Levine on Wall Street: Role-Based Pay and Role-Play M&A

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Here's what European bonus caps will mean.

To get around, or comply with, or whatever, European rules capping bonuses at one or two times salary, Goldman Sachs (and Barclays) will pay European bankers who are subject to rules not only a salary (normal) and a bonus (constrained), but also a thing called "role-based pay." The role-based pay looks like base salary for bonus-cap purposes (it's paid monthly and fixed in advance), so it increases the size of the bonus that the bank can pay, but it also has some bonus-y elements itself (it's claw-back-able, it doesn't count for pensions, it can change from year to year). It is hard to say why forcing banks into paying this less flexible, creepier form of bonus makes them any safer, but at least it gives them an outlet for their creativity.

There's a mergers and acquisitions game for your iPhone .

So if you've ever wanted to do M&A banking WITHOUT GETTING PAID FOR IT now is your chance. Create a character with his very own charisma, strength, creativity, drive, reputation, leadership, deception, and x-factor. Then flatter, bully, haggle and negotiate yourself to total M&A success. Also I bet you get to do site visits for due diligence. Just don't play it on a Saturday.

Meanwhile the real mergers and acquisition game is brutal.

Apollo Global Management has signed an agreement to buy CEC Entertainment Inc. The CEC stands for Chuck E. Cheese. As part of the deal, Apollo apparently demanded that CEC put in a poison pill to prevent anyone (other than current 10-percent holders) from acquiring more than 10 percent of CEC's stock. The goal is apparently to "deter activist hedge funds and rival bidders," though CEC's bland announcement of the pill says that it "will not in any way prevent or restrict any person from making a superior proposal." It will keep oh say Carl Icahn from accumulating a stake and making trouble trying to find a better (or, really, worse) deal. The Wall Street Journal article notes that this has been done a few times before before, but it strikes me as a pretty sketchy extension of the poison pill's original use of preventing coercive takeovers. Here it's being used to, um, coerce shareholders into approving a takeover.

There's a new ratings agency .

It's called Arc Ratings and it's aimed at midsize companies in Europe and the emerging markets and, I don't know, your mileage may vary with this pitch:

Arc Ratings hopes to alleviate those concerns by creating a different style of rating that doesn't focus on whether a debt offering is investment grade, but on the level of potential risk of default, said Uwe Bott, the company's chief ratings officer and a former executive at GE Capital.

Critical thinking and qualitative analysis, rather than simply plugging numbers into a model, will be a priority at the company, Mr. Bott said.

"Many executives will tell you, 'My door is always open,' but are their minds?" Mr. Bott said.

Umm. Is the question of "whether a debt offering is investment grade" different from the question of its default risk? Also I have not checked Moody's and Standard & Poor's mission statements recently but I hope they don't say "we just plug stuff into a model without thinking about it." I cannot guarantee that though.

Phil Falcone testified about LightSquared.

The crazy LightSquared/Dish Network/Charlie Ergen debt-buying trial is still going on and yesterday it featured (somewhat delayed) testimony from Phil Falcone, the former hedge fund manager (now banned from the industry!) who tenuously controls, or controlled, or at least thinks fondly of, LightSquared. The key issue in the trial is whether Ergen bought LightSquared debt in naughty ways or for naughty purposes, but obviously cross-examination focused on Falcone's own alleged naughtiness:

"The [Securities and Exchange Commission] accused you of fraud, didn't they?" Ergen's lawyer, Jim Dugan, asked Falcone during a heated moment in the all-day session.
"Yeah, that was one of the accusations," Falcone said ...

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net