Commentary: "It's Open Season at DLJ"
On paper, the plan looked sensible enough when Swiss bank Credit Suisse Group picked up Donaldson, Lufkin & Jenrette Inc. for $13.4 billion in August. As execs at both firms explained, combining Credit Suisse First Boston's expertise in banking for technology companies with DLJ's high-yield debt franchise would create a megabank--capable of competing against the Big Three investment banks Morgan Stanley Dean Witter, Goldman Sachs, and Merrill Lynch.
But in practice, the combination looks problematic. Since CSFB let one-third of DLJ's 1,000 strong equity team go, bad blood has spread, causing employees and industry watchers to question whether the two firms can truly meld into a superstar.
The sweet deal DLJ's former CEO Joe L. Roby arranged for himself has disillusioned so many of his troops that it could jeopardize his ability to function effectively as CSFB's chairman. Roby will receive $82.4 million over six years. But internally his name is mud: Employees now joke that DLJ stands for "Don't Like Joe." Roby declined to comment.NO RATIONALE. In a satirical video shown at a bash for DLJ's equity department early in October at the Supper Club in Manhattan, award-winning analysts failed to come up with 10 good reasons why the firm should have merged with CSFB. The video started with a little green alien in a DLJ T-shirt being crushed by a CSFB disco ball. It ended with what the research team considered to be the No.1 reason for the merger: funding Roby's retirement plan.
Roby was not at the event. But his presence was felt. Employees hissed and booed at his video image with dollar signs painted in his eyes. At the party, DLJ's highly regarded former Chairman John Chalsty, argued the deal makes sense, but acknowledged: "for many of you, personally it sucks."
No one said merging would be easy. When the deal was announced, Roby said that 2,100 DLJ employees would lose their jobs, mostly in the fixed-income and equity departments. Since then, integration has moved fast: the firm turned out its first joint research on Oct. 11. "More than 90% of the fixed-income and equity people we've extended offers to have accepted," says CSFB managing director Robert Baker.
CSFB counts on many more of DLJ's key players staying on board. But many have yet to receive employment contracts. And others say they are considering leaving as soon as they receive yearend bonuses in February.
Some are not waiting that long. Among the recent losses: DLJ equities chief Stuart Robbins, institutional salesman Sam Evans and equity syndication whiz Nathan Wiesenfeld. Meanwhile, the head of CSFB's West Coast investment banking operation, Mark S. Maron, jumped to Lehman Brothers Inc., taking a dozen staffers with him. Lehman also snagged some of DLJ's equity sales team in London. "It's open season at DLJ," says one analyst.
CSFB set up a $1.2 billion retention pool. But some wonder if that's enough as CSFB's offers have been less than some DLJ staff could get elsewhere. Competitors are working hard to woo them away: Lehman openly invited dozens of DLJ research analysts to a luncheon at its New York offices on Oct. 5.FUZZY MATH. As a result, some contract negotiations have been tough. CSFB took six weeks to sign DLJ's junk-bond dream team. "I don't have high hopes for this transaction," says Steven Eisman, securities analyst at CIBC World Markets. "You put two investment banks together that overlap so completely, and it's not one plus one equals two. It's one plus one equals 1.2. For all intents and purposes, [CSFB] paid $13 billion for a high-yield department." The official price is $11.5 billion, plus a $1.9 billion payment to DLJ options holders.
What's ironic is that CSFB has just signed DLJ's much-coveted high-yield team without its leaders who departed before the merger: Goldman, Sachs & Co. grabbed Eric Swanson while Nomura Securities International in London snagged Mike Johnson. Meantime, junk bonds tumbled so far that they're dragging down earnings at such investment banks as Morgan Stanley Dean Witter. CSFB insists DLJ is suffering no losses. Even if it did, considering all the merger's other headaches, junk-bond losses could end up the least of CSFB's problems.By Emily Thornton; With Debra Sparks and Heather Timmons in New YorkReturn to top