The Wall Street Journal-20080116-Deal Journal - Breaking Insight From WSJ-com
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Deal Journal / Breaking Insight From WSJ.com
Citi-Travelers:
Ill-Fated Deal
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Value Created by Merger
Has Now Evaporated;
Waiting for the Divorce
The dismal Citigroup news just might make it official: The 1998 marriage of Citicorp and Travelers was a bad idea.
That seems to be the judgment of the company's shareholders, anyway. On April 3, 1998, the equivalent of what is now Citigroup stock closed at $30.84. That was the last trading day before the blockbuster merger was announced. Investor enthusiasm over the "financial supermarket" created by the deal -- engineered by Citicorp chief John Reed and Travelers' Sandy Weill -- propelled the stock to nearly $60 by 2000.
With the drubbing Citigroup has taken this year, the stock now trades at less than $27 a share. That means that, poof, those gains are all gone -- and then some. (Spinoffs, dividends, etc. may make a strict apples-to-apples comparison of share prices imperfect, but you get the point.)
This leads us to the inevitable question: Is the landmark combination, which prompted sweeping changes to U.S. banking law, now a contender for a notorious designation?
The title is a reference to "Deals from Hell: M&A Lessons that Rise Above the Ashes," a book by our friend Robert Bruner, dean of the University of Virginia's business school. The book examines such ill- fated deals as the 2000 combination of Internet firm AOL and media conglomerate Time Warner, judging them, in part, by the destruction of shareholder value. We have periodically asked whether other deals, such as that which created the auto maker DaimlerChrysler, also merited this status. Now we turn our attention to Citicorp-Travelers.
What went wrong? It seems the benefits of being able to meet every financial-client need under the sun, and of balancing weak parts of the business at any given time with strong ones, have been outweighed by a factor that didn't get much ink in all the glowing reviews written when the deal was unveiled: namely, that managing a global colossus and all its attendant risks isn't easy. It is a lesson Mr. Weill's successor as Citi CEO, Charles Prince, learned the hard way.
The inevitable question that every DFH inductee faces is: When is the divorce? DaimlerChrysler answered by breaking apart last year; various media reports have pondered whether (AOL) Time Warner may be headed down that path this year. Should Citicorp-Travelers qualify as a DFH, the question will surely arise, will the unhappy couple reach its 10th anniversary?
-- Dana Cimilluca
Goldman Sachs's
L'Heureux Retires
A nearly impossible-to-spell last name never held back Goldman Sachs banker Matt L'Heureux (pronounced Le-Roo), who spent 20 years becoming one of the busiest investment bankers on the Street.
Now, the 45-year-old head of Goldman's Technology, Media and Telecom banking has retired. He said farewell to colleagues at the end of last year, according to people familiar with the matter. His post will be filled by Gregg Lemkau and George Lee, both Goldman veterans.
Mr. L'Heureux spent his entire career at Goldman, eventually working on some of the most high-profile and complex deals in recent memory, including PeopleSoft's defense against Oracle's hostile takeover bid.
Why retire at the peak of a career? People close to Mr. L'Heureux say he simply got too exhausted by the banking business. He plans to travel, they say, and then consider his next move.
-- Dennis K. Berman
