 2.55% to $17.22. To stay on the board, Mr. Icahn must hold at least 30 million Yahoo shares. Since Mr. Icahn joined the board, the company named outsider Carol Bartz to succeed co-founder Jerry Yang as CEO. Under Ms. Bartz, Yahoo said it would enter a 10-year search partnership with Microsoft as the companies look to combine forces to take on industry giant Google Inc.
Mr. Icahn gushed even more in a letter he sent to Ms. Bartz, whom the Yahoo board hired during his brief tenure. "I wish you could be cloned because so many of the companies in the country could use a Carol Bartz as CEO," he wrote. "My resignation in a way is a compliment to you in that I do not believe that Yahoo any longer needs an activist shareholder."
Mr. Icahn did not return a call seeking comment on the letters. Yahoo did not have an immediate comment on the letters.
In a statement, Mr. Bostock said that "Carl has been an important member of our Board and has helped us through some significant transitions. We are all grateful for his active role shaping the future of Yahoo! and wish him well in all his endeavors."
Now that Mr. Icahn has reinforced his letter-writing penchant, one wonders when he may switch over to email or finally update his blog.
An Adviser on CIT's Restructuring Moves to Barclays
CIT Group has launched a sweeping debt-exchange offer as it works overtime to survive. Now, one of the investment bankers advising some of CIT's largest bondholders has jumped to another restructuring shop.
Tanja Aalto, who helped craft CIT's restructuring plan at investment bank Houlihan Lokey, has moved to Barclays as a managing director in the British bank's restructuring group. She had spent 12 years at Houlihan, most recently advising CIT's bondholders and secured lenders to Visteon, the former Ford Motor subsidiary that recently filed for bankruptcy.
For Aalto, 39 years old, the jump puts her in a position to expand a restructuring group and take advantage of opportunities in distressed financing alongside conventional advisory work. She is among the few senior women among Wall Street restructuring bankers. Some other high-profile women in the restructuring space include Corinne Ball, the Jones Day bankruptcy lawyer who represented Chrysler; and Marcia Goldstein, who heads the restructuring department at law firm Weil, Gotshal & Manges.
Houlihan's restructuring practice has expanded to more than 150 staffers from roughly 30 when Aalto started there in 1997. Houlihan has advised creditors on some of the biggest distressed deals recently, including bankruptcies of Lehman Brothers Holdings, Extended Stay and Trump Entertainment.
Barclays' restructuring practice, though smaller at a little more than 20 bankers, is among the biggest at large Wall Street banks and has advised debt holders on big cases such as Six Flags and BearingPoint. The bank also provided so-called debtor-in-possession financing-which companies use to fund themselves in Chapter 11-for Tribune Co. And Barclays arranged CIT's $3 billion rescue financing over the summer that bought the small-business lender time to launch its latest restructuring plan. (Houlihan advised the bondholders who invested in the deal).
Aalto, who said the Barclays call came unexpectedly, decided to make the jump for "an opportunity to start again with a focused group within a larger firm...and help grow Barclays' presence in the restructuring space."
She predicts much of the distressed deals going forward will involve refinancing corporate debt and out-of-court exchange offers before traditional Chapter 11 bankruptcy filings. "Barclays is pretty singularly positioned with a strong balance sheet to avail itself of the financing side," Aalto said.
Jeffrey Werbalowsky, Houlihan's co-chief executive, said Aalto was "a stalwart in our restructuring group for the last dozen years and we miss her already."
Aalto left Houlihan just after completing work on CIT's debt-exchange offer, which asks bondholders to trade $5.7 billion in debt for new debt maturing later and shares in a reorganized company. If the company doesn't get enough takers for the exchange by Oct. 29, CIT will file a prepackaged bankruptcy plan, where it would aim to have enough creditor support to execute the plan and get out of Chapter 11 protection quickly.
Aalto said she would focus much of her efforts at Barclays trying to leverage the bank's industry coverage to identify companies in "pre-distress" that can take proactive steps to restructure before facing major liquidity crises.
Her reputation among Wall Street investors should help Barclays grab more deals, said Mark Shapiro, head of Barclays' restructuring shop. He cited her analysis on CIT's $3 billion summer rescue as key in getting bondholders to ultimately invest in the deal. "She has great credibility with a lot of hedge funds and other investors," Shapiro said.
