August 18, 2019

DealBook: As Promised, Icahn Adds to His Bid for Dell

Carl C. Icahn, the activist investor, in 2007.Mark Lennihan/Associated PressCarl C. Icahn, the activist investor, in 2007.

Carl C. Icahn lived up to his word on Friday, offering a sweetener to his alternative to a $24.4 billion leveraged buyout of Dell Inc. by adding a warrant to his stock buyback plan.

In a letter to Dell shareholders, Mr. Icahn and his partner, Southeastern Asset Management, proposed giving shareholders a warrant to buy a share in the struggling computer company at $20 apiece for every four shares that they tender. That’s in addition to buying back 1.1 billion shares at $14 each. The activist investor says the entire package is worth $15.50 to $18 a share.

The move is the latest gambit by Mr. Icahn to sway shareholders away from supporting a $13.65-a-share takeover bid by Michael S. Dell and the investment firm Silver Lake, an offer that he has criticized as too low. The increased jockeying for investors’ loyalties comes ahead of a vote scheduled for Thursday on Mr. Dell’s offer.

Earlier this week, Mr. Icahn urged Dell shareholders to seek so-called appraisal rights for their holdings, in case the leveraged buyout is approved. That would allow investors to potentially receive more — or less — for their stock, once a Delaware state judge delivers a pronouncement on the company’s worth.

To advisers to Mr. Dell and to a special committee of Dell’s board, it appeared to be a desperate move and an effort to force the would-be buyers into raising their bid. But in his letter on Friday, Mr. Icahn contended that he was not seeking merely a bump in price. Instead, he argued that his efforts were aimed at replacing Mr. Dell as chief executive and leading a turnaround of the company himself.

“We are completely committed to our proposal and believe that it is economically better for stockholders than the Michael Dell/Silver Lake freeze out transaction,” he wrote. “We are also completely committed to bringing in management that we expect to be far superior to Michael Dell who we believe has had an abysmal record during the last three years.”

Dell

Mr. Icahn again took exception to a report by Institutional Shareholder Services, the proxy advisory firm, recommending that investors vote for Mr. Dell’s offer. His argument: I.S.S., as the firm is known, assumed that the leveraged buyout would lead to be a speedy payout to shareholders, while the stock buyback plan was uncertain and could drag out.

The billionaire activist contended that he believed his proposal could close faster than the proposed takeover. But he neglected to mention that his plan requires the election of an entirely new board, something that Mr. Dell — who owns a 16 percent stake — is unlikely to support.

Article source: http://dealbook.nytimes.com/2013/07/12/as-promised-icahn-adds-to-his-bid-for-dell/?partner=rss&emc=rss

DealBook: Activist Investor Calls for Breakup of Smithfield Foods

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An activist hedge fund took aim at Smithfield Foods on Monday, arguing that the pork producer should consider splitting itself up despite its proposed $4.7 billion sale to a major Chinese meat processor.

The fund, Starboard Value, wrote in a letter to Smithfield’s board that it believed the company was worth much more separately. Starboard says it owns a 5.7 percent stake, making it one of the largest shareholders in the company.

Shares of Smithfield were up more than 2 percent in premarket trading on Monday, although they remained below the offer price from Shuanghui International.

The letter signals a potential fight over Smithfield, one of the country’s biggest producers of hogs. Last month, it agreed to sell itself to Shuanghui for $34 a share, in a bid to increase sales of American pork in China.

But Starboard has picked up an argument advanced against Smithfield over the years: that its vertically integrated operations, from raising hogs to slaughtering and processing them into bacon and ham and then selling the products, are worth more separate than combined.

“We believe there are numerous interested parties for each of the company’s operating divisions, and that a piece-by-piece sale of the company’s businesses could result in greater value to the company’s shareholders than the proposed merger,” the hedge fund wrote.

