What’s Really Driving the Sudden IPO Revival?


On a week that the burgeoning IPO market was being hailed as an indicator that investor appetite for risk had returned, along comes the IPO of two real-estate investment trusts to spoil the party.

On Thursday, Private-equity titan Tom Barrack’s newly created Colony Financial raised $250 million by selling 12.5 million shares at $20 each, instead of the 25 million shares it had hoped to issue. The shares closed at $19.50.

Another Thursday IPO dud was a REIT started by Leon Black, of Apollo Group Management who, like Barrack, is raising money through the capital markets to snap up distressed commercial real estate debt. Apollo Commercial Real Estate Finance set the IPO price at $20 a share, but the stock closed at $18.50 on its first day of trading. Like Colony, Apollo cut its offering, to 10 million shares from the 20 million that was projected earlier in the month

It looks like investors are not blindly chasing risk, after all.

Take, for instance, one of the week’s blockbuster IPOs, the small Watertown, Mass., company that makes batteries for hybrid and fully electric cars. A123 Systems’ shares soared more than 50% on its first day of trading Thursday.

At first glance that is surprise, since the company is posting losses and burning through cash. But perhaps those bets are on shorter odds than that balance sheet might seem to indicate. That’s becuase the company is likely to benefit from the Obama administration’s green technology push. And a bet on government stimulus money is hardly the same as making a bullish bet on an overall economic recovery that an IPO revival would seem to suggest.

In fact, the problem that the REITs had on their public debut indicates that investors may be still wary about a nagging, fundamental risk in the economy: Whether there’s another leg down to come in the commercial real-estate market. (Despite what the investment banks say)

To be sure, the new REITs may have unique problems. As the LA Times points out, Colony is structured so that the fund’s managers, like Barrack, are paid hefty management fees. Another problem is that there is a glut of real-estate vulture funds tapping to capital markets at the moment.

Still, the dull debuts for the new REITs are likely a good barometer of the market’s appetite for risk.

Deals of the Day: Is AIG No Longer Too Big to Fail?

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Mergers & Acquisitions

Volvo: Chinese auto maker Geely has emerged as the leading contender to acquire Swedish auto maker Volvo from Ford. [WSJ]

Barclays: The U.K. bank is in talks to buy some of Citigroup’s retail-banking assets in Portugal, including the American bank’s credit-card portfolio there. [WSJ]

Sara Lee: Unilever will buy Sara Lee’s personal-care business for about $1.9 billion in cash to strengthen its operations in Western Europe and Asia. [WSJ]

ANZ: ING Groep has agreed to sell its 51% stake in its life insurance and wealth management venture in Australia and New Zealand to ANZ for about $1.61 billion in cash. [WSJ]

SkyTerra: The satelitte firm agreed to be acquired by its biggest shareholder, Harbinger Capital, in a roughly $280 million deal. [Washington Post]

Chicago Cubs: A federal bankruptcy judge cleared the way for the sale of the Chicago Cubs to the family of billionaire Joe Ricketts. [Associated Press]

Capital Markets

Is IPO market back? The IPO market had its busiest day in over 18 months as five companies debuted, with A123 jumping more than 50% on brisk demand. [WSJ]


The ‘79 Iran rescue and insider trading: The figure at the center of Wall Street’s latest insider-trading scandal also played a key role in the daring 1979 rescue of two hostages held in Iran that was orchestrated by H. Ross Perot. [WSJ]

Financial Institutions

AIG: The insurer could start losing one of its strongest bargaining chips with the government — it may no longr be too big too fail. [WSJ]

The rise of boutiques: Wall Street’s biggest firms have seen their overall share of dealmaking erode over the past decade as boutique and mid-sized firms lure away rainmakers and provide niche expertise. [Reuters]

Lehman: Administrators representing Lehman’s main European unit have made the first of several claims against the U.S. parent company that are expected to total about $150 billion. [WSJ]

Big Loans, big losses: A record-breaking surge in problems among giant loans is likely to spell trouble for many banks. [WSJ]

Bankruptcy & Restructuring

Simmons Co.: The country’s second-largest mattress maker by revenue is expected file for Chapter 11 protection as part of a plan to be sold to private-equity fund Ares Management and the Ontario Teachers Pension Plan. [WSJ]

Alvarez & Marsal: The restructuring firm has made a bundle advising troubled companies. Now it hopes to earn even more money by investing in them. [WSJ]

Today in the Financial Rescue

Reforming the world economy: The G-20 is near an agreement that would require members to submit economic policies to a type of “peer review.” The group also will announce that the G-20 will eclipse the G-8. [WSJ]

TARP: The Treasury Department is exploring ways to keep in reserve some emergency bailout funds that would expire if it doesn’t extend TARP for another year. [WSJ]

People & Players

Lehman Diaspora: Former top trader Alex Kirk is said to be joining with the former second-in-command, Bart McDade, to launch a fund called River Birch Capital. [NY Post]

Mean Street: America and Its Junky, Junkie Economy

“Now the drugs don’t work. They just make you worse.” — The Verve

It’s the day every junkie dreads. And ours is coming soon. America must learn to live without all the drugs we’ve been feeding ourselves.