The number of bank failures roared past the arbitrarily important century mark on Friday.
Regulators seized seven banks: three small Florida banks, along with banks in Georgia, Minnesota, Illinois and Wisconsin. The moves by regulators brought this year's number of seized banks to 106 and the total since 2008 to 131. The 106 are the most since 1992, when 181 collapsed during the savings-and-loans crisis.
The number is likely to increase. As of June, 416 banks were on the FDIC's watch list.
The regulator said the failures are expected to cost the agency's already-strained insurance fund approximately $350 million. So far, bank failures have cost the FDIC's fund an estimated $25 billion this year and are expected to cost $100 billion through 2013, according to Associated Press.
Click on the image below to see WSJ's map of U.S. bank failures.
Note to Goldman Sachs: The charm offensive isn't working.
Goldman executives have been pulling out the stops trying to persuade the public that Goldman bankers aren't the greedy, heartless profiteers that the firm's record profits and bonuses might suggest. They have been arguing that Goldman has profited, while contributing to the greater good. The firm's unflappable finance officer David Viniar told analysts during an Oct. 15 conference that Goldman took advantage of trading opportunities in the post-crisis environment because "we knew that we had an important role to play in supporting global capital markets and economies."
Associated Press New England Patriots Head Coach Bill Belichick grimaces at a 2006 news conference. By this logic, the public should be thanking Goldman, not criticizing its compensation practices.
It seems the critics aren't buying it. New York Times columnist Joe Nocera on Saturday presented the case for how Goldman was helped, not only
___________________________________ DEAL JOURNAL from The Wall Street Journal Online
October 27, 2009 -- 5:00 p.m.
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TODAY'S POSTS - Xerox-ACS: The $90 Million Banker Fee Bonanza - The Galleon Group's Bollywood Connection - The Moral Hazards of Barney Frank's Bank Salvation Plan - Deals of the Day: Greenberg Poaches From AIG - Evening Reading: Why Are Big Banks Even Bigger? - The Case for Investing in Commercial Real Estate - Deals from Hell: Yahoo Buries GeoCities - Carl Icahn to Yahoo CEO Carol Bartz: 'I Wish You Could Be Cloned' - An Adviser on CIT's Restructuring Moves to Barclays
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MARKETS VIDEO
WSJ's Matthew Rose discusses a deal between the Treasury and Rep. Barney Frank, which would have big firms pay for the rescue or unwinding of a collapsed rival. He tells The News Hub Frank's plan would discourage banks from growing. Plus, is President Obama's "smart grid" a smart idea?
Darwin Deason isn't the only one walking away from Xerox's $5.6 billion purchase of Affiliated Computer Services with a large pay day. The advisers are making out quite well, too.
The four banks advising on the deal stand to collect a total of nearly $90 million, according to FactSet MergerMetrics . Citigroup, which is advised ACS, will take home $32.5 million. ACS is paying Evercore, which represented the board's special committee evaluating the deal, $16 million. That total could go up if the special committee elects to pay an additional fee. Meanwhile, Xerox is paying Blackstone Group and J.P. Morgan Chase $20 million each for their counsel.
If the fees seem rich, that is because they are. There have been only 22 deals in which target companies have shelled out more than $45 million in fees. In only two of those transactions did the target companies pay fees that as a percentage of deal value were higher than what ACS paid.
The fees are welcome for the industry. Revenue from advising firms on U.S. transactions is running at the lowest level since 1995. Citigroup and Evercore, however, are the exceptions. They are only two investment banks posting a jump in M&A advisory fees.
For Citigroup, the pay day is arguably well earned. Citigroup previously advised Deason and Cerberus Capital Management on their attempted $6.3 billion takeout of ACS in 2007. That deal failed to reach the finish, meaning that Citigroup lost out on the fees. At least now, it will get paid. And quite handsomely, too.
There's hardly a better escape from reality than Bollywood.
India's mammoth film industry is known for churning out garish musicals where lovers break into song and the traffic of Mumbai inexplicably leads to the Swiss Alps. And so it should be interesting to see if Raj Rajaratnam, accused of being involved in one of the largest insider trading cases in a generation, turns up for the premiere of "Today's Special" on Nov. 11.
