Levine on Wall Street: Carl Icahn, Bad Winner
Banks that missed an IPO will get to vent about it
The U.K. government hired Goldman Sachs and UBS to help it do a public offering of the Royal Mail earlier this month. Shares were sold at a valuation of 330 pence, and are now trading at 534 pence, the sort of Internet-IPO-style pop that leads people to complain that the bankers underpriced the deal. The government being the government, that complaining will occur at a parliamentary hearing. All fair enough, but the delight here is that "Representatives from one of either JP Morgan, Citigroup or Deutsche Bank will also be called to parliament because each firm suggested higher valuations for the Royal Mail than was ultimately achieved in its IPO when pitching to work on the deal." But they didn't get the business! Schematically, Goldman and UBS went to the government and said "we will sell Royal Mail for £3.3 billion," and JPMorgan and Citi and Deutsche went to the government and said "we will sell Royal Mail for £4 billion" or whatever, and the government took the lower number. Which is more sensible than it sounds -- you want your underwriters to do a good job, not just overpromise on price -- but, still, the government knew about those banks' higher valuations going in. Seems a bit silly to complain now. Also if I were JPMorgan etc., I'd charge underwriting fees for showing up at this hearing.
SAC will admit the things it's already been convicted of
SAC Capital did a ton of insider trading, which we know because a bunch of SAC Capital employees have pled guilty to insider trading. Sometimes the buck stops there, but prosecutors really want to convict SAC Capital itself, as an entity, of insider trading. Today the Wall Street Journal is reporting that SAC will plead guilty to those charges -- which makes sense since it, y'know, insider traded a lot -- and will "mention the actions of some or all of the six employees who have already pleaded guilty" in its plea. (Though it "won't admit wrongdoing in connection with alleged insider trading in a case for which Mr. Cohen was under investigation, because the government hasn't obtained any convictions in that case to date.") As a result SAC will pay a big fine and "wind down as an investment-advisory firm and surrender the SEC investment-adviser registration that allows it to manage outside capital," though of course the people who work there will be free to go start other similar though preferably less insider-tradery hedge funds. Except maybe the boss, Steve Cohen, who is still negotiating his own securities-industry ban or time-out. And of course the people who've been convicted of insider trading themselves.
Carl Icahn is making more friends
Last year Carl Icahn tried to buy CVR Energy, an oil refiner. CVR hired advisers -- bankers at Goldman Sachs and Deutsche Bank and lawyers at Wachtell, Lipton, Rosen & Katz -- to try to fend off Icahn. Icahn now owns CVR Energy so, y'know, you can make your own evaluation of how the advisers did. (Though it's less obvious than you'd think.) Carl Icahn has made his evaluation (of, remember, the advisers who were hired to get rid of him, and whom he defeated), and has decided that he's not paying Goldman's and Deutsche's fees. But he -- sorry, CVR, which he controls -- is also suing Wachtell Lipton for malpractice, claiming that they never explained to CVR that it would have to pay the banks' fees if Icahn won control of the company. I have my biases here -- I've worked for two of CVR's three aggrieved advisers -- but I agree with Dealpolitik's Ronald Barusch that this seems like a stretch. If you hire a bank to fend off a hostile takeover, of course you have to pay them if the takeover happens. Barusch explains the Delaware-fiduciary-law -- even though you really hired them to reject the offer, you have to give them incentives to evaluate it objectively -- but also, like, common sense: Why would a bank give up its fee just because it failed to do what it was hired to do?
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Matthew S Levine at email@example.com