We’ve been on one heck of a binge — the TARP, the TALF, the FHA’s Hope for Homeowners, Cash-for-Clunkers — more than $4 trillion of it so far.


And while there is little doubt that the junk has made us feel better, you have to wonder if it’s still working.

Today’s existing-home sales numbers suggest they may not be. After rising four months in a row, August home re-sales fell unexpectedly fell by 2.7% to 5.1 million annual sales.

A “mild retreat” said the National Association of Realtors. But apparently it wasn’t “mild” enough for the Dow which promptly swung from a 50 point gain to a 50 point loss on the news.

Investors don’t like when things that are supposed to happen don’t. And home sales are supposed to keep rising, especially when the Fed and the U.S. government are doing everything they can to juice them.

For America’s homebuyers, credit is certainly available. The Federal Housing Agency has insured so many dubious mortgages that it’s already fallen below its legally-mandated reserves.

Mortgage rates are low: the Fed’s purchases of over a trillion dollars in mortgages have seen to that. For August, the rate on a 30 year mortgage was an astonishing 5.19%.

And there’s even “free money” available: Until November 30th, first-time homebuyers qualify for an $8,000 tax credit. We’re back to buying $150,000 homes for only a few thousand dollars down.

So with all these inducements, how could home sales have possibly declined?

Well, it could be just a statistical blip — “bad weather kept buyers at home” as the retailers are fond of saying. Or it could be that all our Keynesian tinkering is messing with the natural balance of supply and demand. Once you start introducing one-off special incentives, things get unpredictable when you take them away.

That’s what happened with the $3 billion cash-for-clunkers program. The $4,500 government subsidy produced a great July and August for car sales, but September is dismal. As Edmunds.com CEO Jeremy Anwyl put it: “Cash for Clunkers was supposed to prime the pump, but that is a physics concept, and economics is quite different. Demand has dropped off significantly since the program ended.”

Is the August drop in home sales the result of the coming expiry of the $8,000 tax credit or of the FHA finally starting to tighten credit? We don’t know.

But we do know that no matter how badly we crave them, the drugs in fact can make you worse. Just look at what the Fed’s easy money, Fannie Mae and Freddie Mac and all those subprime mortgages did to us not too long ago. It almost killed us.

But how quickly we forget. The National Association of Homebuilders and the National Association of Realtors have already started their predictable campaigns for the extension of the $8,000 homebuyer credit.

No surprise. Whether you’re in Washington on Wall Street or Main Street, there are always some junkies that refuse to go into rehab.

Union-Owned Amalgamated Bank Looks to Finance PE Deals

Oil and water. Cats and dogs. Unions and private equity?

Since 2007, the relationship between PE firms and unions could hardly be described as cuddly. Remember the Service Employees International Union protests of David Rubenstein and Henry Kravis.

So when Deal Journal saw that Amalgamated Bank, which bills itself as the only union-owned bank in the country, was launching a new division that will provide senior cash flow debt financing to lower middle-market companies and specifically target PE firms that focus on acquiring and nurturing middle-market companies, our interest was piqued.

Deal Journal chatted with Tim Clifford, who will lead Amalgamated Capital. This isn’t Amalgamated Bank’s first involvement with PE. Through corporate lending and its institutional asset-management business, which manages investment in PE funds for institutional clients, Amalgamated Bank already had a presence. Simply put, in establishing Amalgamated Capital, the bank sees opportunity, what with conventional lenders in the market such as CIT Group having been hit hard by the global financial crisis and funding for many companies having dried up.

Deal Journal: Give me a little detail about your plans for the business?
Tim Clifford: I basically have been doing leveraged finance for almost 20 years at predecessor banks of Bank of America and then, most recently, Churchill Financial. From that perch, I realized that the middle market is under served, particularly the lower middle market. I view the lower middle market as companies with an enterprise value of $150 million or below. Our plan to target companies with between $3 million and $20 million of [earnings before interest, tax, depreciation and amortization] and with senior debt of up to $60 million.

DJ: Why did Amalgamated Bank decide to get into this business? Did it seem an opportunity as other firms in the market have been hit by credit crisis?
Clifford: Who has been serving the lower end of the market? Frankly, its been the commercial-finance companies and regional commercial banks. But think about their funding. They get their funding primarily through warehouse facilities, which recently have been either pulled or reduced, or the CLO market, which is no longer available. So the suppliers of capital at that end of the market are either on the sidelines or out of business primarily because of a lack of funding. That’s to our advantage. Amalgamated Bank has a strong and liquid balance sheet.

DJ: Why have you targeted the lower middle market?
Clifford: The reason we targeted the lower market is straightforward. Overall, the M&A market is down. The lower end has been hit, but there is still activity going on. Below $10 million, there is very little liquidity. Above $10 million Ebitda, there is some liquidity, between $10M and $5M there is less, and below $5 million, liquidity is almost nonexistent. Part of rationale for that is that the smaller the deal the more risk that is involved. More risk deserves a higher yield and if you do it right, I found you can be very successful.