Rajaratnam, after all, was one of the investors in the movie, according to a person familiar with the matter. The movie is described as a "heart warming food comedy" about an aspiring New York chef. Rajaratnam's younger brother, Rengan, is the executive producer, according to credits listed at Internet Movie Database. At one time, Rengan also worked as a managing general partner of Galleon Management. He previously managed Sedna Capital, a hedge fund spun off Galleon, which shut down in 2007
"Today's Special" depicts an aspiring chef, Samir, who has to put his culinary dreams on hold to take over his family restaurant in Jackson Heights, Queens, when his father falls ill. Samir had dreams of being a top chef at a fancy New York City restaurant, but he's passed over for the job and ends up taking over his parent's joint Tandoori Palace. The film stars well-known Bollywood actor, Naseeruddin Shah.
Raj Rajaratnam, the founder of hedge fund Galleon Group, was born and raised in Sri Lanka, an island nation off India's coast and the site of a long-running civil war. He studied engineering at the University of Sussex in England and graduated from Wharton in 1983.
The Nov. 11 debut of the movie Rajaratnam backed is shaping up to be a gilded bash. It will be the feature flick at a film festival sponsored by Mihindra Indo-American Arts Council, featuring a red carpet premier in New York City and a gala benefit dinner where tables for 10 cost as much as $25,000. The premier is expected to be held as advertised, a person with knowledge of the event said.
This is the second movie with connections to a financial scandal. The low budget film "Chooch" was funded by private equity investor David Leuschen, co-founder of Riverstone, which was allegedly caught up in the pay to play scandal.
The Moral Hazards of Barney Frank's Bank Salvation Plan
The U.S. can't seem to shake its love of big things: Big SUVs, big houses and, yes, big banks.
Sure, McMansion sales have fallen off amid the housing slump, but most people think that the American desire for sprawling suburban houses will return once the high-end mortgage market frees up. Likewise, it seems that Americans - and the federal government - have never lost their love for large financial institutions, despite the severe problems that these firms caused during the financial crisis.
The Obama Administration and House Democrats, led by Barney Frank, are devising a plan for how to take over large companies that have run into problems like those that arose last fall. The plan would allow the federal government to take over all financial institutions, including non-banks, and inject money to facilitate an orderly unwinding, according to the Washington Post. The plan makes clear that creditors and shareholders would incur losses for the failing company and the financial industry will be taxed - much like power company is assessed a pollution tax - to help defray the cost of a bail out.
Except for the tax, the plan doesn't differ that much from the reality of what happened during the financial crisis. In essence, it only serves to solidify the existence of banks that are "too big to fail" by making into law a plan to save them.
Supporters of the plan say that it includes built-in protections against moral hazard. Namely, they say, if creditors know that their money is not guaranteed when the bank fails then they will rein in the bank's risk.
That wasn't the case when Washington Mutual was taken over by JP Morgan or when Wachovia was bought by Wells Fargo in government arranged deals. While shareholders were crushed, creditors were largely spared major losses.
Frank's plan makes it clear that calls from White House economic adviser Paul Volcker and others to break them up are largely going unheeded.
Last week, Daniel K. Tarullo, a Fed governor, said breaking up the biggest banks raises "conceptual and practical challenges," and is "more a provocative idea than a proposal,"
Contrast that with the European response to the crisis, where regulators are cracking down on big banks. The latest target: Under pressure from the European Union, ING Groep NV is being forced to simplify its operations and shed its insurance business and U.S. online bank. While U.S. banking giant, Citigroup, has been forced to divest some assets, its moves have paled next to the shrinkage at ING. The Dutch bank is cutting its balance sheet in half.
EU regulators have set they stage for more shrinkage. They offered ING an early redemption window to pay back its government aid. Other European banks that have received government bail outs, including Lloyds Banking Group and Royal Bank of Scotland may be forced to follow quickly if they want to same deal
There's a possibility that if Congress passes stricter capital requirements for large financial institutions then U.S. firms will also see the need to pare down to stay profitable. But for the very largest U.S. banks, too big to fail seems here to stay.
Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal's homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.
