Also Noted: Spotlight On... Raj Rajaratnam loses appeal
Today's Top News1. Appraisal litigation in Dell drama?
Shareholders are likely disappointed by the turn of events in the Dell buyout drama. The go-stop process did not spark a frenzied bidding war. Indeed, the Blackstone Group dropped out completely, though Carl Icahn has forged ahead with a proposal. An esteemed New York Times columnist notes, however, that shareholders have an alternative: An appraisal rights lawsuit, which would effectively ask a Delaware court to appraise the deal and assign an appropriate value. An outside trust set up by a former investment banker has been registered in Delaware, to which shareholders seeking to exercise their appraisal rights can assign their stock and pursue the case. "The Dell Valuation Trust, as it is known, will oversee the process, hiring lawyers to represent the shareholders in Chancery Court. This will allow individual investors, who would find it too onerous to hire their own lawyers, to demand appraisal rights as well. "The trust will also provide another benefit to investors: freedom to trade their rights. Ordinarily, shares of investors seeking appraisal rights in a deal are frozen until the court comes to a decision, which can take as long as two years. But the securities held in the Dell trust will continue to trade as the case proceeds. "Shares deposited by investors into the Dell Valuation Trust will be exchanged, one to one, for a security representing the appraisal rights." The column suggests that this sort of litigation should be seen as a safety valve for Dell shareholders. Unfortunately, for Dell and Silver Lake, this means that even if their deal prevails during the July 18 shareholder vote, an appraisal may still be in the offing. It's possible that court could require Dell to pay more, or perhaps less. My sense is that the precarious state of the PC market has worked to Michael Dell's advantage. As the PC market tumbles, the deal is looking better. For more:
Read more about: Leveraged Buyout, Dell 2. Bond ETFs disrupted by massive sell off
If the great bull run in bonds is truly limping to a close, there will be all sorts of ramifications, including some that few predicted. The Financial Times notes a recent example: Some fixed-income exchange-traded products, in the wake of a large bond market sell-off, were trading at discounts to the value of the assets held by the funds. The sell orders were simply coming in too fast and furious, and the funds couldn't keep up. One of the primary advantages of ETFs, one that has been marketed heavily, is that creation units can be used such that demand to buy and sell new shares would be a seamless process that would not lead to imbalances. Liquidity was assumed, though I am sure there is fine print that covers these situations. The recent selling caused "disruptions in the plumbing" at several ETFs." Citigroup, for example, stopped accepting orders to redeem underlying assets from ETF issuers, after one trading desk reached its allocated risk limits." One Citi trader emailed others to say: "We are unable to take any more redemptions today...a very rare occurrence due to capital requirements we are maxed out on the amount of collateral we have out." Meanwhile, State Street said it would stop accepting cash redemption requests for municipal bond ETFs from dealers. In-kind redemption requests were honored. To be sure, this is uncomfortable for investors. Imagine being told that you could not sell a stock because the market was to frenzied and your broker dealer was too swamped or not well capitalized enough to handle the request. You would have been outraged, especially if your stock moved continued to move against you. For more:
Read more about: bonds, Great Rotation 3. Richard Fuld in the news again
On Wall Street, second acts are hard to come by. The financial crisis has proven that all over again, as the likes of Zoe Cruz and other top executives struggled to re-establish themselves. For the top executives of Lehman Brothers, the path to a second life in the business realm has been even more arduous in some cases. Dick Fuld, the ex-CEO of the imploded investment bank, has made some attempts at a comeback. But nothing seems to have panned out. There's no denying he has struggled since the implosion of the broker-dealer in 2008. While he's no doubt still well-connected, he remains too controversial to hire, a bit too hot. A little known outfit called Legend Securities hired him two years ago, but that arrangement soon ended on a sour note. He's in the news again, for all the wrong reasons. Bloomberg reports that Fuld is in a dispute with his son-in-law over funds given by the former CEO for the purchase and renovation of a Manhattan apartment. Fuld charges that his son in law, who works for Bank of America Merrill Lynch, somehow induced him "to advance significant sums for the purchase and renovation" of an apartment on the ninth floor of 79 East 79th Street by "falsely representing that defendant intended to repay that loan, failing to disclose his true intention to aver falsely that the apartment and renovations were a gift, and his failure to repay those funds to date." Fuld's son-in-law and daughter paid $9.75 million in cash for the apartment in 2007, shortly after they were married. They listed the apartment in January 2009 for $12.95 million, but later lowered the price to $9.8 million. This is not the sort of dispute that executives bent on a comeback want to see in the papers. For more:
Read more about: Lehman Brothers, Richard Fuld 4. New Legg Mason CEO making big moves
Is Joseph Sullivan the savior of Legg Mason? He took over as interim CEO in October and was promoted to full CEO in February. His tenure so far has coincided with a nice run-up in the stock price. In early October, it traded at just about $24 a share. Now it hovers around $33 a share, having risen as high as $37 a share. That said, several analysts think the stock may have a hard time moving higher soon. Bloomberg weighs in with a look at Sullivan's main strategy: Acquisitions. "Sullivan's appetite for acquisitions marks a change of pace for a firm that, under predecessor Mark Fetting's five-year tenure, had suffered so much from investor redemptions, subpar fund performance and discontent among affiliates that it was considered a candidate for a breakup. While Sullivan has repaired relations with the investment units, adding quality money managers may pose a challenge with assets down 35 percent from their $1 trillion peak to $654 billion, and the share price 76 percent below the 2006 high." The article continues: "Although Sullivan is focused on expanding, he and other executives have said they won't do any deal so large it would radically transform the company. The CEO will have to convince potential acquisition targets that Legg Mason's centralized distribution model for retail products makes sense and won't undermine their independence. He'll also have to avoid alienating existing affiliates when giving newly acquired units equity-share agreements." All in all, he's off to a great start. And he has been rewarded. His pay package for 2013 was $7.29 million, a 125 percent increase from what he was paid in 2012, before he became CEO. Sullivan's pay included $3.77 million in stock awards made in May 2012, a $2.7 million cash bonus, a $425,000 salary and $330,000 in stock options. For more:
Read more about: Legg Mason, CEO
Citigroup sees itself as a global bank that just happens to be based in the United States. Its marketing stresses that it's on the leading edge of the globalization movement, serving multi-national companies like no other institution. So it's perhaps significant that it senses an opportunity in Iraq. It plans to open a representative office in Baghdad after getting approval from the country's regulator, according to media reports. That would make it the first American bank to have a physical presence on the ground there. Citi has obtained preliminary approval from Iraq's central bank to establish a Baghdad office. Until now, Citi served its Iraqi clients through its office in Jordan's capital Amman. The lender is looking to open two more representative offices in Erbil and Basra at a later stage, notes Dow Jones. For Citi, Iraq represents the first new country in which it has launched business since 2007. It senses a huge opportunity. "Citi is mostly active in Iraq through cash management and trade finance to multi-national companies, including several major oil groups. But the bank is also looking to play a role in financing the rebuilding of Iraq's infrastructure, part of which was ravaged following the U.S.-led invasion of the country in 2003." To be sure, there are lots of British and Mid-Eastern banks that are chasing the same opportunity. That's a good sign. Other U.S. banks, however, may be content to chase business from nearby regional offices. For more: Read more about: Citigroup, Iraq Also NotedSPOTLIGHT ON... Raj Rajaratnam loses appeal Raj Rajaratnam has lost his high-profile bid to get out of jail. The 2nd U.S. Circuit Court of Appeals in New York has reportedly rejected Rajaratnam's arguments that the wiretap evidence in his case was tainted and the jury instructions were faulty. The convicted insider trading mastermind, who is serving a 10-year sentence, may not be willing to give up just yet. It will be interesting to see just how far he takes this. The Jeff Skilling saga may be giving him hope, as the former Enron CEO saw his sentence cut significantly after a multi-year battle. Article Company News:
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Tuesday, June 25, 2013
| 06.25.13 | Richard Fuld in the news again
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