DJ: Can you talk about what type of investments you will look at?
Clifford: We are not going to industrial parks looking at nonsponsor deals. We are looking purely at investments by PE firms, so you are typically getting a well-capitalized sponsor behind the transaction. In today’s market, 50% of the capitalization is equity, either new equity or rollover equity. We are going to focus at the lower end because it takes less liquidity to get the deal done and Amalgamated Bank will have a more meaningful role in the transaction.

DJ: Do you expect there to be more activity at the lower end as deal-making recovers?
Clifford: Yes. There’s more flexibility in terms of transaction type at the lower end and it requires less capital to get deals done. I just look at our pipeline. We have been in business roughly three weeks, and we have a pipeline of more than 25 deals. A good portion of those are below $10 million Ebidta. I think that’s reflective of the activity in the current market place.

DJ: What has been the reaction in the marketplace to Amalgamated Bank’s plans?
Clifford: The reaction has been very positive. When I introduce myself and say that Amalgamated Capital is new source of financing for PE-backed transactions, they automatically think we are pushing asset-based financing because the deals that are getting done by banks are through an asset-based approach instead of a cash-flow or enterprise-value approach. That’s reflective of the tougher lending standards. A lot of companies in the lower market are service businesses that are asset light so an asset-based approach doesn’t work. We are bringing a cash-flow-based approach to a market where there has been a lack of that type of financing available.

Breaking News: Twitter to Raise $100 Million From Insight, T. Rowe Price, Other Investors

The WSJ’s Michael Corkery and Jessica E. Vascellaro report:

Twitter, the messaging web site that has become an Internet sensation, is nearing a deal to close as much as $100 million of new funding from as many as seven investors, according to people familiar with the deal.

The investor group includes mutual fund giant T. Rowe Price and private-equity firm Insight Venture Partners, which are new investors to Twitter. The $100 million investment is about twice as much as Twitter was reportedly expected to haul in this latest round of fund-raising.

Other investors in this round include venture-capital firms Spark Capital and Institutional Venture Partners, which have previously invested in Twitter.

The investors are valuing Twitter, which has yet to generate revenue or finalize its plans for making money, at about $1 billion. A person familiar with the deal said investors are applying a similar value to Twitter as that applied to Facebook, which at one point was valued at $15 Billion. By some estimates, Twitter is expected to have 25 million users by the end of 2009. Facebook has 300 million users.

Twitter could not immediately be reached for comment.

The Twitter valuation is quite a lift from the company’s last round of investing earlier this year, in which investors valued the company at around $255 million, according to people familiar with the matter.

The company still isn’t generating any real revenue, though executives say they are discussing various options, including advertising and premium services targeted at businesses.

The deal is expected to close today. It is Twitter’s third and largest round of fund-raising.

Insider Trading Served on a Silver Platter

The insider-trading charges brought in connection with Dell Inc.’s takeover of Perot Systems is being hailed as a sign that the Securities and Exchange Commission under the Obama Administration is getting more aggressive.

That may be true. But the insider-trading allegations against Reza Saleh, an employee of Perot Investments, which manages the personal finances of Ross Perot, a major shareholder of Perot Systems, don’t exactly paint the picture of a case that was difficult to crack.

In other words, according to the allegations, this case was served up to the SEC on a silver platter.

On Sept. 4, the SEC alleges that Saleh became aware that Dell was nearing a deal to acquire Perot for a “premium. ”

Over the next two weeks, Saleh purchased at least 9,332 Perot Systems call option contracts – which constituted most of the options activity in that stock that day.

On Monday, the same day it was announced the Dell was acquiring Perot for a 65% premium, Saleh is accused of selling all of his call options on the accounts, generating an $8.6 million profit.

According to the SEC, on that very same day, Saleh then withdrew $5,000 from one of his brokerage accounts, and then tried to withdraw an additional $55,000. According to the SEC, Saleh told a board director at Perot Systems and an employee at Perot Investments that his call option purchases “were based on knowledge of the impending transaction.”

There are many cases where insider-trading allegations are hard to prove because it’s difficult to prove that someone’s trading was solely based on insider knowledge of a deal. But this case, if the SEC allegations prove true, seems more clear cut.

Deals of the Day: Google — Ready to Start Shopping Again

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Mergers & Acquisitions

Ready to shop: Google expects to buy one small company a month as it restarts its M&A engine. [Reuters]

Not in the game: Microsoft has no plans to acquire Electronic Arts. [Reuters]

The NBA is fantastic: Russia’s richest man is buying a controlling stake in the New Jersey Nets, giving the team the cash to build a long-promised arena in Brooklyn, N.Y. [WSJ]

Marvel-Disney: Marvel’s CEO was granted stock options for more than a million shares in the weeks after a subordinate opened discussions with Disney. [WSJ]

BusinessWeek: ZelnickMedia is teaming with the former publisher of The Wall Street Journal, L. Gordon Crovitz, to make a possible run for BusinessWeek, yet it appears no formal bid has been made. [BusinessWeek]

Abbott: The pharmceutical company has emerged as a strong competitor to purchase the pharmaceutical unit of Belgian conglomerate Solvay, setting up a potential showdown with rival bidder Nycomed. [WSJ]

Australia and China: China’s ambitions to carve out a larger piece of Australia’s resource sector received a setback when Australian regulators rejected a $220 million investment in Lynas Corp. [WSJ]