In the Shadow of Bruce Who is the next "Bruce"? Recognized by his first name alone, Lazard boss Bruce Wasserstein sat in the Wall Street deal-making throne for the better part of two decades. But his surprise death on Oct. 14 left a void. Who will be Mr. Wasserstein's spiritual heir: a younger banker who commands both respect and fear from colleagues and competitors. [WSJ]
Mergers & Acquisitions ING: The financial-services firm said it will spin off its insurance and investment-management businesses and repay half the $15 billion it owes the Dutch government in a bid to assuage EU concerns over the state-aid package it received last year. [WSJ] Related: Is the ING deal a sign of things to come? [NY Times]
Sumitomo Trust and Chuo Mitsui: In a deal that could create Japan's largest trust bank by trust assets, Sumitomo Trust and Chuo Mitsui are in advanced talks to merge in early 2011. [WSJ]
Dassault Systemes: The French technology company agreed to buy sales and client support operations from
___________________________________ DEAL JOURNAL from The Wall Street Journal Online
October 29, 2009 -- 5:00 p.m.
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TODAY'S POSTS - Decoding China: Why Its Stock Markets, GDP Aren't Linked - Mean Street: A Sham GDP for a Sham Economy - Monday Morning Quarterbacking The AIG Rescue - Video: Former NBCU Boss Wright on GE-Comcast-Vivendi Talks - Know Your BofA CEO Candidate: Greg Curl - Deals of the Day: Why Were AIG's Counterparties Made Whole? - Credit Suisse Tries to Spoil Morgan Stanley's European M&A Party - The Cost of Wasserstein's Riches - Mean Street: GMAC = Insanity
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MARKETS VIDEO
Patrick Neal, managing director of Jefferies & Co., says at Barron's Art of Successful Investing Conference that he is bullish on agriculture, noting that international farmland is near 100% capacity. He recommends Agco and Deere.
*** Decoding China: Why Its Stock Markets, GDP Aren't Linked
China has regained its stride. After a slight dip to 6.1% GDP growth in the first quarter of 2009, the economy expanded 7.9% in the second quarter and 8.9% in the third. Economists now expect the Middle Kingdom to return to double-digit growth in 2010, according to this Reuters article.
But that rebound isn't translating to the country's stock markets. Shares have been trending down since the Shanghai Composite Index struck an Aug. 4 peak of 3471.44. By Aug. 31, it was down to 2667, slapping its double-digit expanding $4.32 trillion economy right in the face.
Obviously China's stock markets are out of step with that robust GDP growth. Since China re-opened its stock market at the end of 1990, average annual growth in real GDP has been 10%. But its stock index since 1992, when the Shanghai Stock index stabilized around 1000, has posted annual compound return of just 7%. By comparison, the annualized return is 12.75% on the S&P 500 and 11% on India Stock Exchange for the same period.
A unique characteristic of China's equity market is the relatively high percentage of nontradable shares held by the central government, local governments and state-owned enterprises. One feature of this system is the transfer of risks to the country's individual stock investors, causing price aberrations in the stock market, while keeping outsize returns for the government holders of nontradeable shares. One Chinese stock analyst says nontradable shareholders of companies listed on the Shanghai and Shenzhen stock markets receive as much as 37 times higher returns on equity than those holding regularly traded shares.
China's government doesn't hesitate to move the market in its role as regulator. On May 31, 2007, Chinese stocks plunged 7% after the finance ministry more than tripled the stamp tax on stock trading to 0.3% of the value of the trade from 0.1% in reaction to the first big rally since the stock market emerged in 1990, because it feared a market bubble might have been developing.
Then the China Securities Regulatory Commission swung into action, founding an investigative team in 2007 to track down any illegal trading practices. In the ensuing 16 months, the team has brought charges in 19 illegal trading cases, eight of which were insider trading.
Last week, Huang Guangyu, once China's richest man and former owner of home-appliance maker Gome Electrics, was facing an insider-trading charge for allegedly organizing a fraudulent company buyback of Huang's Gome shares, China Daily reported. Last year, the former CEO of Guangfa Securities, a leading stock brokerage in China, was arrested for allegedly driving up a single stock price 280% in a month.
