Further reading

Elsewhere on Tuesday,

- Happy birthday, Dow.

- 20 questions to ask anyone who thinks the crisis is over.

- The mathematics generation gap.

- The bubble in bubbles, reflexive version....

Snap news

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- Volkswagen set to formalise approach for MAN — report.

- Serco announces £385m acquisition of Indian business process outsourcing company —...

Breaking: Arris Group In Talks to Buy SeaChange

Communications equipment maker Arris Group Inc. is in discussions to buy SeaChange International Inc., a maker of digital video gear with a market capitalization of $316 million, according to people familiar with the matter.

It is unclear what price SeaChange will fetch, or if a deal will be reached between the two companies, which have been in off-and-on talks for the past several months, one of the people said.

TiVo and NDS Group Ltd., a technology provider for pay-TV operators owned by News Corp. and buyout firm Permira, also considered buying SeaChange, but they have lost interest now, these people said.

UPDATE: In a public statement headlined “SeaChange International Responds to Published Report,” the company said a board committee and bankers from Blackstone and Evercore are “continuing to evaluate a range of strategic options for the Company.” (Translating the code for the uninitiated: Yes, the company is for sale. Please call us if you want to write a check.)

Boutique investment bank Qatalyst Partners is advising SeaChange, while UBS is advising Arris, the people familiar with the matter said.

Arris and NDS declined to comment. Representatives for the others did not immediately return calls seeking comment.

Based in Suwanee, Ga., Arris makes routers, cable modems and other equipment for delivering high-speed data services, including audio and video.

SeaChange builds software and hardware for video-on-demand television. It also builds technology designed to help cable companies store, manage and distribute programming and advertising content through cable TV, smartphones or the Internet. Arris also offers similar products.

As consumer viewing habits change and people want to watch their favorite shows anywhere and at any time, cable and broadband companies are seeking technologies for sending the same content to any screen, and also for putting up advertising against it.

Last year, SeaChange settled a dispute with activist investor Ramius LLC, which owns about 7% of the shares. Ramius gained two board posts at SeaChange. The investor later said the company had failed to meet financial targets, and urged the board to hire a financial adviser to explore strategic alternatives.

AT&T Faces the Congressional Firing Squad

Underway right now: a U.S. House committee is holding among the first of what promises to be a flurry of firing squad hearings on AT&T’s proposed $39 billion purchase of T-Mobile.

Getty Images
AT&T CEO Randall Stephenson

The Department of Justice and the FCC must clear the deal, which means…ta da! It’s gotten all caught up in Washington politics.

In the ongoing House judiciary committee hearing, the sides are lining up predictably. The Republicans believe the AT&T deal is the epitome of flag-waving free markets at their best, and the Democrats think the acquisition will mean the downfall of humanity.

“I’ve never met a merger than I liked,” said Rep. John Conyers, the Democrat from Michigan. He said he’s concerned about job losses from the mega-merger, and hits to smaller wireless competitors.

Catch all the hot air live HERE. And READ HERE the written testimony from AT&T CEO Randall Stephenson.

AT&T Faces the Congressional Firing Squad

Underway right now: a U.S. House committee is holding among the first of what promises to be a flurry of firing squad hearings on AT&T’s proposed $39 billion purchase of T-Mobile.

Getty Images
AT&T CEO Randall Stephenson

The Department of Justice and the FCC must clear the deal, which means…ta da! It’s gotten all caught up in Washington politics.

In the ongoing House judiciary committee hearing, the sides are lining up predictably. The Republicans believe the AT&T deal is the epitome of flag-waving free markets at their best, and the Democrats think the acquisition will mean the downfall of humanity.

“I’ve never met a merger than I liked,” said Rep. John Conyers, the Democrat from Michigan. He said he’s concerned about job losses from the mega-merger, and hits to smaller wireless competitors.

Catch all the hot air live HERE. And READ HERE the written testimony from AT&T CEO Randall Stephenson.