Insider trading: The SEC accused an employee of H. Ross Perot’s investment firm with insider trading based on his alleged knowledge of Dell’s planned takeover of Perot Systems. [WSJ]

Today in the financial Rescue

Financial overhaul: Congressional Democrats and the White House are softening some elements of the Obama administration’s proposal to overhaul financial-market supervision as they begin a push to win broader support for the bill. [WSJ]

TARP: A key watchdog will tell lawmakers that it is unlikely that U.S. taxpayers will receive 100% of their investment back. [Reuters]

Financial Institutions

Toiling under the government Yoke: Before AIG nearly collapsed, the insurer was widely seen as an indomitable force. The swagger is largely gone as it tries to reassure clients and scramble for new business. [WSJ]

Ally: GMAC is using its new access to low-cost capital and the rising prominence of its Ally bank to compete more directly with banks such as J.P. Morgan and Wachovia. [WSJ]

Citigroup: The bank plans to narrow the focus of the bank’s U.S. branch network to six major metropolitan areas. Citigroup also will limit its overall consumer lending in the U.S. primarily to credit cards and “jumbo” mortgages. [WSJ]

Conflict of interests: The former Moody’s analyst who went public with allegations of inflated credit ratings, plans to tell a congressional panel that the ratings industry is still hampered by conflicts of interest. [WSJ]

Prosecuting Paupers Over Princes: Justice is blind. On Wall Street it often appears lame and easily manipulated, too — a tool for serving political agendas without nary a wrist slap for the cartels controlling the game, writes David Weidner. [WSJ]

New Frontier Bank: Though the lender’s loan losses continued to rise, it took almost two years for regulators to close the bank — a delay that may have made the closing more costly. [Bloomberg]

Lehman: Phoenix Life is suing a unit of Lehman Brothers, accusing it of improperly transferring Phoenix collateral to the U.S. last year. [WSJ]

Nomura Holdings: The Japanese firm plans to raise up to 511.3 billion yen ($5.6 billion) to bolster its overseas operations by selling new shares. [WSJ]


Lower fees? Not bloody likely: Hedge funds had been expected to make it up to investors by softening some of their hard conditions or lowering fees. It appears not. [WSJ]

CIC: China’s sovereign wealth fund set a $1.9 billion investment in debt issued by Indonesia’s Bumi Resources. [WSJ]

Capital Markets

Wynn Macau: The Stephen Wynn- led casino company plans to close the institutional order book on its $1.63 billion IPO Hong Kong. [Bloomberg]

Bankruptcy & Restructuring

Tribune Co.: The media company agreed to give a group of bondholders documents relating to the company’s 2007 leveraged buyout. [Reuters]

Law Firms

Skadden, Arps, Slate, Meagher & Flom: The highest-grossing U.S. law firm projected a 50% cut in summer hiring. [Bloomberg]

Evening Reading: Is the Effort to Reform the Financial System Losing Steam?

Reforming the financial system: Treasury Secretary Timothy Geithner told the House Financial Services Committee that he was supportive of recent changes made by the panel’s chairman, Rep. Barney Frank, that addressed complaints raised by businesses and banks. Felix Salmon writes: “the erosion of the Obama administration’s regulatory-reform plans has now begun in earnest.”

Should we be worried the IPO market is heating up? This week as many as eight IPOs are expected to come to market. Mark Hulbert over at MarketWatch argues that it is an early warning sign that stocks may head lower and “if a lot more companies in coming months rush to market to sell their stock, the IPO market would go beyond merely issuing an early warning to flashing outright concern.”

Why again did SEC loosen leverage rules on investment banks: Epicurean Dealmaker delves into whether the SEC’s decision to relax leverage limits at the biggest investment banks in 2004 was to blame for the financial crisis. The conclusion: “Based on this back-of-the-envelope historical analysis, I am disinclined to let the SEC off the hook for the relaxation of leverage limits as my correspondent urges me to do. Even if the SEC’s action was not the primary reason that investment banks levered themselves up to ultimately ruinous levels, it certainly added fuel to the fire or, at the very least, did nothing to dampen it.”

How the Skype bid got so messy: Skype’s founders are not letting go. Having lost out in the bidding for their brainchild to a group of investors led by Silver Lake, Skype’s founders have redoubled their fight in courts. BusinessWeek takes a look drama surrounding the deal.

Time to make the Donuts: Private-equity-owned Dunkin’ Donuts is being sued by some of its franchisees, who are accusing the company of aggressively targeting shop owners in an effort to terminate store agreements and collect hefty penalties for alleged contract violations, the Boston Globe reports. Dunkin’ Donuts was purchased in 2006 by Bain Capital, Thomas H. Lee Partners and the Carlyle Group.

‘Lessons From the Crisis’ from Moody’s Whisteblower

A former Moody’s analyst says the ratings agency has been doling out inflated ratings to complicated debt securities even though it allegedly knows that the under lying assets were about to be downgraded.

The embattled rating agency told the WSJ that the analyst, Eric Kolchinsky, refused to cooperate with an investigation into the issues he raised and he was suspended. Kolchinsky is working with Congressional investigators who are probing the role of the rating agencies in the credit crisis. Moody’s says its looking into the issues.