Starboard may be in for a tough fight. Smithfield’s management team, led by C. Larry Pope, has defended the logic of keeping the company whole, as have Shuanghui executives. Before announcing the deal with Shuanghui, Smithfield had been in talks with two other buyers as well.

One of Smithfield’s former biggest investors, the Continental Grain Company, had also called for a breakup of the company, but instead sold off virtually its entire stake this month, taking advantage of the higher share price since the Shuanghui deal was announced.

Starboard acknowledged that Smithfield’s deal with Shuanghui prevented it from seeking rival takeover bids. Instead, the hedge fund offered to look for and bring in potential bidders for Smithfield’s divisions.

In taking aim at Smithfield, Starboard is choosing one of its biggest targets yet. The activist hedge fund has made its name agitating against the likes of AOL.

Article source: http://dealbook.nytimes.com/2013/06/17/activist-investor-calls-for-breakup-of-smithfield-foods/?partner=rss&emc=rss

It’s the Economy: C.E.O.’s Don’t Need to Earn Less. They Need to Sweat More.

Most C.E.O.’s used to be able to handle their pay negotiations in private, but the Dodd-Frank reforms, which were passed in 2010, now give shareholders the right to vote on executive compensation. This has helped usher in a so-called “say on pay” revolution, which tries to stop executives from making more money when their companies don’t do that well. In Switzerland, a recent nationwide referendum, passed 2 to 1, gave shareholders the right to restrict the pay for the heads of Swiss companies. The European Union is likely to vote on a similar measure by the end of the year.

C.E.O.’s like Farris have long argued that they should make more money, but what’s surprising is that many business-school professors make the case even more energetically. The standard defense is that a talented marketing director or chief engineer can help a company thrive, but the next-best candidate will probably be successful, too. A great C.E.O., they say, is many times better than an average one, and those great ones need high-powered incentives. C.E.O.-friendly economists also suggest that the salary is moot if the chief executive is creating many multiples of their pay in shareholder value. Some of these enthusiasts point out that Steve Jobs rescued Apple (after his exodus) in 1997, when it was near bankruptcy, and turned it into one of the most valuable companies ever. Jobs was worth an estimated $7 billion at his death, but he made hundreds of billions of dollars for his shareholders. Many now say he was underpaid.

C.E.O.’s might indeed need significant incentives, but the problem is that most of them don’t perform like Steve Jobs even when they get them. The financial research firm Obermatt recently compared the compensation of C.E.O.’s at publicly traded firms and their performance and found no correlation between the two. Like a bottle of wine or a promising college quarterback turning pro, C.E.O.’s are similar to what economists call experience goods: you commit to a price long before you know if they’re worth it. Just ask the shareholders of J.C. Penney, which ousted its C.E.O., Ron Johnson, less than 18 months after hiring him away from Apple. Under his leadership, the company lost more than $500 million in a single quarter.

So far, the “say on pay” revolution feels more like the second season of “Game of Thrones” — there’s a lot of drama, a bit of blood, some cheers, but things end up more or less exactly where they started. While the Dodd-Frank law requires a shareholder vote on executive pay at least every three years, the vote is not binding. Apache’s board eventually lowered Farris’s package by around $3 million, but it is the exception. Shareholders ended up approving pay packages around 97 percent of the time. A vast majority of overpaid C.E.O.’s, it seems, have little to fear from all these new guidelines.

Economically speaking, this is more than a little odd. Shareholders should be motivated to pay their C.E.O.’s according to their success. But doing so involves a tricky dance known to game theorists as the principal-agent problem: how does an employer (the principal) motivate a worker (the agent) to pursue the principal’s interest? This principal-agent problem is everywhere. (Do you pay a contractor per day of work or per project? Do you pay salespeople by the hour or on commission?) It becomes particularly thorny when the agent knows a lot more about his job than the principal. George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn’t doing much at all. “When you look annoyed all the time,” he once told Jerry and Elaine, “people think that you’re busy.”

