Levine on Wall Street: Merger Monday and Shifting Desks
Happy merger Monday: Halliburton and Baker Hughes.
It's fun to write this linkwrap on Monday morning because "Halliburton Co. and Baker Hughes Inc. have resumed negotiations about a potential merger" rapidly becomes "Halliburton Co., the world’s second-biggest provider of oilfield services, agreed to buy No. 3 Baker Hughes Inc.," so it's always about to be out of date. The deal is 1.12 Halliburton shares and $19 in cash, worth about $80.69 per Baker Hughes share, versus Friday's $59.89 close, or $50.98 Wednesday before Baker Hughes announced they were talking. The deal will give Halliburton "more market clout to help insulate itself from a sustained oil market downturn," though it would also "effectively create duopolies in at least four different business areas, controlling, along with Schlumberger, between 70% and 90% of the market for things like well logging and drill bits," raising potential antitrust concerns. One fun tactical component of the deal is that on Friday Halliburton sent Baker Hughes a notice "that it intends to nominate candidates to replace the entire board of directors of Baker Hughes at its Apr. 2015 annual meeting," which Baker Hughes took rather amiss. ("Baker Hughes believes that Halliburton’s various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company’s stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate.") But it seems clear that Halliburton didn't really mean it: That meeting is months away, and clearly everyone thought a hostile deal was unlikely. (As it was.) But if Halliburton did end up going hostile, the usual assortment of takeover defenses -- poison pills, a long-lead-time process to nominate directors -- would make it impossible without announcing its intentions last week. So it was forced to display hostility that it didn't really feel, just to keep its options open.
Happy almost-merger Monday: Actavis and Allergan.
How soon will this one be out of date? Actavis is planning to "pay more than $215 a share in cash and stock for Allergan," with more cash than Valeant is offering, and the "deal may be announced as soon as today." You can sympathize a little with Bill Ackman's complaint that Allergan "can best maximize the outcome for shareholders by running an auction where neither party is the favored bidder, and both are encouraged to offer maximum value -- before any obligation to pay a breakup fee is incurred," instead of running to Actavis as a white knight while studiously ignoring Valeant. On the other hand, if Valeant wanted to offer $215 a share it could have offered $215 a share. (Yes, I know, Actavis gets more diligence and management access, but still.) "The breakup fee is about $2 billion" on the Actavis deal, although Valeant will be netting over $400 million on its toehold if it walks away now. And Ackman will be netting over $2 billion, making it hard to sympathize too much with his complaint. Plus he and Valeant can go buy Zoetis.
If you've been wronged by insider trading, call this number today.
The Securities and Exchange Commission wants to establish a $602 million Fair Fund for victims of Mathew Martoma and SAC Capital's CR Intrinsic Investors. So if you bought Elan or Wyeth stock from SAC Capital in the week before they released negative drug trial data, and then later you lost money because of that negative drug trial data, then you can blame Martoma for your misfortunes and the SEC will give you some of your money back. It may be best not to think too hard about the theory there. Here's the SEC's motion, which is sanguine about the difficulties of identifying victims and the administrative costs of the Fair Fund.
Here is a story about the human resources department at Citigroup.
It is a peach. Citi's new human resources department has not only an open-plan office, but an open-plan office with no assigned desks:
Employees have a locker where they put their personal belongings, and then they set up in the morning where they want to work. There are sanitized wipes on every desk so that the shared workstations are left clean.
What luxury! Also "there are only 150 spaces for 200 people." I don't really know how that works, but the chief operating officer of HR got the idea for the office plan by reading dystopian teen sci-fi, so I guess one possible explanation is Hunger Games for a seat every morning.
What's a Ponzi really?
Contrary to what investors were told, Azar used the great majority of investor proceeds to fund his own lifestyle (including a mortgage on his personal residence, season tickets to the Baltimore Ravens, country club expenses, and lavish vacations), to finance unprofitable and failing businesses unrelated to Empire but controlled by Azar, to meet the day-to-day operating expenses of Empire that the company was otherwise unable to meet, and to make interest and redemption payments to existing Empire bond investors.
Sounds pretty Ponzi, right? But Azar "acquired the company from his grandfather, the company's founder, in 1999," it owned a 250,000 square foot office building in Maryland, and it had been pretty casually "selling bonds as a means of securing secondary funding for the company's operations as early as 1972." So this isn't a Ponzi so much as it is a fallen angel, a real company that fell on hard times and whose chief executive then, you know, maybe milked it a little bit. Also there's stuff like this:
Claims that Azar received special reduced "Wall Street" financing that contributed to the company's ability to pay the 10 percent rate of return because the difference between the "Wall Street" finance rate and the bond rate was less than Empire's profit margin. These statements were materially false and misleading because Empire had no profit margin.
Ha, fine, but also: There's no such thing as "special reduced 'Wall Street' financing." You might as well just call it "special reduced delusional financing."
Facebook for work.
As Twitter gets more terrible in an effort to become Facebook, Facebook is outflanking it by becoming even more terrible. "Facebook is secretly working on a new website called 'Facebook at Work' to get a foothold in the office," with the main attraction apparently being, like, secure Facebook messaging for some reason. It goes on from there but it's too much for me. Follow me on Ello!
"The Basel III leverage ratio is significantly more countercyclical than the riskweighted regulatory capital ratio: it is a tighter constraint for banks in booms and a looser constraint in recessions." You can buy Chinese stocks now. Standard Chartered has suffered from financing mining companies, but the Bank of North Dakota has done great from financing shale drilling. “New Jersey Champagne” Winery Enters Chapter 11. The FX settlement banks may claw back bonuses. Eike Batista goes on trial this week. Hank Greenberg probably won't testify at the AIG trial. Eliot Spitzer will prosecute anyone, anywhere, any time.
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 email@example.com
To contact the editor on this story:
Zara Kessler at firstname.lastname@example.org