Ravi Madhavan's A&D Blog

The TXU story

NYT DealBook has the story of how the largest LBO deal in history turned out rather poorly - the $45B buyout of TXU five years ago by KKR, TPG, et al.

Paying the price for the abortive AT&T/ T-Mobile deal

WSJ reports that AT&T CEO Randall Stephenson's incentive pay took a hit as a result of AT&T's failure to consummate its T-Mobile transaction. Excerpt:

AT&T Inc.'s failed $39 billion bid for T-Mobile USA cost the telecommunications giant $4 billion in assets and cash. It also cost Chief Executive Randall Stephenson.

AT&T said in a securities filing Tuesday that its board cut Mr. Stephenson's combined short- and long-term incentive payout by more than $2 million, due in part to the implosion of the deal. The company walked away from the offer in December amid regulatory resistance.

 

A looming verdict in India

This WSJ report points to a court verdict, expected soon, that has implications for inbound M&A deals into India. Excerpt:

India's Supreme Court is preparing to issue its decision on whether U.K.-based Vodafone Group PLC must pay about $2.6 billion in taxes on an $11.1 billion deal it struck in 2007 with a unit of Hong Kong's Hutchison Whampoa Ltd. to enter India.

A Vodafone loss would damp cross-border mergers and acquisitions here, many deal experts say, rendering standard transaction structures too risky and forcing foreign companies to weigh potentially new litigation and insurance costs. Some companies might simply decide that India isn't worth the headache. A ruling is expected in weeks.

 

Staple financing

NYT Deal Book's Deal Professor on the Del Monte settlement that highlights the M&A practice known as stapled financing (pre-arranged financing package offered by investment banks to potential bidders during a transaction). Excerpt:

The turn against staple-financing appears to be an overreaction. If proper procedures are followed staple-financing is still permissible under Delaware law. The staple-financing arrangement just needs to be fully disclosed and above board.

If anything, though, the Del Monte opinion and settlement are more of an attack on a “devil may care for the details” attitude on the part of many investment bankers in doing deals. Vice Chancellor Laster’s opinion and this settlement are a signal that this conduct is not going to be tolerated and will be quite costly. That is really what the Del Monte case is about.

 

On the Microsoft/ Skype deal

The Microsoft announcement was somewhat disappointing, in that it was a press conference more than an investor/ analyst presentation, providing very little texture about the deal rationale. I'll keep digging, but meanwhile here are two takes on the deal: this one from Ars Technica is skeptical, and this one from the Epicurean Dealmaker meditates on the DIY nature of the deal.

What happened to Microsoft's acquisitions

This Business Insider piece from March describes what eventually happened with around 15 of Microsoft's biggest acquisitions over the years. 

A hostile bid in the making?

This NYT story about ConAgra's rebuffed offer for Ralcorp is worth a read, because it touches upon the likelihood of, and prospects for, a hostile bid ensuing. Ralcorp will not be an easy target because it has takeover defenses in place, but then the fact that the two companies have an overlapping investor base may lead to some investor pressure in favor of a deal.

A couple of excerpts. First, about deal drivers:

As with other industry players, ConAgra is dealing with a combination of increased global competition and rising commodity prices — an environment that makes size all the more important. Many of the nation’s biggest food producers are finding it difficult to demand high prices from consumers who have a dizzying array of high-quality generic options. Private-label products now account for 19 percent of supermarkets sales, up from 16 percent in 2005.

While Ralcorp owns the Post brand of cereals, ConAgra’s main focus is the company’s expansive line of generic products, which includes cereal, pasta, crackers and frozen waffles. Last year, Ralcorp, which was created from the 1994 spinoff of the cereal, cookie and baby food businesses of Ralston Purina, bought four private-label businesses, including the American Italian Pasta Company for $1.2 billion.

“We think this is a business that aligns well with ConAgra Foods’ strategic priorities and capabilities,” Gary M. Rodkin, chief executive of ConAgra, said in a call with analysts.

