February 9, 2006
Lazard as a Raider
Lazard's support of Carl Icahn's proxy contest to oust Time Warner's board has tongues wagging on Wall Street. The conventional wisdom: Main line Wall Street investment banks do not support raiders; they support blue-chip corporate clients defend against raiders. Will blue-chip companies continue to use Lazard?? Lazard reported record fourth-quarter profits yesterday, beating Wall Street estimates by a considerable margin. Lazard stock rose 6 percent on the news. What is important about the discussion is that so few traditional funding sources will back expensive proxy contests or takeovers. Takeover law has made hostile takeovers very difficult, too difficult. We would not be worrying about investment bank support of raiders if takeover regulations eased; private equity funds would again step up to the plate. At present private equity is content to fund negotiated (read friendly) LBOs.
Auction of 30 Year Treasury Bonds
Today the government resumes the auction of 30 year treasury bonds, last sold in 2001.
February 8, 2006
One day after Kerkorian forced GM to seat Jerome B. York on its board, the company announces a restructuring. The plan is late and pitiful. GM lost a whopping $8.6 billion last year -- $8.6 billion! It will cut dividends by $565 million and cut costs by another $900 million, reducing executive salaries and health benefits. The big news was the CEO's agreement to take a 50% pay cut (to $1.1 million). The company need to cut another $6 billion in expenses and fast. A company cannot bleed this much cash this quickly for very long. Moreover, the company may have to make up $12 billion in loses by Delphi (a part of GM until 1999).
UK versus US on Executive Pay
Great article by Jesse Eisinger in the WSJ today comparing the UK and US rules on disclosing executive pay. The UK has had detailed disclosure rules in place for some time (why did we take so long?) and the UK rules are require more detail than even our new rules on option packages. In the UK, shareholders vote to ratifiy full pay packages rather than just option or bonus pay packages as we do. In the UK executive salaries are lower than the US by not by much ($6 million per year here to $4.9 per year there).
The Free Enterprise Fund has filed a lawsuit in federal court in Washington, D.C., challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB). The primary argument is that the legislation establishing the board violates the Appointments Clause of the United States Constitution. The appointed members of the SEC appoint the members of the oversight board. FEF argues that the President ought to have appointment power over the board and Congress ought to have oversight power through appropriations (the board runs on fees collected from regulated companies). the suit is a long shot, a very long shot.
February 7, 2006
Tax Information of Publicly Traded Companies
Publicly traded companies keep two sets of books, one for the IRS and another for the SEC. The SEC numbers are publicly released, the IRS numbers are confidential. One can understand why a company need not disclose thousands of pages of tax information. Some of it is sensitive business information. What is remarkable is that the SEC numbers do not even include a presentation of the summary information, the bottom line numbers, on a company's tax bill. Under the current SEC rules a public company does not have to reveal precisely what it paid in taxes for a specific year. The tax bill of a publicly held company is important investor and market information. So why the loophole? The SEC just cleaned up its executive compensation disclosure requirements and should now act to clean this up as well.
Enron Defense Strategy
The Enron defense strategy is stunning. The defense lawyers will put the accounting rules on trial, arguing that the rule allowed what Enron executives did. The defense is stunning because the defense team must convince a jury that the Enron executive who pled guilty should not have done so -- that they were innocent. In the futures market Lay and Skilling are trading at around 50 to 55 cents on the dollar, an even bet.
Private Buyouts in 2005 Set Records
Globally, private equity firms did $396 billion worth of deals in 2005, a 51% increase over 2004 and an all time high. Private equity firms also raised a new $261 billion in new equity in 2005, also a record. The largest LBO of 2005 was the Apax Partners lead purchase of Danish telecom company TDC A/S for $12 billion. The growth in LBOs was larger than the growth in mergers and acquisitions (39%) and the growth in initial public offerings (20%).