In November 2008, Kolchinsky prepared internally for Moody’s credit analysts, outlining “Lessons From the Crisis.’’ Click here to read Kolchinsky’s report.

In Marvel-Disney Talks, the Mouse Never Roared

Associated Press

The Fantastic Four?

Nope. Not for Marvel Entertainment, the home of Spiderman and the Hulk.

Try Fantastic Five

Even as its stock price lingered around $36 a share, Marvel Entertainment insisted from the very beginning of its negotiations with Walt Disney in early June that any per-share bid would need to start “with the number ‘5′ to be paid entirely or substantially in Disney stock.’’

Disney finance chief Thomas Staggs told Marvel Studios Chairman David Maisel that his price was too high and the Disney board would never agree to a deal that included very much stock, according to a Securities & Exchange Commission filing on the deal made Tuesday.

Under the agreement, Marvel holders will receive $30 a share in cash plus 0.745 Disney share for each Marvel share. The deal is valued at $50 a Marvel share, or about $4 billion.

At one point during the talks in July, Disney proposed an offer in the range of $46-$48 a share. Marvel then asked for as much as $52 a share. A few weeks later, Disney met Marvel half way at $50. On Aug. 31, the day the deal was announced, Disney executives said it had intended to pay a “fair price” for Marvel’s premium assets, which they had coveted for a long time. Disney wasn’t kidding.

Other highlights from the SEC filing: Marvel CEO Issac Perlmutter is likely the single biggest winner in the deal. He stands to collect in $34 million in stock options that vest upon the deal closing and an additional $10.5 million in restricted stock options.

Perlmutter also gets a new job at Disney, where he will be the president and “most senior (not just senior) executive officer” with regard to the Marvel character licensing and publishing business. If he loses his gig, he can collect another $19 million in severance, according to the SEC filing.

A haul fit for a superhero.

Another big winner: Bank of America Merrill Lynch, which advised Marvel will collect a $20 million fee.

The Sights and Sounds of the AIG Casino

Today’s WSJ explains how day traders have whiplashed American International Group, pushing shares of the battered insurance giant to $45 from $13 in just the past seven weeks. In recent weeks, a whopping third of the company’s common shares trade each day.

Associated Press
Gamblers at the Resorts Atlantic City casino in Atlantic City, N.J., in 2006.

The article reveals AIG’s unbelievable rally has been built purely on speculation and has little to do with the fundamentals of the company, which will remain on government life support for the foreseeable future. Analysts don’t even bother measuring the company’s PE ratio. AIG has to pay back hundreds of billions to U.S. taxpayers before common shareholders can start collecting profits.

Yet, bright and early this morning, the AIG casino was open again and day traders were placing their bets. On Yahoo Finance’s message board, you can almost hear the spin of the roulette wheel and the cha-ching of the slot machine.

The stock opened up 6% to $53.67 in morning trading:

Let’s listen in on the casino floor…..

“Will hit $ 50 before lunch. For anyone who has been in Since Aug 1 are all up 300%, congrats.”

“60$$ here we come!!!”

I PREDICT 3RD QTR LOSSES WILL BE HUGE!!!!!!!!!!!! GET OUT BIG GUY AND SAVE YOUR MONEY FOR BUYING SUB $20!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

“I expect a massive sell off of $5-$10 beginning in 2 minutes, and intensifying at 1:30. This is a sure thing, Ladies…”

There was only one mention of the WSJ article on the Yahoo message board this morning. TJ, of Broomfield, Colo., whose online moniker is a snake with its tongue extended, said: “If you are not aware of the speculators behind this volume you should not be trading this stock. It is not a matter of if, but when.”

That’s probably the safest bet you can make on AIG. Remember day trader favorites like Crocs or Under Armour? What goes up in spectacularly fashion usually blows up with just as much flare.

The 25 Most Powerful Women In Banking

There’s been a lot to mull over this year about gender equality in finance and business.

One recent survey by Catalyst, a nonprofit group that promotes women in business, found that 19% of women have lost their jobs in the past two year, compared with 6% of men. Then, there was Jack Welch’s comment a few months ago that women who take time off for their family are doomed to been passed over for high power jobs.

Other studies are more upbeat. The Boston Consulting Group says women will drive the post recession economy because of rising female employment and because women are narrowing the wage gap with men.

Now US Banker magazine is finding some bright spots in its annual “25 Most Powerful Women in Banking” issue. Calpers, the giant California pension fund, hired the first female CEO, Anne Stausboll, in its 77 year-history, while Bank of America is said to be grooming Sallie Krawchek, who was recently hired as head of the bank’s Global Wealth and Investment Management unit, as a possible successor to CEO Ken Lewis.

At the top of the US Banker list, for the third straight year, is Heidi Miller, J.P. Morgan’s CEO of Treasury and Securities Services. One notable newcomer to the list is BBVA Compass retail chief Shelaghmichael Brown, who helped with that bank’s recent acquisitions in the US.

The magazine editors rank the women based criteria such as one-year performance, the results of business initiatives, management style and overall influence.

Here’s the full list, and for more rankings click here.

The 25 Most Powerful Women in Banking 2009

1) Heidi Miller, JPMorgan Chase & Co.