Second, about some factors that might impede or help a hostile bid succeed:

But Ralcorp’s board, which in April rejected a lower bid of $82 in cash and stock, continues to resist the deal, adopting a poison pill that will help it block unwanted advances.

“Ralcorp, as an independent company, has a proven track record of delivering superior results and shareholder value,” the company’s chairman, William Stiritz, said in a statement.

Ralcorp already had plenty of tools to scuttle a deal. The company is incorporated and based in Missouri, whose anti-takeover rules are among the country’s toughest. The Ralcorp board is also elected on a staggered basis, which means it would take at least two annual meetings to replace a majority of directors.

ConAgra may have one factor working in its favor. Ralcorp and ConAgra have a large number of the same shareholders. Roughly 45 to 50 percent of the investor base is the same, excluding passive investors like index funds that are required to own the companies. They could put pressure on Ralcorp to come to the negotiating table. Some investors, according to the person close to ConAgra, have already shown support for a deal.

 

The USA Network and the Comcast/ NBC integration

WSJ ran an interesting story last week about the cable network USA, and in passing commented on the ongoing integration of NBC into the Comcast organization. The key thread in the story had to do with the USA Network's "brand filter" of developing shows that are upbeat and character-driven, such as Burn Notice, White Collar, and so on. Excerpt:

USA greenlights only shows that go through what network executives call a "brand filter." That means nothing gets the go-ahead unless it is "aspirational, blue skies, upbeat, optimistic and character-driven," says Bonnie Hammer, chairman of NBC Universal Cable Entertainment and Cable Studios.

USA is so specific about the look and feel of its shows that it tells producers to make sure there is a "fruit bowl" in each potentially drab scene. This is metaphor: It could literally mean a bowl of fruit or, more often, a splash of color, as in a scene in "White Collar" with a red office chair in an otherwise monotone room or a bold-colored billboard outside a window, against an always-blue sky. In the USA playbook, shaky hand-held-camera shots, a favorite of grittier shows like TNT's "Southland," are verboten.

The sunshine strategy isn't yielding the critical paeans of "Mad Men" and its ilk, but it's working. USA has had a string of hits like "White Collar," "Royal Pains," about a doctor in the Hamptons, and "Covert Affairs," which follows a young CIA agent (The hook: "Single woman, double life.") Its newest series, "Fairly Legal" about a young mediator, averages 4.5 million viewers a week, according to Nielsen Co. "Burn Notice," with seven million, is one of the biggest hits on cable.

What made the story relevant for us, though, were the contextual references to the Comcast's integration of NBC. (USA is part of NBC). The subtext appears to be that Comcast may be a more natural parent to NBC that GE could ever be. Excerpt:

The sentiment among USA brass is that Comcast understands them better than did GE, which still has a 49% stake. On a visit to Hollywood, a senior GE executive once listened to Mr. Wachtel and other executives explain what they did and then, perplexed, said, "Now I get it, you're like jet engineers," Mr. Wachtel says.

Comcast, on the other hand, although primarily a cable operator which strung wire and collected bills, already controlled cable networks like E! Entertainment Television, the Style Network, Golf Channel and others, now folded into NBC Universal's cable operation, which includes USA, Syfy, Bravo and news outlets CNBC and MSNBC. Combined, these cable networks make up 80% of NBC Universal's $2.3 billion in operating profit.

The importance of ironing out deal details

This WSJ Deal Journal piece, pointing out that the recently announced merger between Japanese steelmakers Nippon Steel and Sumitomo Metal Industries was sketchy on details, argues that the Japanese consensus style may be the reason. The suggestion is that rather than ironing out all the details prior to the announcement, the approach may be to work them out with the various stakeholders after the deal is announced. Excerpt:

The dearth of details surrounding the Nippon Steel deal has left many analysts scratching their heads. “In the U.S. or Europe, by the time two companies announce a big merger, they’re at about 50 on a scale of one to 100, if 100 means the deal is done,” says one M&A banker in Japan. “In Japan, it’s in the low single digits. Companies need a long time to build consensus from stakeholders.”

More about the Big Boerse deal

Bloomberg has a behind-the-scenes look at the Big Boerse deal.