Tuesday, August 7, 2007
The Topps Company, Inc. announced yesterday that it has been advised by The Upper Deck Company that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, with respect to Upper Deck's offer to acquire Topps had expired without a second request, an event which would have delayed Upper Deck's bid by several months. The antitrust condition to Upper Deck's offer is now satisfied and Upper Deck can now proceed with its $416 million bid. Upper Deck's offer of $10.75 a share is materially higher than the current agreement Topps has to be acquired by Michael Eisner's The Tornante Company LLC and Madison Dearborn Partners, LLC for $9.75 a share in cash, or about $385 million.
Topps stated in its press release that "it continues to negotiate with Upper Deck to see if a consensual transaction can be reached." As I stated before, "[i]f and when [Upper Deck clears its offer with the antitrust regulators], expect the bidding for Topps to continue." The next move is Tornante's and Madison's. If they walk, they will split a break fee of $12 million, higher than the $8 million fee payable during the go-shop period when Topps initially spurned Upper Deck's bid.
Monday, August 6, 2007
Wednesday, August 1, 2007
Three weeks ago I penned a post on the The Return of the Tender Offer. Yesterday, Theodore Mirvis a partner at Wachtell, Lipton, Rosen & Katz posted to the Harvard Corporate Governance Blog a memorandum issued by Wachtell last week on the same subject. It is worth a read for those wanting a highlight of the benefits tender offers provide over mergers. And nice to know we are in agreement on the return of the beloved '80s structure, particularly since I was a week or two ahead of those super-fast Wachtell lawyers.
The Wall Street Journal today is reporting that Harvard University's endowment fund lost about $350 million investing in Sowood Capital Management. The amount is about 1.2% of Harvard's $29 billion endowment. Last month Sowood suffered in the bond market a loss of about $1.5 billion, approximately half of its assets under management. Earlier this week the hedge fund Citadel Investment Group agreed to buy much of Sowood's investment portfolio. Citadel has made a bit of a business buying hedge fund distressed assets; last year it purchased the remainder of Amaranth's energy portfolio.
The Harvard loss belies the fact that hedge funds and private equity have been very good investments for university endowments. A recent paper, Smart Institutions, Foolish Choices?: The Limited Partner Performance Puzzle by Josh Lerner , Antoinette Schoar and Wan Wongsunwai found that, in particular, endowments' annual returns are nearly 14% greater than average investments in this investment class. And, according to the Wall Street Journal, the top 53 university endowments, with nearly $217 billion in assets, have invested about 18% of their money in hedge funds. The superior returns are a testament to the investing skill of these endowment fund managers mixed, perhaps, with the good luck to have started investing in this area early before it became saturated with a high number of funds searching for return. Still, the Harvard loss is a reminder that hedge fund investments carry risk, and some more than others. But hopefully it will not be cited for the oft-made argument that hedge funds are too risky for investment. Presumably, the very smart people at the Harvard endowment ran their risk analysis and considered the risks associated with this investment against the superior returns Harvard has made over the years. Against this backdrop and the extraordinary returns gained, the loss is insignificant and worthwhile. Good investment is often accompanied by total failure mitigated by diversification. Here, Harvard can take solace in the fact that it only lost half of one investment, something that investors in many equity stocks cannot (remember Pets.com?).
Dow Jones & Company announced that it has agreed to be acquired in a merger transaction by Rupert Murdoch's News Corp. for approximately $5.6 billion (see also the Bancroft family statement here). News Corp. will pay $60 in cash for each share of Dow Jones common stock and Class B common stock. Members of the Bancroft family and their trusts collectively owning approximately 37% of Dow Jones' voting stock have agreed to vote in favor of the transaction. The agreement also permits up to 250 holders of record and not more than 10% of the shares of Dow Jones to elect to convert their Dow Jones shares into a number of exchangeable Class B units of Newco LLC, a newly formed subsidiary of News Corporation. This will permit these holders to defer taxable gains until the shares are exchanged for News Corp. stock. Once the merger agreement and the voting agreement are filed with the SEC I'll have more commentary on any other interesting terms of the transaction. In the interim and not surprisingly, both the Wall Street Journal and the New York Times are all over this story.
Congratulations must go to Rupert Murdoch and his counsel Skadden Arps for getting to an agreement in an incredibly complicated, political deal (Dealbook has a blow-by-blow here). There are a number of M&A lessons to learn from this transaction. But a major one is the fragility of dual-class stock as a controlling structure over future generations in the absence of a strong leader. The New York Times has it in the form of Arthur Ochs Schulzberger Jr, but the Wall Street Journal lacked a similarly strong presence. The Bancroft family therefore not only failed to manage Dow Jones over the past years but also failed to collectively and meaningfully respond to Murdoch's surprise bid (For more on this distinction, see my post Why The New York Times is Not Dow Jones).
And regardless of whether the Bancrofts won or lost here, their advisers Wachtell, Lipton and Merill Lynch have been reported to be about to profit handsomely on this deal. In a last minute attempt to obtain the consent of the Bancroft family, Dow Jones agreed to pay their fees associated with the transaction up to the amount of $30 million. According to the Wall Street Journal, Wachtell is now in line to receive $10 million and Merrill $18.5 million. Not bad for what appears to be a limited amount of work which ultimately left the Bancrofts criticized for a lack of strategy and a failure to obtain a higher price.
For more on Dow Jones, see my prior posts:
The Topps Company, Inc. announced yesterday that it had postponed the special meeting of Topps' stockholders to vote on the proposed merger agreement with Michael Eisner's The Tornante Company LLC and Madison Dearborn Partners, LLC to August 30, 2007. The record date is now August 10, 2007.
Upper Deck's competing, higher bid is still in the HSR Act waiting period being reviewed by the FTC or DOJ. The waiting period under the HSR Act for the Upper Deck bid will expire at 11:59 pm ET on August 3, 2007, unless this period is earlier terminated or extended. Given this, Topps had no choice but to postpone its own shareholder meeting. By the time the Topps shareholder meeting is held, the FTC or DOJ will have decided whether to initiate a second request concerning the Upper Deck acquisition proposal; if a second request is made it would postpone the Upper Deck bid by several months at best. In a few days Topps board and its shareholders will thus be in a better position to assess the Upper Deck bid and choose. But the choice will become much harder if a second request is made forcing Topps shareholders to decide between a lower, certain bid and Upper Deck's less sure and delayed higher one. For more see Upper Deck Tries to Buy Time, Topps and Upper Deck: The Antitrust Risk.