Article source: http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?partner=rss&emc=rss

DealBook: In Letter, Icahn Promises to Fight Dell Over Sale

Carl Icahn has suggested a  so-called leveraged recapitalization of Dell.Jeff Zelevansky/ReutersCarl C. Icahn has suggested a  so-called leveraged recapitalization of Dell.

A special committee of Dell’s board disclosed on Thursday that it had received a letter from Carl C. Icahn, who hinted at “years of litigation” if Dell did not back away from its $24.4 billion deal to sell the company to its founder.

The confirmation of Mr. Icahn’s intent to oppose the bid illustrates the growing pressure on Dell not to pursue the buyout by Michael S. Dell and his partner, the private equity firm Silver Lake. Mr. Icahn is joining a growing chorus that already includes the beleaguered computer company’s two biggest shareholders outside of Mr. Dell himself.

Mr. Icahn did not disclose the exact size of his stake, describing his hedge fund’s holdings only as “substantial.” CNBC reported on Wednesday that he held a stake of roughly 6 percent, acquired in recent weeks.

In the letter, sent to the committee on Tuesday, Mr. Icahn proposed that Dell instead issue a special dividend of $9 a share. Such a payout would be financed from the company’s cash on hand and new debt.

He estimated that the publicly traded company was worth about $13.81 a share, making his suggested transaction – a so-called leveraged recapitalization – worth about $22.81 a share.

“We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright,” Mr. Icahn wrote in the letter. “We see no reason that the future value of Dell should not accrue to all the existing Dell shareholders – not just Michael Dell.”

If Dell fails to comply, Mr. Icahn said he would call on the board to combine a vote on the deal with a vote on re-electing the company’s directors. He said he planned to nominate an alternate slate of nominees.

He also wrote that the $24.4 billion management buyout would be subject to lengthy litigation from shareholders, who will claim it was negotiated to give maximum advantage to Mr. Dell, who is also the company’s chairman and chief executive.

Dell’s special committee, made up of independent directors, has argued that it reached the deal in good faith, having bargained hard for the current price and secured a number of concessions from Mr. Dell aimed at facilitating a higher alternative bid.

Potential bidders have signed nondisclosure agreements to take a look at the company’s books, including Hewlett-Packard, Lenovo and the Blackstone Group, according to a person briefed on the matter.

It is unclear that any of those companies will ultimately make an offer.

In a statement on Thursday, the committee reiterated that it was seeking higher offers through March 22, and invited Mr. Icahn to participate in that process. So far, he has declined, the person briefed on the matter said.

“Our goal is to secure the best result for Dell’s public shareholders — whether that is the announced transaction or an alternative,” the committee said.


Here is the text of Mr. Icahn’s letter to the special committee of Dell’s board:

We are substantial holders of Dell Inc. shares. Having reviewed the Going Private Transaction, we believe that it is not in the best interests of Dell shareholders and substantially undervalues the company.

Rather than engage in the Going Private Transaction, we propose that Dell announce that in the event that the Going Private Transaction is voted down by shareholders, Dell will immediately declare and pay a special dividend of $9 per share comprised of proceeds from the following sources: (1) $4.26 per share, or $7.4 Billion, from available cash as proposed in the Going Private Transaction, (2) $1.73 per share, or $3 Billion, from factoring existing commercial and consumer receivables as proposed in the Going Private Transaction, and (3) $4.26, or $5.25 Billion in new debt.

We believe that such a transaction is superior to the Going Private Transaction because we value the pro forma “stub” at $13.81 per share using a discounted cash flow valuation methodology based on a consensus of analyst forecasts. The “stub” value of $13.81 combined with our proposed $9.00 special dividend gives Dell shareholders a total value of $22.81 per share, representing a 67% premium to the $13.65 per share price proposed in the Going Private Transaction. We have spent a great deal of time and effort in determining the $22.81 per share value and would be pleased to meet with you to share our analysis and to understand why you disagree, if you do.

