The Wall Street Journal-20080213-Deal Journal - Breaking Insight From WSJ-com
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Deal Journal / Breaking Insight From WSJ.com
Full Text (615 words)Blackstone-ADS:
Icahn's Intervention
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Billionaire Jumps Into
A Wobbly Proposed Deal;
Activist as Investment Banker
Alliance Data Systems' investment banks have a new secret weapon: Carl Icahn.
When last we left the bickering couple that is Blackstone Group and Alliance Data Systems, they were in counseling to renegotiate the terms of their $6.6 billion deal.
Enter the new therapist: 71-year-old billionaire shareholder activist Carl Icahn. Mr. Icahn disclosed this week that he owns 2.15 million Alliance Data shares. In a regulatory filing, Mr. Icahn said he reserves the right to seek to talk with ADS's management regarding the proposed takeover.
What might the Icahn playbook look like? Consider two lessons from last week's proxy filing for BEA Systems' acquisition by Oracle Systems:
Mr. Icahn moves fast for control. If history is any indication, Mr. Icahn soon will own more than the 2.73% of ADS shares that he announced Monday. From Sept. 14, 2007, to Oct. 4, 2007, Icahn investment vehicles increased their stake in BEA four times, jumping to a total stake of 13.2% from 8.5%.
Mr. Icahn negotiates price as much as an investment banker. When Oracle offered $17 a share for BEA, Mr. Icahn sent out a news release rejecting the offer as inadequate. Five days later, BEA's adviser, Goldman Sachs Group, agreed. After two weeks of more tussling, Mr. Icahn said on Oct. 24 he would publicly oppose the deal again and recommend the same to public shareholders. BEA quickly set its minimum required price -- $21. The proxy details the role Mr. Icahn played in negotiating with both sides. Ultimately, the deal got done for nearly $19.38 a share.
Of course, this will likely complicate things for Blackstone. The private-equity firm originally agreed to pay $81.75 a share for ADS, which now is trading in the mid-50s. But a lower purchase price would nod to the decline in the shares and open funds for an escrow account that could satisfy regulatory requirements related to an ADS bank. ADS's investment bankers, Banc of America Securities and Lehman Brothers, will likely have to work with Mr. Icahn as he tries to get the best price.
Whatever happens, we hope Mr. Icahn breaks his own rule about revealing his plans and blogs about it on his new Web site.
-- Heidi Moore
A Buffett In
Sheep's Clothing
Is Warren Buffett offering to help the bond insurers? Or is he offering to eat their lunch?
Mr. Buffett has proposed to reinsure $800 billion of municipal bonds held by the three big bond insurers -- MBIA, Ambac Financial Group and Financial Guaranty Insurance Co. On the surface, it looks like another heroic intervention from the man who saved Salomon Brothers after its Treasury bonds scandal. Goldman Sachs Group analysts estimate it would free up $2 billion of capital for Ambac, $2.5 billion for MBIA and $1.5 billion for FGIC.
But the offer doesn't do anything about the structured products that are really what's dragging the bond insurers down. Municipal bonds are the crown jewels of the bond-insurance business, the safest, least likely to default bonds around other than Treasurys. There is even a debate about whether munis need insuring in the first place.
Mr. Buffett joked that the proposal won't exactly get him through the Pearly Gates. That is an understatement. After all, Mr. Buffett in December received a New York State insurance license to open municipal-bond insurer Berkshire Hathaway Assurance, which Mr. Buffett wants to move into several other states including California and Texas. With this proposal, Mr. Buffett would get fees, a track record in the muni business for his new insurer and competitors even more weighed down by their subprime exposures.
-- H.M.