Snap news

Breaking pre-market news on Thursday,

- UBS planning to separate its investment bank and incorporate outside of Switzerland — report.

- Jupiter Properties makes conditional...

The M&A Twist in Caterpillar’s Bonds

By Vipal Monga

The sheer volume of debt issuance is a clear enough sign that financing markets are hot. But it’s the underlying terms in some deals that underscore how smoking it is.

In a twist on Caterpillar’s $4.5 billion offering, the company is using the proceeds from its largest ever debt issuance to partially fund its $8.6 billion acquisition of Bucyrus International.

To protect bondholders from the possibility the merger collapses, investors can sell the bonds back if the deal isn’t consummated by June 30, 2012 — an unusually lengthy stretch of protection.

Read the rest at WSJ’s new CFO Journal.

Not so coincidental at Global Crossing…

In mid-April, around the time Global Crossing (GLBC) said it would be acquired by Level 3 Communications (LVLT), we footnoted a serendipitous development for Global Crossing’s senior management: a “Special Rewards Program” established in January that gave the top brass thousands of additional shares, theirs to keep “in full upon a Change in Control.”

At the time, it wasn’t clear just how much the board and management knew about the deal that would be announced a couple months after they doled out those “special rewards”: Was the program established, as the company’s 10-K suggested, simply “to retain and motivate certain employees” whatever may come? Or was it more specifically intended to reward those who stuck around in the face of a deal everyone involved knew was in the works?

Now we know, and it looks like the top brass, and the board, knew exactly what was going on, according to the Background of the Amalgamation section of the merger proxy that Global Crossing filed late on Friday. (As Michelle said Monday, we love this section of merger proxies precisely because it tends to lay bare who knew and did what with whom, and when.)

It turns out that the initial approach came from Level 3 back in early 2010, with negotiations getting underway “[t]hroughout March and April of 2010″ — including the exchange of “drafts of an amalgamation agreement”. (Another brief aside: very few companies call it an amalgamation, instead preferring to call it a merger, based on our review of filings.)

Granted, those talks, as serious as they seem to have been, broke down on April 21, with an impasse “regarding valuation and governance and shareholder issues, as well as other transaction terms” (which pretty much covers the gamut, as far as we can tell). But as often happens in negotiations of all kinds, one moment’s impasse is merely hindsight’s temporary lull in the proceedings: In July, Level 3 began talking with STT Crossing, a unit of Singapore Technologies Telemedia Pte Ltd that controlled some 60% of Global Crossing’s shares and would become a big minority shareholder of Level 3 if a deal took place.

Those talks appear to have proceeded more smoothly, and in the run-up to Global Crossing’s January 21, 2011, board meeting, an STT official “periodically updated” Global Crossing CEO John J. Legere about the talks. The merger proxy notes that Legere explicitly updated at least two of the other executives who would benefit from the Special Rewards Program.

On January 21, Global Crossing Chairman Lodewijk Christiaan van Wachem, the proxy notes, told his board that he knew about the STT-Level 3 discussions and that he’d convene another board meeting on the topic when appropriate. That conversation, incidentally, happened on the same day the board adopted the Special Rewards Program; it’s hard to tell just which came first. Due diligence began on March 11. It’s worth noting that a key STT executive in the talks was also on Global Crossing’s executive committee.

So. Mystery solved: Key members of the board and management had good reason to think a deal might be in the offing when Global Crossing adopted its Special Rewards Program. Thus, the official 2014 vesting date was largely theoretical for those shares, and for others awarded the same day — from the beginning, it seemed pretty likely that the shares could vest much sooner, with a deal.

In the end, of course, this Special Rewards Program is but a pimple on the payout that Legere & co. stand to get. According to an incomplete tally in Friday’s proxy, the top five Global Crossing execs stand to receive almost $77 million, plus up to another $12.6 million in severance if they’re fired. Legere alone stands to collect as much as $48.7 million in cash, accelerated equity, perks and other payments once the deal goes through — only about $6.6 million of which is severance (meaning he’d have to lose his job to get it). And again, all of that is incomplete — among other things, it doesn’t include the value of Legere’s tax gross-up.