We hope that this Board will agree to adopt our proposal by publicly announcing that the Board is committed to implement our proposal if the Going Private Transaction is voted down by Dell shareholders. This would avoid a proxy fight.

However, if this Board will not promise to implement our proposal in the event that the Dell shareholders vote down the Going Private Transaction, then we request that the Board announce that it will combine the vote on the Going Private Transaction with an annual meeting to elect a new board of directors. We then intend to run a slate of directors that, if elected, will implement our proposal for a leveraged recapitalization and $9 per share dividend at Dell, as set forth above. In that way shareholders will have a real choice between the Going Private Transaction and our proposal. To assure shareholders of the availability of sufficient funds for the prompt payment of the dividend, if our slate of directors is elected, Icahn Enterprises would provide a $2 billion bridge loan and I would personally provide a $3.25 billion bridge loan to Dell, each on commercially reasonable terms, if that bridge financing is necessary.

Like the “go shop” period provided in the Going Private Transaction, your fiduciary duties as directors require you to call the annual meeting as contemplated above in order to provide shareholders with a true alternative to the Going Private Transaction. As you know, last year’s annual meeting was held on July 13, 2012 (and indeed for the past 20 years Dell’s annual meetings have been held in this time frame) and so it would be appropriate to hold the 2013 annual meeting together with the meeting for the Going Private Transaction, which you have disclosed will be held in June or early July.

If you fail to agree promptly to combine the vote on the Going Private Transaction with the vote on the annual meeting, we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it. The Going Private Transaction is a related party transaction with the largest shareholder of the company and advantaging existing management as well, and as such it will be subject to intense judicial review and potential challenges by shareholders and strike suitors. But you have the opportunity to avoid this situation by following the fair and reasonable path set forth in this letter.

Our proposal provides Dell shareholders with substantial cash of $9 per share and the ability to continue as owners of Dell, a stock that we expect to be worth approximately $13.81 per share following the dividend. We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders – not just Michael Dell.

As mentioned in today’s phone call, we look forward to hearing from you tomorrow to discuss this matter without the need for us to bring this to the public arena.

Very truly yours,
Icahn Enterprises L.P.

By:
Carl C. Icahn
Chairman of the Board

Article source: http://dealbook.nytimes.com/2013/03/07/in-letter-icahn-promises-to-fight-dell-over-sale/?partner=rss&emc=rss

DealBook: After a Series of Missteps, Barclays Chief Gives Up His Bonus

Antony Jenkins, chief of Barclays.Lucas Jackson/ReutersAntony Jenkins, chief of Barclays.

6:44 p.m. | Updated

Antony P. Jenkins, the new chief executive of Barclays, said on Friday that he would forgo his bonus as the British bank struggled to rebuild its reputation after recent missteps.

British regulators are investigating new accusations that Barclays failed to properly disclose to shareholders a loan to a group of Qatari investors that gave the British bank a cash infusion during the financial crisis, according to a person with direct knowledge of the matter.

Last year, the bank disclosed that British and American authorities were investigating the legality of the payments related to the $7.1 billion cash injection to Qatar Holding, the sovereign wealth fund.

Mr. Jenkins is dealing with a series of legal headaches.

In June, Barclays agreed to pay a $450 million settlement with United States and British regulators over rate manipulation. The scandal forced a number of the bank’s top executives to resign, including the chief executive at the time, Robert E. Diamond Jr.

The British firm has also set aside $3.2 billion to cover legal costs related to the inappropriate selling of insurance to consumers. British authorities recently told the bank that it must review the sale of certain interest rate hedging products after 90 percent of a sample of the complex instruments were found to have been sold improperly. Analysts say the investigation may lead to millions of dollars of new legal costs.

With the controversy surrounding the bank, Mr. Jenkins said he did not want to be considered for a bonus that could have totaled up to $4.3 million, adding that many of the problems engulfing the bank were of its own making. The Barclays chief’s annual salary is $1.7 million.