Smaller trades get run over by the larger, market-moving government orders. The result is small investors are more interested in short-term gains and ignore long-term investment opportunities. This makes China's stocks more volatile than those in mature markets like the U.S. and Europe and less correlated to longer term company performances and economic growth.
And that volatility isn't limited to China. When the Shanghai Composite Index fell 6.74% on the last trading day of August, Hong Kong's Hang Seng Index dropped 4.84%. The following day, the Dow Jones Industrial Average and the Nasdaq Composite Index shed 1.74% and 1.06%, respectively. Stocks in Europe markets stumbled by 1%. this Reuter's article concluded, the Chinese equity market now needed to be recognized as a strong influence on the global equity markets as a whole.
That may overstate things a bit. After all, China's capital market is a 10th as old as its two-century-old U.S. counterpart and roughly a fifth the market cap. Still, China is the world third-largest national economy. Many changes are needed to China's stock markets, changes that, while positive in the long term, will stir erratic moves in stock prices in the short term. To paraphrase Betty Davis in "All About Eve": Fasten your seat belts, it's going to be a bumpy ride.
Americans rejoice! GDP grew by 3.5% in the third quarter and the recession is over.
It's time to drink champagne, dance in the streets, and have a group hug with Nancy Pelosi and Ben Bernanke. But whatever you do, don't ask yourself why the recession has ended. The answer might ruin the party.
The recession is over only because Washington decided it should be. With billions in fresh government spending, it was only a matter of time before GDP posted some growth.
It's too bad all that government spending is borrowed money. Someday, we'll actually have to pay off this year's $1.4 trillion deficit.
Of course, all of the president's Keynesian men will argue that everything is working to plan - the stimulus is stimulating. But it's hard not to see today's GDP bounce as a bit of a sham.
Just check out where the economy grew. Almost half - or 1.7% of the pickup in GDP growth came from "motor vehicle output." That's the summer's $3 billion cash-for-clunkers program doing its thing. But at what cost?
Edmunds.com just released some compelling analysis on cash-for-clunkers. Apparently, it cost the U.S. taxpayer about $24,000 per vehicle sold. Edmunds gets that number by dividing the $3 billion by the 125,000 additional car sales generated by the program. The methodology makes sense to me, but click here and decide for yourself.
The White House would probably contend that it's impossible to determine incremental sales - meaning each sale that only happened because of the government $3,500 to $4,500 subsidy. And that the sale of each and every car spurs economic activity well beyond the program's $3 billion.
But isn't it possible that the Edmunds.com analysis is actually understating the true costs to the taxpayer? What about the interest costs on the borrowed $3 billion? What about the cost of propping up GMAC so that it could underwrite cash-for-clunker loans?
That's the catch with all this government intervention - lots of unforeseen consequences. And we never learn. The trillion dollar disasters with Fannie Mae and Freddie Mac haven't stopped the government from tinkering with the housing market.
Consider another one of Washington's smashing successes: the $8,000 credit for first-time home buyers. For the third quarter, "real residential fixed investment" - also known as "homebuilding" - jumped 23.4%. That boosted GDP by another 0.5%. Do you feel like hugging Harry Reid now?
But we're not seeing the real cost of the homebuyer tax credit. This is very expensive stuff. The Calculated Risk blog figures the home-buyer credit costs the taxpayer $43,000 per incremental home sale. Goldman Sachs ran its own numbers, reckoning that each incremental home sale cost the taxpayer an astounding $80,000. Again, the methodology seems right to me, but decide for yourself.
And again, this analysis understates the program's true costs. We don't include the cost of all the fraud - even though we know thousands of false and improper claims are being filed. We don't consider the cost of propping up the FHA, which is now underwriting all of the mortgages. And we can never calculate the true economic cost of messing with home prices - though the crisis over the last three years certainly gives us a hint.
So, let's party as we welcome GDP growth. But never forget how the party ends - a group hug with lots of tears.
It has taken a while, but the debate over the government bail out of American International Group is finally focusing on the most important issue: whether the rescue was more beneficial to taxpayers or to Wall Street.
To be sure, the AIG bailout has sparked other grips along the way, like the kerfuffle over the $165 million of bonuses for executives in the company's financial products unit, which created and held many of the derivatives that caused the company to require $182.3 billion of government money to save the company.