You have to wonder about the system that leads a company — and its shareholders’ fiduciaries — to do things in such a convoluted way. Presumably the legal acumen (not to mention fees) that went into drafting these plans could instead have gone to something more useful, like the company’s operations.

That might have yielded a more valuable company, and thus a still better acquisition price. But more to the point, then the board could have just written the executives some nice fat checks once a deal rolled around, and ended up in pretty much the same place with a lot less bother.

It might not be attractive, but at least it’s straightforward.

Image source: Level 3 and Global Crossing joint presentation filed with the SEC


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Barnes & Noble: Will Ron Burkle Get Burned Again?

What is Ron Burkle up to? The billionaire supermarket magnate is plowing even more of his money into Barnes & Noble.

Just days after John Malone disclosed a $1 billion bid to buy Barnes & Noble, Burkle revealed he scooped up 603,000 shares of the company at about $18.49, a share price inflated by the Malone offer. The purchases take Burkle ever closer to maxing out on Barnes & Noble stock. The company won’t let him own more than 20% of Barnes & Noble’s total stock. Burkle now says he holds 19.74%.

European Pressphoto Agency

Maybe Burkle is just super excited about the new Nook. But more likely, Burkle is playing a potentially dangerous game of chicken to force a takeover price for Barnes & Noble even higher.

Liberty is offering $17 a share to buy Barnes & Noble, and investors have driven up the company’s stock price to $19 a share in recent trading, on expectations Liberty or some other buyer will offer even more than $17 a share. Still, the speculators are playing a dangerous game. Barnes & Noble had been for sale since last summer, and until Liberty’s John Malone broke out his check book, the auction was a bust. Where might an extra couple of bucks come from?

Of course, unlike the drive-by investors driving up Barnes & Noble’s stock price right now, Burkle actually can affect the outcome of a possible sale. Malone or any other suitor for Barnes & Noble will have a hard time pulling off a deal unless Burkle throws his support behind a deal. And don’t think Burkle doesn’t know it.

Burkle and Barnes & Noble founder Len Riggio have slung plenty of mud at each other in recent months. Burkle last year said Riggio stocked the Barnes & Noble board with cronies. Barnes & Noble warned shareholders that Burkle and another big investor could “steal your company.”

But when it comes to a sale of the company, however, Riggio might be silently cheering on his nemesis. If Burkle succeeds in driving up a sale price of Barnes & Noble, all the company’s shareholders are likely to benefit. And the biggest shareholder is Riggio himself.

These Companies Hate the AT&T/T-Mobile Merger

The grumbles are beginning to pop up over AT&T’s attempted $39 billion takeover of T-Mobile.

This morning, Leap Wireless publicly came out against the AT&T deal, which would create a mega-wireless company. Expect more fireworks on Thursday, when the House judiciary committee is holding a hearing on the deal — among the first firing squads of many to come in Washington over this proposed deal.

Bloomberg News

Here is a rundown of public comments from wireless carriers, and some subtext to explain their positions in terms of self-interest:

Leap Wireless:

The complaints: “The acquisition would harm consumers,” the company said in its statement today. “It would reduce competition and decrease innovation and investment in the wireless industry. It would also accelerate the trend of alarming concentration of wireless providers….”

The subtext: Smaller, localized carriers such as Leap do matter in the proposed mega-merger. The Department of Justice is expected to scrutinize the AT&T deal for its effects on competition for wireless service in individual towns and cities — the markets where Leap’s Cricket wireless service and other mid-tier carriers sometimes beat up on big dogs like AT&T and Verizon.


The complaints: Last week, the smaller wireless company’s CFO said the “deal puts AT&T in a significant spectrum position,” our buddy Roger Cheng reported.