“I think it only right that I bear an appropriate degree of accountability for those matters,” Mr. Jenkins said in a statement. “It would be wrong for me to receive a bonus for 2012.”

A spokesman for Barclays declined to comment about the investigation into potential wrongdoing connected to the loan to Qatari investors.

By giving up his bonus, Mr. Jenkins contrasts with his predecessor. Mr. Diamond was in line for a $4.3 million bonus for 2011 despite criticism about the bank’s performance. Faced with mounting opposition, Mr. Diamond and Chris Lucas, the bank’s finance director, eventually agreed to forgo half of the deferred stock payout if the British bank failed to reach a number of its financial targets.

Barclays, which will disclose details of a major overhaul of its operations when it reports earnings on Feb. 12, is expected to cut up to 2,000 jobs in its investment bank in an effort to reduce its exposure to risky trading activity, according to two people with direct knowledge of the matter.

Mr. Jenkins, who previously ran Barclays’ consumer banking business, told employees in January that they should leave the bank if they were not willing to help rebuild the firm’s reputation.

“My message to those people is simple,” Mr. Jenkins wrote in an internal note obtained by The New York Times. “Barclays is not the place for you. The rules have changed.”


This post has been revised to reflect the following correction:

Correction: February 1, 2013

An earlier version of this article indicated that the Barclays chief executive told employees earlier this month that they should leave the bank if they were not willing to help rebuild the firm’s reputation. He told them in January.

Article source: http://dealbook.nytimes.com/2013/02/01/amid-banks-legal-problems-barclays-c-e-o-gives-up-bonus/?partner=rss&emc=rss

High & Low Finance: How Dell Became Entangled in Options

Now, nearly 25 years after it went public, Dell Inc. is reported to be considering leaving the public arena by going private in what would be the largest leveraged buyout in years. The company is no longer viewed as a leader, and its share price is less than it was a decade ago.

For most of its history, Dell appears to have followed advice from investment banks — advice that ill-served long-term shareholders to the benefit of corporate executives. The company paid out billions of dollars to repurchase stock, and only last year began to distribute some of the money to shareholders who chose to stick with it rather than bail out.

It has spent more money on share repurchases than it earned throughout its life as a public company. Most of those repurchases were at prices well above current levels.

Here’s the breakdown so far: Cash paid by the company to shareholders who were bailing out: $39.7 billion. Cash paid in dividends to shareholders who chose to hold on to their shares: $139 million. Current market value of the company: about $22 billion.

Along the way, profits for Dell executives from stock options soared to amazing levels, and Michael S. Dell, the founder, chairman and chief executive, evidently concluded he had erred by not taking options during the company’s early years.

In 1994, the company’s proxy stated “Mr. Dell does not participate in Dell’s long-term incentive program because of his significant stock ownership.” That changed in 1995, and in 1998 he received more than 20 percent of the options the company issued. His options eventually produced profits of more than $650 million for him.

This column is not about Dell’s business successes and struggles, which have been well covered elsewhere. It instead looks at the company as an example of financial management and mismanagement — and at the impact foolish accounting rules can have on corporate policies and behavior.

The primary accounting rule involved here was for stock options, but the general rule that companies do not need to record profits or losses on transactions in their own stock also played a role, allowing companies to routinely sell low and buy high without ever reporting a loss.

Until 2005, companies could pretend that stock options they handed out to employees and executives were worthless, and therefore not show them as an expense, as they would if they paid the employee in cash or even in shares of stock. The logic to the rule was that since the options would in the end be valuable only if the share price rose, there was no need to record an expense when the options were issued. Anyway, the companies said, this was a cashless expense. The company would not have to pay a penny, so why record an expense?

Accountants realized years ago that made no sense, and in the 1990s the Financial Accounting Standards Board, which sets American accounting rules, moved to change the rule. Companies, particularly technology companies, reacted as if capitalism itself was under attack. Make them account for options, they said, and people would stop buying their shares and America’s technological innovation would come to an end.