But the bigger issue coming to the fore is whether the government's rescue of AIG cost taxpayers more than it should have.
Consider the subject of credit default swaps, which act as insurance policies on securities backed by assets such as mortgages and that pay off in the case of default. AIG had myriad such arrangements with institutional investors such as Goldman Sachs Group and Merrill Lynch. When the credit crisis hit, the value of those investments fell, which meant that AIG had to pay those investors in cash. When AIG started running out of cash, the federal government felt it had to step in with $85 billion to
___________________________________ DEAL JOURNAL from The Wall Street Journal Online
October 30, 2009 -- 5:00 p.m.
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TODAY'S POSTS - October M&A: Dude, Where's My M&A Recovery? - Lloyd Blankfein's Afghanistan - Crash Testing Geely's Volvo Bid - Deals of the Day: Cisco May Drop Bid for Tandberg - Evening Reading: Citadel Finds Building an I-Bank Is Hard - Law Firm Mergers: Whose the Biggest of Them All - Breaking News: Resources Buys P.R. Firm Sitrick And Company - Wall Street's Sham Profits - Decoding China: Why Its Stock Markets, GDP Aren't Linked
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MARKETS VIDEO
The "News Hub" panel discusses the market's slip and slide, the Obama administration's claims of 650,000 stimulus jobs and the FOMC's upcoming meeting.
For now, the much-ballyhooed M&A recovery remains all talk.
Through Oct. 29, the dollar volume of announced world-wide merger and acquisitions was down 42% from September, according to data provider Dealogic. That made it the slowest month of the year. In the U.S., activity fell 46% from September, according to Dealogic.
Those numbers mark a bad start to a quarter that many believed would mark the beginning of the recovery. M&A professionals for months have been talking about how much busier they were, and that rewards for their efforts would be seen in final quarter of the year.
Instead, the retreat provides another example of how deeply the financial crisis has affected the economy and the fits and starts it will experience on the road to recovery.
Credit continues to be tight. And while confidence has increased in boardrooms and corner offices, executives remain cautious. Uncertainty about the direction of economy and the stock market-not to mention unease about Washington's involvement in the economy-is keeping companies on the M&A sidelines.
Yet no matter the reason for companies not pulling trigger, October's numbers suggest that the more-cautious industry watchers were correct: Yes, the M&A market has improved somewhat. Deals can get done. But the road to a full recovery is likely to be slow and filled with plenty of bumps.
Rifling through the Dealogic data, here are some interesting factoids:
Morgan Stanley remains atop the global, U.S. and Asia-Pacific league tables that rank investment banks by the dollar value of deals advised on. That is a noticeable improvement from last year, when it ranked seventh, sixth and eighth, respectively. Despite the weakening of the dollar, acquisitions of U.S. companies by foreign buyers remains muted. Just $5 billion of such deals were announced in October, down 54% from September. There were no U.S. deals valued at more than $5 billion announced in October; world-wide only two deals valued at more than $5 billion were announced. The average announced deal size in the U.S. was $108 million.
Can Goldman Sachs CEO Lloyd Blankfein win back the hearts and mind of the American public?
That is the question Blackstone Group co-founder Pete Peterson raised in a Bloomberg interview on Thursday. Peterson says the Goldman Sachs chief faces a quandary about how to placate public angst about Wall Street pay.
"[The public looks] at the huge payments for not rewarding success but failure," Peterson told Bloomberg. "I don't know what our friend at Goldman Sachs is going to do, but I have a feeling he's thinking about this much in the way the president is thinking about Afghanistan."
The flap over Wall Street bonuses has evoked many images: pitchfork-wielding populists, greedy, fat-cat bankers and Vampire Squids. But Peterson's comparison to the Afghan war may be a first. Blankfein, according to Peterson, has to weigh whether to pay record bonuses and antagonize the American public (and Washington) or to cut back on compensation and risk losing talented bankers to higher paying rivals. At the very least, Peterson suggests, Goldman should give $1 billion of its $16.7 compensation pool to charity. (Goldman has said it already is giving $200 million to its charitable foundation.)
There is little doubt that the subject of Wall Street pay represents a political hot potato with big stakes both for Goldman's bankers and its shareholders.