The subtext: Wireless companies may privately grumble about the AT&T-T-Mobile deal. But they also have to position themselves under the basket to pick up any rebounds. In this case, rebounds would be any subscribers or other assets the government might force AT&T and T-Mobile to sell as a condition of their merger. Spectrum — or the airwaves that carry signals for phone signals and wireless-Internet data — will be a particularly hot ticket for MetroPCS if its rivals need to throw assets overboard.

Sprint Nextel:

The complaints: Sprint has been the most vocal critic of the AT&T-TMobile merger. “I do have concerns that it [the merger] would stifle innovation and that too much power would be in the hands of just two,” Sprint CEO Dan Hesse said at an industry conference in March.

The subtext: If the merger goes through, Sprint will be a distant No. 3 in the U.S. wireless market, which is increasingly looking like a two-man race.


The complaints: Well, more like a yawn. “We’re not going to get distracted by this,” the Verizon Wireless CEO has said.

The subtext: Some industry analysts say Verizon Wireless, jointly owned by Verizon and U.K.’s Vodafone, could get a lift if AT&T strips low-cost rival T-Mobile from the market. At the same time, AT&T could be distracted for a year or more securing all the necessary government clearances for the deal, and then integrating T-Mobile into the fold. The lull might help Verizon poach subscribers from its biggest competitor.

Further reading

Elsewhere on Tuesday,

- A Mexican stand-off.

- Pitching the hedge fund masters.

- Why Jim Chanos is wrong about China.

- The Bank of England is failing its country.

- Econobrowsing....

How Will eBay Blow its Skype Windfall?

Getty Images

With the stroke of Steve Ballmer’s pen, Skype transformed from a pretty crummy acquisition for eBay into a smart investment. Now, how will eBay spend its windfall?

Microsoft’s $8.5 billion purchase of Skype earlier this month rescued eBay from its 2005 plunge into Skype. The online garage sale company bought Skype then for $2.6 billion.

That deal looked like a lodestone, and eBay was forced to foist Skype onto a private investment group. But eBay held onto a 30% slug of Skype, and the investment paid off to the tune of $2.4 billion when Microsoft walked and threw its cash money at Skype.

Today, eBay said it plans to use its surprise windfall on acquisitions and repurchases of its own stock.

“We will continue to use that balance sheet to invest in organic growth, make acquisitions selectively and provide return to our shareholders with stock buybacks,” eBay CEO John Donahoe told our Journal colleagues. “We have over 8 billion dollars in cash. There is nothing imminent but when we see something that will help our mission to connect buyers and sellers [we will do it],” Donahoe said.

Let’s think of it this way. EBay’s rather dumb acquisition of Skype was bailed out by a perhaps even dumber acquisition of Skype by Microsoft. And now eBay will spend its bailout money on the potential for yet more, perhaps stupid, deals in the future.

That’s quite a deal merry-go-round.

More Deal Pressure for 99 Cents Only Stores

A normally dull mutual fund continues to put pressure on 99 Cents Only Stores, raising the stakes for a proposed sale of the company.

Fox Film/courtesy Everett Collection

The mutual fund, FBR, today released a letter to 99 Cents Only’s directors, and cautioned them not to screw around when it comes to a buyout. The dollar store has been weighing for months a buyout offer led by PE shop Leonard Green, which floated a deal at $19.09 a share. The company’s stock has been trading well above that bid.

FBR wants the 99 Cents Only board to take care not to “skew” the bidding process in favor of the Leonard Green bid, which also proposes roping in relatives of the 99 Cents Only founder.

Since the much-maligned management-led sale of J. Crew last fall, investors have been more willing to sound the alarm about inside deals. (Not that the controversy really matters, of course. CEO Mickey Drexler kept his board in the dark for weeks about his discussions to sell J. Crew. Still, his deal sailed through shareholders with flying colors.)