2) Karen Peetz, BNY Mellon

3) Pamela Joseph, U.S. Bancorp

4) Barbara Desoer, Bank of America

5) Carrie Tolstedt, Wells Fargo

6) Peyton Patterson, NewAlliance Bancshares

7) Deanna Oppenheimer, Barclays PLC

8) Mary Callahan Erdoes, JPMorgan Chase

9) Diane Thormodsgard, U.S. Bancorp

10) Julie Monaco, Citigroup

11) Lynn Pike, Capital One Bank

12) Cara Heiden, Wells Fargo

13) Avid Modjtabai, Wells Fargo

14) Donna Demaio, MetLife Bank

15) Mollie Hale Carter, Sunflower Bank

16) Diane D’Erasmo, HSBC USA

17) Ellen Alemany, Citizens Financial Group and RBS Americas

18) Anne Arvia, Nationwide Bank

19) Anne Finucane, Bank of America

20) Ellen Costello, Harris Bankcorp

21) Colleen Johnston, TD Bank Financial Group

22) Shelaghmichael Brown, BBVA Compass

23) Diane Reyes, Citigroup

24) Kay Hoveland, K-Fed Bancorp & Kaiser Federal Bank

25) Leeanne Linderman, Zions First National Bank

The Ticking Clock on the Kraft-Cadbury Takeover

Now that Cadbury has requested the U.K. Takeover Panel press Kraft to make its so-called put-up or shut-up offer, the next relevant move is exactly when the panel will decide the offer is due.

It’s a technical issue but an important one for a few reasons. First, is that Kraft is on the hunt to raise about $8 billion. Time pressure could influence the company’s ability to do that. Second, potential third-party offers might be pushed to move faster — or never make it off the ground — if the panel asks for an offer sooner.

Under U.K. law, potential acquirers like Kraft can make what is a called a “2.4 offer”, basically a proposal to do a deal at a certain price. After that, at the request of the target company and the panel, the acquirer must eventually make a firm “2.5 offer” that also contains committed financing.

The panel, staffed with long-time M&A bankers, is likely to set the date before the end of the week. Usually, the target in such deals seek an earlier date, while a buyer such as Kraft wants as much time as possible to gather the financing.

Kraft, could for example, seek to hold off on a firm offer until November, after it announces its third-quarter results, allowing it more time to raise money. Kraft also feels confident there will be no rival bid, say people familiar with the matter. The more time that passes without one will bring down Cadbury’s share price and increase pressure on the British confectionary giant to come to the table with Kraft.
Cadbury could counter that the process needs to be accelerated because the uncertainty is hurting morale and allowing rivals to pilfer employees.

The announcement, typically the subject of much behind-the-scenes wrangling by both sides, will be some sort of compromise between the two parties on the specific date.

If the most recent deals in the U.K. are any indication, Kraft will get 24 business days — or four to five weeks — to make public its offer, which could be tweaked or increased from the current $16.7 billion proposal that has been on the table since early September. After that, Kraft will have another four weeks to make public the actual documents behind the deal. Cadbury shareholders will get two months to be canvassed for votes on the deal.

So, if the process plays out to the bitter end, the Kraft-Cadbury saga may come to a head sometime in late January.

That, of course, assumes there is no third party to come in with a bid or that Kraft-Cadbury are not talking sweet nothings beyond closed doors to get quietly close on a friendly deal.

Evening Reading: The Big Winners of the Bailout — Bank CEOs

Betting on deal making: M&A seems to be making a bit of comeback. That’s good news for those who make a living off of merger arbitrage. Does that mean so-called merger-arbitrage mutal funds are finding more opportunities and may be poised for better days? Our colleague over at MarketWatch John Spence takes a look.

Hitting the M&A mall? John Cook over at TechFlash is wondering if InfoSpace is about to turn to deal making. The Internet search firm named Braden Kelly to it board of directors. Not only is Kelly a former partner and managing director at private-equity firm General Atlantic, but the release announcing his appointment is littered with references to InfoSpace’s new M&A strategy.

Let 100 Hundred Investment Banks Bloom: What is needed to repair the financial system? Epicurean Dealmaker offers up his thoughts: “What we need is a period of deconsolidation in the financial industry to mirror what now appears to have been a risky and eventually ruinous period of consolidation and aggregation over the past three decades. I have pointed out before in these pages that financial intermediaries at every scale—individual banker, individual bank, and industry as a whole—comprise a dense and dynamic network for the connection of sources of capital to the users of capital. It just makes sense that this network would be more robust and less prone to catastrophic failure the more independent nodes there are in the system and the less network “traffic” (i.e., capital) flows through any one node or pathway.”

Taxpayers and CEO Compensation: Henry Blodget over at ClusterStock makes an interesting point about the bailout. If the U.S. taxpayers hadn’t ponied up the money to rescue Morgan Stanley, Goldman Sachs and Bank of America, then those firm’s CEOs would be a whole lot poorer. Here’s how much money John, Ken, and Lloyd have of their own very-not-worthless stocks:

  • Lloyd Blankfein: $623 million
  • John Mack: $125 million
  • Ken Lewis: $83 million

Michael Moore Interview: The Wealthy “Want All Our Money”

Film maker Michael Moore spoke to Deal Journal this morning about his new movie, which blasts Wall Street and capitalism generally.