That argument did not persuade the accountants, but it — and a lot of campaign contributions — had more impact on Capitol Hill. In 1994, the Senate voted 88-9 in favor of a resolution threatening to put the accounting standards board out of business if it did not back down. The board surrendered, and it was another decade before it recovered its nerve.

One trouble with the argument that no cash was involved was that in practice it was far from true. Many companies, Dell among them, sought to reassure shareholders that they would suffer no dilution through the issuance of stock options, vowing to buy back as many shares as they issued through options.

Article source: http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?partner=rss&emc=rss

DealBook: Questions Remain Over Hewlett’s Big Charge on Autonomy Acquisition

The $5 billion fight over accounting allegations at Hewlett-Packard shows no sign of abating.

In November, H.P. took a $8.8 billion charge as it wrote down its acquisition of Autonomy, a British software company that it acquired in 2011. H.P. said that “more than $5 billion” of the charge was related to accounting and disclosure abuses at Autonomy. H.P. added that a senior executive at Autonomy pointed to the questionable practices after Mike Lynch, Autonomy’s founder and former chief executive, left H.P.

Mr. Lynch denied the allegations. In November, he said the accounting moves that H.P. highlighted were legitimate under international accounting rules, and he demanded that the company be more specific in how it arrived at the $5 billion number. H.P. on Thursday released its annual report for its 2012 fiscal year, noting that the United States Justice Department “had opened an investigation relating to Autonomy.”

The report discusses the methodology it employed when making the $8.8 billion charge, but it did not break out exactly how the alleged accounting improprieties were behind $5 billion of that charge.

Mr. Lynch seized on that. In a statement on Friday, he said that H.P.’s report had “failed to provide any detailed information on the alleged accounting impropriety, or how this could possibly have resulted in such a substantial write-down.”

This accounting rabbit hole has real world consequences.

H.P. management, led by the company’s chief executive, Meg Whitman, has proceeded with a feisty certainty since the outset of this spat. If the $5 billion figure is not ultimately substantiated, shareholders may doubt H.P. management’s judgment. Also, annual reports are supposed to be exactly the place that investors can go to get their questions answered.

The fact that the $5 billion part of H.P.’s case is not repeated there should give shareholders pause. The report avoids words and phrases that would help a reader understand just how much of an impact the alleged improprieties had. The report says lower financial projections for Autonomy contributed to the write-down. In one part, it said those financial projections “incorporate” H.P.’s analysis of what it believed to be improper accounting. In another section, the report says the changed financial projections were “driven” by the alleged abuses.

That sort of language led Mr. Lynch to say in his Friday statement that, “H.P. is backtracking.”

H.P., however, says it’s doing nothing of the sort. In a statement released after Mr. Lynch’s on Friday, the company. said, “As we have said previously, the majority of this impairment charge, more than $5 billion, is linked to serious accounting improprieties, disclosure failures and outright misrepresentations.”

The statement also appeared to respond to the criticism that more details about the $5 billion should have appeared in the annual report. H.P. said the report, “is meant to provide the necessary overview of H.P.’s financial condition, including our audited financial statements, which is what our filing does.” The company added, “We continue to believe that the authorities and the courts are the appropriate venues in which to address the wrongdoing discovered at Autonomy.”

Sifting through the Autonomy weeds could obscure the bigger question: Was everything above board at Autonomy? H.P. may have overstated the impact of what it calls improprieties in the charge. But Autonomy may still have had unreliable numbers that overstated its value at the time of its acquisition.

Mr. Lynch says the poor performance of Autonomy once it was part of H.P. was down to H.P.’s mismanagement. But it could also have been because the new owners were not benefiting from the accounting that they have since questioned.

In some ways, the most intriguing detail in this mystery is the supposed whistle-blower who brought the accounting issues to management’s attention. This person may have been able to show how what he or she believed to be chicanery was hidden from the accounting firms that checked Autonomy’s books.

