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2. Einhorn applauds Apple's capital return moves

One of the many ambitious goals of Dodd-Frank was to essentially re-create the OTC derivatives market. The effort was long, but ultimately successful in that the new market finallly became operational this year.

As of now, some trades are being cleared via automated clearinghouses, as key regulatory milestones regarding identifiers and record-keeping rules passed this month. The overall goal is to transition the market from a system of phone-driven, manually processed trades to a modern market that features central clearing and upfront margin requirements on the way to formal exchange-based trading.

The buyside is feeling some acute growing pains right now. IFR notes that "buyside firms are crying foul on an industry clearing document they perceive to be unfair, while dealers are refusing to budge on terms, and predicting that higher clearing fees are inevitable."

At issue is the Clearing Addendum, launched in 2010 by the International Swaps and Derivatives Association and Futures Industry Association. It provides "a template to document the relationship between a clearing member and its customers for clearing over-the-counter swaps."

One lawyer was quoted saying, "The Addendum should have had greater buyside input at the start. Now we are working with a template that puts buyside firms at a disadvantage." One issue is right of dealers "to terminate client swap orders or to refuse to fill future orders without giving notice. Dealers also have the right to demand unlimited margin."

At the same time, buyside firms say that custodians have not yet worked out appropriate collateral management processes, forcing buyside firms to provide this service to clients on their own, according to eFinancial. No one said the transition wouldn't be rocky. But there's no going back now.

For more:
-here's the ICF article
-here's the eFinancial article

Related Articles:
Added costs of OTC derivatives debated

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By Jim Kim

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3. Dell bidding fizzles, raising questions about go-shop process

Apple didn't embrace the iPrefs proposal put forward by hedge fund honcho David Einhorn, who waged a very public campaign to prod the iconic technology company to return more value to shareholders. But the company did embrace an alternative plan, one that has won favor from Einhorn.

The Cupertino giant has announced it will hike its quarterly dividend to $3.05 a share, a 15 percent increase. It will also buy back shares more aggressively, to the tune of $50 billion more than previously planned. The goal overall is to return $100 billion in cash to stock owners by the end of 2015. To finance some of this activity, the company will take advantage of low rates and tap the debt markets.

"Apple is among the largest dividend payers in the world, with annual payments of about $11 billion," the company said of its increased dividend payout.

"We applaud Apple's decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago," a Greenlight Capital spokesperson told TheStreet.com. "This positive development represents a more shareholder friendly capital allocation policy and demonstrates the conviction of Apple's management and board in the Company's future."

In the end, the point of Einhorn's battle with Apple seems to have been to raise awareness. No one thought the company would embrace iPrefs outright. But the battle highlighted the agita that has recently fallen on all shareholders. The company really had no choice but to make a definitive statement with an aggressive capital return plan. Einhorn deserves credit for doing his part.

For more:
- here's the article

Read more about: David Einhorn, Apple
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By Jim Kim

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4. Columnist blames Microsoft's productivity suite for financial woes

The special committee set up by the Dell board to grapple with the planned buyout of the company seemingly bent over backwards to ensure an aggressive go-shop process.

It provided enhanced incentives for Evercore to seek out alternatives, and it worked to ensure that the winning bid would need a majority of votes not including the shares of founder Michael Dell. The committee also took the interesting step of releasing a 26-page recap of the Dell LBO drama earlier this month, underscoring its awareness of the transparency imperative.

In the end, however, the committee was left with the original offer -- and some emerging criticism.

No less than the Deal Professor has weighed in saying that, "The conventional wisdom is that go-shops are a hollow ritual. The feel-good perception that the company is being actively shopped covers up the fact that the initial bidder has a perhaps unbeatable head start. Once a deal is announced, others don't have time to catch up, nor do they want to get in a bidding war. A go-shop becomes just a cover-up for a pre-chosen deal. There is truth to this. At least one study has found that go-shops don't generally attract higher-valued bids when management and private equity firms are involved. This makes sense. After all, if the original bidding group has management locked up, how is a subsequent bidder going to run the company? Despite such concerns, the Dell board used both exclusivity and a go-shop in structuring the sale process, although it did add some frills to try to protect shareholders further."

In hindsight, what might have been a better route: An open auction from the start.

"But the board focused on only two bidders at a time and didn't reach out to others," Deal Professor notes.

At this point, you can count on aggressive action by some shareholders. The board has no choice but to go forward with the original deal, put forward by Silver Lake and Michael Dell in February. But that seems to be a guarantee of a proxy fight, legal action or both. It will be very interesting to see if the Silver Lake team re-draws its proposal to include some sort of public stub to appease the dissidents. It has to do something.

For more:
- here's the article

Read more about: lbo, Evercore
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By Jim Kim

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