The film, “Capitalism: A Love Story,” takes on the banking system, Realtors, the media and Wal-Mart Stores, to name a few. He blames Washington for aiding and abetting Wall Street before and after the financial crisis at the expense of average Americans who have lost their jobs and homes. He extols the virtues of companies where profits are shared among workers, but says he isn’t advocating for socialism. Instead, he favors what he calls a true democracy where government officials don’t work for the powerful and wealthy elite.

Bloomberg News
Film maker Michael Moore

Click here for Deal Journal’s take on the film, which opens around the U.S. on Oct. 2.

Here are excerpts from our interview.

DJ: Why do you call the movie “Capitalism: A Love Story”? It seem like you don’t love anything about capitalism

Moore: It is a love story about the well-to-do. They happen to love their money very much. Now they love our money and they want all our money and our homes. It’s about their love.

DJ: You criticize Congress, particularly Democrats, for bailing out Wall Street, but what should they have done instead?

Moore: Let’s do what they did during the Savings and Loan crisis. You put the banks in receivership and decide which ones deserve money and which ones don’t. You don’t’ just hand out to free money to lunatics. There is one in every family, a lunatic brother-in-law or uncle who comes asking for a loan and you and your wife just have to say no. Well, this was the crazy brother-in-law from Wall Street asking for money…I say the same thing about the bailout money for [General Motors] and Chrysler. You don’t hand money over to the people who continue to destroy these companies.

DJ: But the auto bailout gave a large ownership stake of the GM and Chrysler to the auto workers union. Isn’t that something you would support?

Moore: My role is not to applaud half measures. My job isn’t to start from a position of compromise. The workers need to own [100%] of General Motors. The workers decide whether to accept investors. The consumer who buys the car needs to have a representative on the board. If you let them have a say, the company will build a better car….I didn’t deal with [the auto industry] very much in the movie… I started to construct some scenes, but it felt like been there done that. I made that film 20 years ago.

DJ: Your movie details greed and excess on Wall Street. Why didn’t you address the greed of consumers who bought large houses and big ticket items with borrowed money?

Moore: It was disturbing how during the first weeks of the crash, the news reports focused on the subprime people and how they lived beyond their means…The No.1 cause of foreclosures are medical bills that people can’t afford.…There is a group of people who do live beyond their means. But that’s been going on for hundreds of years and that hasn’t caused crashes in the past. I am not into blaming the victim of this. That approaches the territory of asking a woman (who had been harassed) ‘why were you wearing such a short shirt?’ ‘Why were you talking to Countrywide?’ Why? Because they said they would give me free money.

DJ: How do you square a movie condemning capitalism when your films benefit from that very system? For instance, your film was premiered in New York’s Lincoln Center, an institution that is funded heavily by Wall Street.

Moore: (Chuckle) I walked in to the theater and saw the names of the banks and I said: this is what I do for a living: irony. I am now pilling irony on top of irony…These financial institutions should be giving their money away. They have gotten away with paying almost no taxes.

DJ: Why make this movie now?

Moore: I’ve been thinking about this movie for 20 years. Most of the work I’ve done points to (capitalism) as the central problem. When [President] Obama said to Joe the Plumber that he believed in spreading the wealth and Bush was making long-winded speeches about the virtues of capitalism. I said, let’s not just dance around it any more. This is not about socialism versus capitalism. Let’s change the paradigm: It’s capitalism versus democracy. It seems to me that capitalism is the enemy of democracy and enemy of my faith. It’s the enemy of what any good Christian, Jews, Muslim or Buddhist believes in….

Deals of the Day: Cadbury Warms to Kraft Combination

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Mergers & Acquisitions

Kraft-Cadbury: The CEO of Cadbury, facing a potential takeover from Kraft Foods, acknowledged that there is some merit in a combination of the two companies. [WSJ]

Playing catch-up: Dell agreed to buy Perot Systems for $3.9 billion, paying a fat premium to play catch-up with big tech rivals that have been using the recession to expand beyond their traditional businesses. [WSJ]

Sun-Oracle: Larry Ellison said that Sun Microsystems is losing $100 million a month, while expressing frustration over an extended European antitrust review. [San Jone Mercury News]

JAL: The Japanese airline’s lenders may seek to split the carrier between its profitable and loss-making parts. [Reuters]

China Minzhong: The foreign owners of Minzhong, a leading Chinese food processing company, are considering a sale. [FT.com]

Financial Institutions

Spy scandal: Deutsche Bank’s chairman knew more about the bank’s 2006 effort to spy on a shareholder than previously thought, a report says. [WSJ]

Bailing out ther bailer out: Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. [NY Times]

AIG: The insurer shows signs of stabilizing, but it is too early to tell whether the insurer can restructure and repay taxpayers, a watchdog concluded. [WSJ]

BofA: Bank of America has agreed to pay $425 million to shelve a tentative loss-sharing pact designed to help the bank digest securities firm Merrill Lynch. [WSJ]

The City: Signs of a rebound are evident in London’s financial district. But after the financial crisis, the global banking hub is smaller, somewhat chastened and still uncertain about new rules. [WSJ]

