Levine on Wall Street: Banker Raises and Dollar Stores
Everyone gets a raise!
Goldman Sachs is planning to raise analysts' salaries by around 20 percent, to $85,000 base salary for first-years. Bank of America, JPMorgan, and Citi have similar plans, and Morgan Stanley has raised mid-level pay recently. Meanwhile they're all protecting weekends and de-emphasizing pointless constant work, in part by hiring more junior bankers to do the same amount of work. Now is really the time to go into investment banking! What are you waiting for? My nostalgia for banking was tempered a little bit by this story about how people "were willing to pay 6% more for a parcel of land if the male seller engaged in friendly small-talk before negotiating the deal, demonstrating that men benefit from striking up casual conversation before negotiations." (Though not women apparently?) Sounds like banking all right. The small talk is how you earn those salaries. Also Pimco has bedbugs.
Not so great, Family Dollar.
During the June 19 meeting, although noting that the timing was not optimal for Dollar General, our representatives expressed more than once our interest in exploring a combination with Family Dollar. At no time during this meeting did Mr. Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer. In fact, Mr. Levine’s response to specific questions posed by our representatives gave us quite the opposite impression. Had we left the meeting with the belief that a sale of Family Dollar was imminent, we assure you that our course of action would have been different.
At that meeting it "communicated to Mr. Levine that Dollar General’s interest likely would be at a modest premium to the current stock price ($68.14 at such time)." A few days later Family Dollar entered into exclusive negotiations with Dollar Tree, ultimately agreeing to a deal at $74.50 -- less than a 10 percent premium -- and a $305 million ($2.68/share) breakup fee.
I speculated earlier that there may have been some tactical decisions here -- that Dollar General wasn't willing to bid unless there was a firm public offer on the table, and the Dollar Tree deal and breakup fee was the cost of soliciting its interest -- but it doesn't sound like it. If you believe Dollar General, Family Dollar actively discouraged its bid so it could do a deal with Dollar Tree. (A deal that would preserve its CEO's job? Sure, maybe.) Doesn't this look terrible? If you're selling for cash -- and Family Dollar more or less is -- you have a duty to maximize price to shareholders. (Also you're not supposed to file misleading proxy statements, and the account in Family Dollar's proxy ... at least differs in emphasis from the account in this letter.) Carl Icahn's theory, that Family Dollar management knew Dollar General was the better buyer for shareholders but preferred a Dollar Tree deal for their own personal reasons, is starting to look more credible.
Elsewhere in M&A disputes.
If there's a courthouse, Allergan is probably suing Valeant in it, or vice versa, or most likely both. So when Allergan flew to California to file an insider trading lawsuit against Valeant and Pershing Square, it was only a matter of time before Valeant and Pershing would come to California to file a ... let's say miscellaneous goofball securities fraud lawsuit against Allergan. Highlights:
Valeant and Mr. Ackman’s counterclaim alleges that quotes of Mr. Ackman that Allergan used in their suit were obtained from a “secretly recorded” conversation Mr. Ackman had with Allergan CEO David Pyott. ...
Valeant and Mr. Ackman also accuse Allergan of launching an investor roadshow into Canada in July, a place the duo says Irvine, Calif.-based Allergan has “minimal” business presence and shareholders. Valeant, however, is based in Canada. The duo says Allergan held meetings with Valeant shareholders that “Allergan knew owned no Allergan stock and have no plan to buy any.” At the meetings, the duo allege, Allergan continued to raise concerns about Valeant and its business model.
There's actually a straightforward process in which Allergan and Valeant/Pershing can make their case to Allergan shareholders and the shareholders can decide. Yes yes there needed to be one lawsuit to make that process work, and sure each side can lie about the other (but then the other side can correct the record), but all these other lawsuits do feel a bit like a distraction. Why not let the shareholders decide?
People like index funds.
Here is an article about how Vanguard Group has almost $3 trillion in assets under management because everyone likes index funds, from "a securities lawyer in Mountain View" to Warren Buffett (if he can't invest his money with Warren Buffett) to me. (I mean, the article doesn't mention me, but it could have.) "It is 'a trend that I see continuing on, probably forever,'" says one guy, and can you disagree with that? The case for active management of most retail investors' portfolios is, at this point, pretty much down to small talk. I'd expect indexed assets to approach the Grossman-Stiglitz paradox asymptotically forever.
Not so great, Warren Buffett.
There are some fairly complicated U.S. antitrust rules that say that you can't buy more than $75.9 million of a company's stock without first filing for and receiving antitrust approval, and that even after doing that you can't buy stock that will take you above some other thresholds without additional filings and approvals. Warren Buffett's Berkshire Hathaway broke those rules repeatedly, albeit in pretty sympathetic ways. For one thing, Berkshire buying a minority stake in a building materials company is not really going to raise antitrust concerns; for another, the rules are complicated and Berkshire didn't realize it needed to do an additional filing for a convertible-bond-for-stock exchanges. There but for the grace of antitrust lawyers go many companies. Still! Berkshire Hathaway can afford good antitrust lawyers. The Justice Department gave Berkshire a break once, but fined it $896,000 for its most recent violation.
Accountants Crowned Kings of Romance by Extra-Marital Affairs Website. Banks are ratings-shopping on CMBS deals. Joseph Cotterill on Argentina's exchange plan. Hedge fund investors may not be rich enough. I'm a bit late to this, but here's a Southern Investigative Reporting Foundation story about two billionaire brothers with some very complicated charitable trust goings-on. Bain Capital is buying half of TOMS Shoes. Man hates hipsters. People still blog. "Athenians preferred public slaves as comptrollers and auditors because they could be tortured on the rack and freemen could not."
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Matthew S Levine at firstname.lastname@example.org
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