And yet Deal Journal is reminded of a scene from the movie "The Right Stuff," when the wives of the test pilots discuss how their non-military friends boast of their husbands' stressful jobs. But one wife puts it all in perspective when she wonders how her friends would feel if every time their husbands went into a meeting there was chance he might not come out alive.
Of course, Peterson wasn't comparing Goldman's quandary to the actual fighting and sacrifice of American lives in Afghanistan. He was talking about how complicated the issues are facing Obama in there. Still, the Afghanistan reference only seems to highlight the Main Street-Wall Street divide that Peterson is urging Blankfein to help bridge.
Will the Chinese be able to close a deal with Volvo? The view from the peanut gallery of politicians, analysts and auto industry bloggers is that Geely Holding Group's $2 billion bid for Volvo has to navigate many potholes.
The deepest pothole is the intellectual-property issue. Volvo has technology that its parent, Ford Motor, may not want to surrender to Geely, especially if Ford wants to make a run at expanding in China. Since acquiring Volvo in 1999, the Detroit auto maker has incorporated the Swedish car maker's chassis platform into certain Ford platforms.
Volvo also is a skilled maker of car parts made of high strength steel, which is lighter than other forms of steel. Ford risks losing a competitive edge by giving up these technologies to Geely. Similar intellectual property concerns sank Beijing Auto's bid for Opel earlier this year, and also played a role in GM's eventual sale of Opel to a joint venture led by auto parts supplier Magna International
The view from Sweden: For now, the Swedish government sounds like its keeping an open mind, even if a deal means jobs losses. "One can question if a leader of a country who raises a hand and says that 'no jobs will be affected here' has really understood the power of the restructuring forces," Prime Minister Fredrik Reinfeldt said this week.
But it is unclear whether that opinion can stand the test of political pressure in the heavily unionized, socialist leaning country of Sweden. Unions are already raising concerns that Geely will back away from Ford's commitment to keep Volvo production in Sweden. Beijing Auto, in connection with Koenigsegg Group AB, is already in a deal to buy GM's Saab, another Swedish-born brand. The Swedes may ultimately decide one deal is enough.
The view from Detroit: Many analysts say Ford is a motivated seller because it needs to raise cash and lower its debt, especially as competitors General Motors and Chrysler emerge from bankruptcy protection with restructured balance sheets. But David Cole, who heads Detroit's Center for Automotive Research, tells Deal Journal that the outlook for the automotive industry looks brighter than it did eight months ago, when Ford officially put Volvo on the block and the economy was in a free fall. In its effort to preserve intellectual property, "Ford may have more bargaining chips," says Cole.
For China and its burgeoning auto industry, scoring Volvo would be a coup on several levels. Volvo's brand as a safe, reliable car could help dispel quality concerns about Geely cars. A Russian car magazine recently crash tested the Geely CK at 40 mph and found that the driver and passenger had a 10% survival rate.
Volvo would give Geely its first toe-hold in the U.S. market-a big step up from its current low-end markets in Russia, Ukraine and Indonesia. It also is a sweet price, totaling about one third of the $6.5 billion that Ford paid ten years ago.
Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal's homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.
Mergers & Acquisitions Walking away: Cisco Systems may drop its $3.04 billion offer for Tandberg as shareholders owning 24% the Norwegian company press for a higher offer. [Bloomberg]
AIG: The government controlled insurer is no longer looking to sell two of its Japanese units. [Reuters]
Lloyds: The British bank has an agreement in principle with EU regulators to divest itself of assets as part of a multibillion-pound capital-raising plan. [WSJ] Related: Lloyds has confirmed it is now a whisker away from pulling off a Houdini-like escape from the U.K. government's asset protection scheme. [WSJ]
Countdown to Kraft-Cadbury: The clock will really start ticking on a deal to create the world's biggest confectioner once Kraft Foods reports earnings next week. [WSJ]
Merck-Schering-Plough: The two companies received clearance from the U.S. Federal Trade Commission, the Swiss Competition Commission and the Canadian Competition Bureau for their proposed merger. [MarketWatch]
Regulation Honey, I shrunk the...bank: Tim Geithner said his proposal to overhaul