What will be the big money maker in 2010? Big Wall Street firms that attracted new hedge-fund clients during the financial crisis are hiring and making selective bets where they expect business to pick up in 2010. [WSJ]

Credit Suisse: The Swiss bank is confident in its ability to grow its flagship private banking arm, picking up business from rivals that have been weakened by the financial crisis and undeterred by pressure on Switzerland’s banking secrecy laws. [WSJ]


Harbinger Capital Partners: The hedge fund has sold five million shares of New York Times Co., unloading a chunk of its 20% stake in the publisher at a significant loss. [WSJ]

Citigroup: GIC cut its stake in Citi to below 5%. [WSJ]

Capital Markets

A big week for IPOs: The U.S. IPO market expected to raise up to $9.1 billion in what could be the biggest U.S. IPO week in 18 months. [Reuters]

Too Hot? China has stopped granting new licenses to financial institutions seeking to join bidding for initial public offerings, in a bid to cool off the heated market. [WSJ]

Do You Think You Could Manage AIG?

Before answering, take a look at the GAO’s update on the AIG bailout, and then let us know. Page 8 of the report breaks down AIG’s organizational structure. A quick count puts the total at more than 250.


Much of the blame for that  failure has centered on its Financial Products unit and the credit default swaps it sold. But as Michael Lewis detailed in August, AIG’s problems extend beyond that business. Much of the beleaguered insures problems can undoubtedly be pinned on its structure. Writes Lewis: “Greenberg, who had headed A.I.G. since 1968, was a bullying, omnipotent ruler—one of those bosses who did not so much build a company as tailor it to his character and render it incapable of being run by anyone else.”

The Goldman-Morgan Stanley M&A Train Keeps Rolling

For those of you keeping score at home, Dell’s $3.9 billion acquisition of Perot Systems has further cemented the Goldman Sachs-Morgan Stanley cabal dominating many M&A deals at the moment.

Goldman advised Perot, while Morgan Stanley advised Dell. Morgan Stanley ranks No. 1 in U.S. M&A having advised on 90 deals totaling $270 billion this year, according to Dealogic. No. 2 Goldman has advised on 80 U.S. deals totaling $239 billion.

(Globally, Goldman is the No. 1 adviser, while Morgan Stanley is No. 2).

On U.S. tech deals, Goldman rose to the No. 1 adviser from No. 2 after the Dell-Perot tie up, while Morgan Stanley vaulted to No. 3 from No. 5, over Barclays and Bank of America-Merrill Lynch.

Meantime, it looks like somebody couldn’t keep quiet about the Perot deal, though it had been rumored to be in the works for many months. Dow Jones Newswires reports that starting Sept. 9 and continuing through Monday, traders bought and sold far more options in Perot Systems than they historically have.

Surprise, surprise. The bulk of the activity appeared to be bullish, with traders preparing for Perot’s stock to move higher. On Sept. 9, for example, traders picked up 2,000 calls that allow them to buy the company’s stock and just 11 puts that allow them to sell it, according to Trade Alert. Under normal circumstances, traders would buy and sell only a few hundred contracts in the Texas company.

Dell-Perot Systems: How Does Jr.’s $1 Billion Haul Stack Up in the Family

Like father, like son?

Ross Perot Jr., chairman of Perot Systems, has just sold the family computer business to Dell Inc. for $3.9 billion.

(Courtesy of the Hillwood International Energy Web site)

In the deal, Perot family members, who collectively own 25% of the company, will collect about $954 million from the sale, according to FactSet, a financial research firm.

Not a bad deal for Perot. Dell is paying a hefty 68% premium and about 30 times Perot’s estimated 2009 earnings.

But Junior still has a long way to catch up with dad, whose fortune from Electronic Data System is the stuff of legend.

Consider that when Perot Pere took EDS public in 1968, the start-up software company was priced at 106 times earnings. By 1969, the company’s shares had risen to $160 from the initial price of $16.50 and Perot’s nine-million-share stake was valued at $1.5 billion, on paper at least. “Probably no other man ever made so much money so fast,’’ Fortune magazine said about Perot and the EDS IPO.

Perot’s shares took a beating in the bear market of the early 1970s. But when EDS was sold to General Motors in 1984, Perot collected about $1.2 billion and earned a seat on the GM board. In 1986, GM bought back Perot’s shares and those of other EDS’s executives for about $750 million. A couple years later, Perot started Perot Systems, a direct competitor to GM’s EDS.

Still, the Perots have taken their lumps. Last year, Perot Jr., who runs the family real-estate business, Hillwood Development Co., and a German partner, walked away from their $275 million investment in a huge mixed-used development in Dallas. The family also took a hammering after investing in a $1.5 billion commercial real-estate fund that was forced to liquidate late last year to pay off creditors.

It is too early to say whether Perot’s deal with Dell will make the family’s greatest hits list. But analysts already are blasting Dell for overpaying with that gaudy 68% premium.

“The main reason why Dell had to pay such a large premium is because [The Perots] own 25% of the company,’’ says Christian Schwab, an analyst at Craig-Hallum Capital Group LLC. “[They] don’t give anything away.”