June 21, 2008
Canada Gets it Right, Darn
The Canadian Supreme Court, without a written opinion, ruled unanimously in favor of Bell Canada and its buyout group, overruling a lower court that had ruled in favor of bondholders and held up the buyout. Now the buyers, who are suffering buyer's remorse, have to decided whether to go through with the buyout. In so doing, the Court upheld the shareholder primacy theory of Anglo-American law for Canada, against the wishes of academics and other members of the left who are pushing a "constituency theory" of board duty. By deciding sensibly, the Canadians will be more competitive with us than otherwise, darn.
June 19, 2008
Courts and Mergers, Closed or Not
If one company wants to acquire another or the companies want to merge, the parties must now expect a court hearing and a certification from a judge is required to close. Now if one party wants to call off a merger, it must seek a court hearing and ask permission. Hexion wants to call off an acquisition of Huntsman so it filed with the Delaware Chancery Court to ask permission to do so. Our Courts have become a de facto certification agent for all acquisitions. Those who like courts and distrust corporate executives will cheer; those who wonder about the competency of judges will not.
June 18, 2008
Governor Blunt on the Anheuser-Busch Takeover
Missouri Governor Roy Blunt, a vehement opponent of InBev's proposed takeover of Anheuser-Busch, has asked the Federal Trade Commission to review the deal, saying that he is "concerned that this sale would have destabilizing impacts on our nation and state's long-term economic interests." It is a curious move because InBev has no market share to speak of in the United States. One could say it is purely political; he looks like he is doing something. In the spirit of the 80s, I am surprised that he is not asking the Missouri legislature to pass some draconian anti-takeover legislation.
Buffett for the Insurgents
On Wednesday, Belgian newspaper De Standard reported that Warren Buffett supports InBev in its cash offer for Anheuser-Busch. Buffett's company, Berkshire Hathaway, has a 35 million share stake in the beer conglomerate, worth approximately 5% of the company.
The endorsement comes as a bit of a slap in the face for Anheuser CEO August Busch IV and the Missouri politicians.smen.
Shareholders are displeased with the company's performance under Busch IV's leadership and seem happy to have company operated with competent Belgians at the helm.
June 17, 2008
Anheuser-Busch on the Block: What a Difference Fifteen Years Makes
The potential sale of Anheuser Busch to a Belgian company, InBev, has produced the normal local efforts to block the sale from the Missouri governor, the St. Louis mayor, and St. Louis employees. What is different is the heavy push back in the national financial press supporting the bid. Anheuser Busch management, top heavy with Busch family members, has been average at best and the family only owns 5 percent of the stock. The company's staggered board is fully eliminated by the 2009 elections and it has no poison pill in place. Warren Buffet is a major shareholder, one who trumpets investing in management and often supports incumbents in hostile bids for privileged preferred stock positions. The bid is thus a litmus paper test of several things: 1) takeover popularity 2) last minute takeover defenses and 3) the prominence of share price.
June 16, 2008
Marsden Study on Taxes
Keith Marsden has released a new study, "Big, Not Better," on the tax policies of 20 countries over the past 20 years. He grouped the countries into two groups, those with slimmer governments (revenue and expenditure under 40 percent of GDP) and those with higher-taxed, bigger government economies. Some of the darlings of controlled economy advocates are in the later group (Sweden, France, Denmark). The slimmer government group grew faster, balanced budgets better, have higher annual employment growth rates, and increases in discretionary income. The surprise: the slimmer government group did not show increases in "income inequality", the new rally cry of the left. Some will contest his data -- fine -- but it is data, not ideological purity that ought to drive this debate.
June 15, 2008
Another Hatchet Job By Morgenson
In today's business section of the New York Times, Gretchen Morgenson writes, under her op-ed title "Fair Game", of the buyout by a private equity firm, TPG, of the otherwise failing savings and loan bank Washington Mutual. It is total hatchet job. TPG is pumping cash into the bank in exchange for a potential controlling interest (if it exercises all the warrants in the deal) and a board seat. In the latest quarter the bank lost $1.1 billion and sits on a $10 billion in non-performing mortgage loans, which may increase when interest rate resets hit in less than two weeks. One wonders what TPG sees in the bank. It bought the common stock in the package for $8.75 and it is trading today at $6.66. The strike price on the purchase warrants is $10.65, now well out of the money. Morgenson has found disgruntled shareholders who do not like the "extreme dilution" and feel "forced" to vote for the deal (under NYSE rules). She also, in typical fashion, chronicles the salary of the CEO. It took no bonus last year and was paid $1 million in cash, but the year before he took a bonus of $4 million.(and the firm "declined to comment.") Perhaps the board should have negotiated a better deal or perhaps it should have done a "rights offering" that "forced" existing shareholders to exercise in the money options or suffer dilution.
Here is the better story. Washington Mutual is in jeopardy of bankrupt, in which the shareholders get nothing. They do not have any bargaining power when seeking a cash infusion, which is needed now, not later. They took the best deal they could get. A rights offering takes longer and has historically been a declaration of defeat that hammers stock price. Shareholders should be disappointed and they are not blameless -- they invested in the company and voted in favor of its leaders. The vote is "forced" because it is a good deal.
Morgenson mentions "penalties" if the vote fails and suggests the vote is coerced. Her own analysis makes no sense. The penalties mentioned are stock dividends to TPG (on the preferred in the package I assume) and a reduction in price in the warrants. Put if the deal fails a vote TPG cannot get the stock and warrants it intends to purchase -- so how does this penalty work? I assume the dividend and warrant package is scaled back to less than a 20 percent voting interest, but Morgenson does not say.
A true hatchet job.