CBLOG

2. Exchanges band together against dark pools

The Dell special committee that is evaluating offers for the company has taken pains to protect itself from charges that it was less than thorough in evaluating bids. It is acutely aware of the possibility that the case will end up in court, especially if the committee decides that the original offer from Michael Dell and Silver Lake provides the most value.

For a reminder of how high the stakes are, we need only look at the letter that Southeastern Asset Management, which owns 8.4 percent of Dell's stock, sent to the committee this week. In response to the company's recent proxy statement, the asset manager states bluntly: "It is our position that the proxy statement fails to make a case for shareholders to accept the $13.65 per share Michael Dell / Silver Lake buyout offer. In addition, we believe that the Special Committee conducted a process that resulted in an inadequate outcome."

Specific points include:

The proxy statement devoted a disproportionate amount of space defending the end user computing unit, when the company had been highlighting the enterprise storage and services business previously. "Management has repeatedly highlighted the ESS business on previous earnings calls and provided estimates that show that ESS will account for 35% of the Company's fiscal 2014 estimated revenue and 58% of its fiscal 2014 estimated Non-GAAP operating income (OI)." And yet, "in all the analytical work and the voluminous proxy statement, EUC and PC are referenced hundreds of times more frequently than ESS."

The board limited itself to private equity firms that were willing to retain Michael Dell as CEO, resulting in an inferior offer.

The committee did not take alternatives seriously enough. Despite the viability of such other proposals, "the proxy statement shows that the Board and Special Committee spent little time researching a leveraged recapitalization. The lengthy proxy statement only discusses the 'pros' and 'cons' of a leveraged recapitalization on a handful of pages and in only a cursory manner. The proxy statement also does not provide any real analysis or give any attention to solutions that would have either allowed shareholders to receive a large special dividend or to remain shareholders of a company with a smaller share base."

Long-term shareholders deserve the ability to participate in any recovery of Dell via public shares.

The rationale for an LBO was weak. "The proxy statement does not contain any sound reasoning for why, at this stage in the transformation, the Company needs to be taken private. In the entire proxy statement, we found only one page (page 82) devoted to Mr. Dell's plans for the Company following the transaction. That single page is consistent with the Company's prior public statements, and nothing about these plans requires that the Company be private."

All this may soon be pointless. You get the sense that the Blackstone offer will be a game changer. Executives were scheduled to be in Roundrock this week to continue the bid process.

For more:
- here's the letter

Read more about: Private Equity, Leveraged Buyout
back to top

This week's sponsor is Oracle.
	eBook: Smarter Service: The Contract Center of the Future This eBook explores the challenges facing traditional contact centers and the benefits of deploying the contact center of the future. You'll find links to further resources on the final page. Download today.

By Jim Kim

Comment |

3. What will Mary Jo White tackle as SEC chairman?

Dark pools have long posed a competitive threat to the nation's largest exchange companies -- NYSE Euronext and Nasdaq OMX -- as well as smaller companies, like BATS and DirectEdge.

The market share that these exchanges have lost to dark pools continues to grow, and it's come to the point where the top exchanges companies are banding together for the first time to fight back. DealBook reports that executives of the New York Stock Exchange, Nasdaq and BATS Global Markets are scheduled to meet with SEC officials on Tuesday.

The executives will likely discuss dark pools in general and make the case for some sort of "trade-at" rule, which would essentially modify the landmark "trade through" rule, which was passed in April 2005. The new rule would essentially force off-exchange execution venues to off significant price improvement compared with the NBBO. I'll have more on this later on FierceFinanceIT, where these issues are often discussed.

The timing of the meeting and trade-at push is interesting in that a new SEC chairman has just been confirmed. Market structure is certainly not one of the core competencies of incoming chairwoman Mary Jo White, but she is likely a quick study. Hopefully, she will jump on market structure issues quickly, before events force her hand.

For more:
- here's the article

Read more about: Dark Pools, exchanges
back to top

By Jim Kim

Comment |

4. Could Jamie Dimon resign if forced to give up chairman title?

There was never much doubt that Mary Jo White would be confirmed as the next chairman of the Securities and Exchange Commission. She was a solid bipartisan choice, and even though she had quite a career as a criminal defense attorney, representing the likes of Ken Lewis, she is best known for her stint as a tough New York prosecutor.

Thomas Gorman, a partner at the international law firm Dorsey Whitney, tells FierceFinance that: "Now that Ms. White has been confirmed she begins the difficult job of transitioning from being a prominent white collar defense lawyer and former prosecutor to a regulator. The transition will not be easy given the array of issues and challenges facing the SEC."

Enforcement remains a top priority -- she faces some huge issues on this front, as the ghost of Madoff has not been banished -- and she's in her comfort zone on such issues. The bigger test will likely be in other areas. Gorman says that, "Dodd-Frank and JOBS Act rule implementation, crafting an effective and understandable Volker Rule and addressing high speed trading and dark pools are only some of the issues on Ms. White's regulatory plate."

It will be most interesting to see how she grapples with market structure issues. These issues are complex and multifaceted, but they are crying out for attention before the next Flash Crash hits, whenever that will be.

High-frequency trading and dark pools are certainly the attention grabbers, but what we really need is a whole new vision of how the markets ought to work, a "Big Bang" that ushers in the next generation trading. A lot is on the line, and it's fair to say that despite grappling with some vexing spot issues---flash quotes, for example---the SEC has been taking its time in creating the market of the future. FierceFinanceIT discusses these issues frequently.

For more:
- here's a news item from the LATimes

Read more about: SEC
back to top

By Jim Kim

Comment |

5. KPMG partner sparks insider trading probe

Is Jamie Dimon irreplaceable as the top executive at JPMorgan Chase?

That's a legitimate question right now, as the bank's board embarks on a campaign to maintain Jamie Dimon's role as Chairman, CEO and president of the bank. Part of that campaign involves raising the prospect that Dimon will step down if he is asked to give up the chairman role.

A shareholder group has prevailed in placing a resolution on the ballot this spring that calls for the bank to split the chairman and CEO jobs, which is a fairly standard corporate governance practice these days. Bank of America and Citigroup, two of JPMorgan's biggest rivals in consumer banking, have split the positions. Given his success and stature, Jamie Dimon has been immune to calls to split the jobs for years. But he has been weakened by a series of events that culminated with a damning report from a Senate subcommittee about executive accountability during the London Whale controversy.

There appears to be a subtle game of chicken going on. JPMorgan directors seem willing to take the heat for keeping the two jobs combined, and they are reaching out to shareholders to make their case. The insinuation is that Dimon might leave completely rather than give up the chairman role. And that, the directors believe, would have a negative impact on the fortunes of the bank. Others suggest that the bank may lose the Dimon premium that has served the bank's stock price so well.

So would Dimon really leave?

I would hate to think so. At this point, if a director were truly independent, it would be up to him or her to come up with a way to split the duties, while at the same time making clear that the move is not a commentary on Dimon's job performance.

That may seem like a hard task right now. But for SEC chairman Arthur Levitt thinks the board already has it figured out. He told Bloomberg that JPMorgan would probably wait to split the roles because doing so now "would look like a rebuke to Jamie."

"That title will be divided," Levitt was quoted. "Not now, a year from now."

That may be a wise course of action, especially if a majority of shareholders vote in favor of the split.

For more:
- here's the article

Read more about: corporate governance, Jamie Dimon
back to top

By Jim Kim

Comment |