H.P. has enough performance issues that its executives will probably see the Autonomy issue as a distraction and shareholders may get little extra detail. By the sounds of it, that probably won’t satisfy Mr. Lynch.

“It is time for Meg Whitman to stop making allegations and to start offering explanations,” is how he signed off his Friday statement.

Article source: http://dealbook.nytimes.com/2012/12/28/questions-remain-over-hewletts-big-charge-on-autonomy-acquisition/?partner=rss&emc=rss

Fair Game: Four Paths Toward a Better 2013 in Business

MAKE IT STING First, when regulators like the Securities and Exchange Commission settle with individuals after investigations, why not require those people to pay a sizable portion of the fines and penalties out of their own pockets? Only then will these deals deter bad behavior.

Having these parties pay up would solve a big problem: they are typically covered by shareholders of the company in question, or by that company’s insurer. Making shareholders pay seems unfair. But that’s the way it is now.

There is a precedent for making individuals in such cases accept financial responsibility: the 2005 settlement in an investor suit against WorldCom directors. Having presided over its huge accounting fraud and 2002 collapse, the company’s directors were required to personally pay $18 million. Insurance covered the remaining $36 million.

The amount that each director paid represented 20 percent of his or her net worth. Lawyers representing investors in that case made personal payments a requirement of the settlement. This should not be an anomaly.

WAKE UP THE REGULATORS And how about requiring some penalty for failure when regulators mess up on the job? We’ve all seen the disastrous results of financial regulators’ failure to identify problems and nab scofflaws in the years leading up to the credit crisis. And yet, none have been held accountable for these transgressions.

Perhaps this is not surprising, given that almost no one in the private sector has been held responsible for misdeeds during the mania. But regulators should operate with a higher sense of duty to the taxpayers they serve. When they fail in that regard, there should be consequences.

SOLVE THE RATINGS MESS Why not ensure that investors get all the information they need to conduct extensive due diligence before agreeing to buy complex securities? This may be the only way to blunt the credit ratings agencies’ power or, better, make them disappear.

Five years after investors suffered billions of dollars in mortgage losses owing to the incompetence of Moody’s and Standard Poor’s, it is beyond frustrating that these agencies still conduct their businesses as usual. And while the Dodd-Frank law was supposed to reduce the government’s reliance on credit ratings, that goal has not been achieved. Reform of the industry seems to have stalled.

The ratings agencies have also managed to continue hiding behind the defense that their ratings are opinions and subject to First Amendment protection from litigants. Being subject to lawsuits for their failures would surely encourage these companies to be more diligent. Maybe some of the ratings-agency suits inching through the courts will get rid of this free speech fiction once and for all.

MAKE LEADERS LEAD Finally, wouldn’t it be nice if executives acted like leaders and accepted responsibility for the actions of their companies and their employees?

This dream came to mind while reading a deposition of Angelo R. Mozilo, the founder of Countrywide Financial. His testimony took place in June 2011 but was filed two weeks ago with the New York State court that is hearing a suit brought against Countrywide by M.B.I.A., the mortgage insurer.

Mr. Mozilo is rarely heard from these days. So his views on the collapse of his company and industry are of interest.

Early in the deposition, the lawyer for M.B.I.A asked this of Mr. Mozilo: “After all the foreclosures and ruined lives and lawsuits, including the losses to M.B.I.A., do you have any regrets about the way you ran Countrywide?”

An excellent question, given the carnage that Countrywide left behind.

But not to Mr. Mozilo, who answered with a version of history that is his alone. “This is a matter of record,” he said. “The cause of the problems of foreclosures is not created by Countrywide, nor M.B.I.A. This is all about an unprecedented, cataclysmic situation, unprecedented in the history of this country. Values in this country dropped 50 percent.”

He continued by noting the financial misery at many banks, as well as at companies like A.I.G. and institutions like Fannie Mae and Freddie Mac.