In its letter, FBR also warns the company not to use its cash stockpile to fund a sale of the company. “Since 2007, we and other shareholders have publicly and repeatedly asked management to explain its plans for the Company’s large and growing cash balance,” FBR said in its letter to the 99 Cents Only board. FBR owns roughly 5.5% of 99 Cents Only’s stock.

FBR added:

“Now, management appears to have changed its position and will use the cash stockpile, along with debt financing, to facilitate the purchase of the company from unaffiliated shareholders.  In light of this incongruous behavior, we believe that it is especially important that the Committee be sensitive to shareholders’ concerns and conduct a process that adheres to the highest standards in both appearance and fact.”

Further reading

Elsewhere on Monday,

- Sudden wealth syndrome, now what?

- Other people’s politics.

- In defense of LinkedIn’s investment bankers.

- The ‘Goldman Bunch’:...

Deal Profiles: Top 5 Deals of the Week

LinkedIn’s IPO might have gotten all the attention, but there were a few notable M&A deals thrown in to spice up the week.

Takeda Pharmaceutical’s $13.6 billion agreement to buy Switzerland’s Nycomed took home the crown for biggest deal of the week. The takeover also ranked as the second-largest acquisition of a foreign firm by a Japanese company.

Also of note, Goldman Sachs, which had spent much of year trailing its rivals in the global M&A league tables, finally ascended to the top spot.

Here are the Deal Profiles for the five biggest merger-and-acquisition transactions this week:

Takeda Pharmaceutical’s deal for Nycomed

Thermo Fisher Scientific’s agreed upon acquisition of allergy-testing company Phadia

Toshiba agrees to buy Landis & Gyr

BNDESPAR increases its stake in JBS

Joy Global buys LeTourneau

Grading John Malone’s Investment Track Record

European Pressphoto Agency

John Malone is a bit like the Costco shopper who just can’t turn away a good deal. Sure, you’ll never be able to use up that 20-pound tub of mayo, but look at how good a deal it is. The zeal for a bargain appears to be behind Malone’s $1 billion bid to take control of book retailer Barnes & Noble.

Malone’s Liberty Media does own other retail and e-commerce assets – including cable-shopping channel QVC and Gifts.com – but let’s not think of the Barnes & Noble takeover in terms of strategy. Sure, Liberty could take advantage of the giant QVC distribution network to sell books, but it’s probably sanest to think of the Barnes & Noble bid as a relatively low-risk bet on the part of Malone.

In that light, Deal Journal is grading the cable mogul’s past investments. Will Malone make the deal honor roll?


Grade: A

Liberty Media in 2008 swapped $10.1 billion of stock in media company News Corp. in return for News Corp.’s  41% stake in satellite-TV company DirecTV and other assets. (News Corp. owns The Wall Street Journal.) Liberty CEO Greg Maffei  last fall referred to the swap as one of the company’s winners. “Our shareholders are up something like $13.5 billion” on the DirecTV transaction, Maffei said at Liberty’s investor day. “So we were very happy.”

Live Nation

Grade: C

Liberty plunged in a big way into Live Nation last year, with a tender offer for shares of the concert and ticket behemoth, which merged with Ticketmaster earlier this year. Liberty now owns a minority stake in Live Nation, most of which the company bought last year at $12 a share. It is in the midst of buying more shares at a lower price. Today, Live Nation shares are trading at $11.09 apiece, down 1.4% on the day.

Sirius XM

Grade: A++++

Sirius XM was practically on death’s door in early 2009 when Liberty agreed to loan the satellite radio company several hundred million dollars to pay off bond holders.

Sirius has since repaid the money. Better yet, as part of the Sirius XM rescue deal, Liberty paid just $12,500 for preferred stock in Sirius XM. At the end of the March quarter, those preferred shares had a market value of nearly $4.3 billion. It’s hard to think of an investment made anywhere, anytime that turned out better.