“This is not caused by any act of Countrywide or by any act of M.B.I.A.,” he said. “It was caused by an event that was unforeseen by anyone, because if anybody foresaw it, you would never have insured it, we would never have originated the loan. And it spread across the world. So that’s the issue. All these lawsuits is — was created by nothing that anyone did, any one company did. Any judgment made on a foreclosure — on a loan being made is because values deteriorated.

“And for the first time in the history of this country, people decided that they were going to leave their homes because the value of their home was below the mortgage amount,” Mr. Mozilo said. “Never in the history of this country did that ever happen, and that could never have been assessed in the risk profile. These people didn’t lose their jobs. They didn’t lose their health. They didn’t lose their marriage. Those are the three factors that cause foreclosure. They left their home because the values went below the mortgage. That’s what caused the problem.

“So I have no regrets about how I — how Countrywide was run. It was a world-class company,” Mr. Mozilo went on. “So your tirade about foreclosures and lawsuits is nonsensical and insulting. Countrywide did not cause this problem. We made no loans in Greece. We made no loans in Ireland. We made no loans in Portugal. This is a worldwide financial crisis that was totally a shock to the system.”

Mr. Mozilo’s state of denial is pretty breathtaking. He did a fine job. That’s his story, and he’s sticking to it. Shareholders of Bank of America, who have shouldered billions of liabilities in its acquisition of Countrywide, might feel a bit differently.

Article source: http://www.nytimes.com/2012/12/23/business/four-paths-toward-a-better-2013-in-business.html?partner=rss&emc=rss

DealBook: PVH to Buy Warnaco Group for $2.9 Billion

A billboard for Calvin Klein in Manhattan. PVH controls the Calvin Klein jeans and underwear licenses.Mikael JanssonA billboard for Calvin Klein in Manhattan. Warnaco Group controls the Calvin Klein jeans and underwear licenses.

LONDON — The fashion company PVH Corporation agreed on Wednesday to acquire the Warnaco Group in a $2.9 billion deal, bringing various Calvin Klein brands under one corporate umbrella.

Under the terms of the deal, PVH, whose brands include Calvin Klein and Tommy Hilfiger, said it was offering $51.75 in cash and 0.18 of a share in PVH for each share in Warnaco, which is based in New York and controls the Calvin Klein jeans and underwear licenses.

The combined cash-and-stock deal is worth $68.43, a 34 percent premium on Warnaco’s closing share price on Friday. Trading in New York was closed on Monday and Tuesday because of Hurricane Sandy.

The acquisition would give Warnaco shareholders a combined 10 percent stake in the enlarged company, according to PVH.

“This is a unique opportunity to reunite the ‘House of Calvin Klein,’ ” PVH’s chief executive, Emanuel Chirico, said in a statement. “Having direct global control of the two largest apparel categories for Calvin Klein – jeans and underwear – will allow us to unlock additional growth potential of this powerful designer brand.”

PVH acquired the Calvin Klein brand in 2003. The deal gave the company control over the design and product development for the Calvin Klein brands. Warnaco holds the licensing agreements for the brand’s jeans and underwear divisions.

The acquisition of Warnaco comes two years after PVH acquired the Tommy Hilfiger brand for $3 billion. The deal gave PVH, which also owns Arrow and Izod and licenses others brands like Geoffrey Beene and Kenneth Cole New York, greater access to the European market.

PVH said it expected $100 million of annual cost savings by the third year after the completion of the deal, which is expected to close early next year. The company said it would incur $175 million in one-time costs related to these activities.

PVH was advised by Peter J. Solomon, Barclays, Bank of America Merrill Lynch and Citigroup, and the law firm Wachtell, Lipton, Rosen Katz, while Warnaco was advised by JPMorgan Chase and the law firm Skadden, Arps, Slate, Meagher Flom.

Article source: http://dealbook.nytimes.com/2012/10/31/pvh-to-buy-warnaco-group-for-2-9-billion/?partner=rss&emc=rss

DealBook: Tempur-Pedic to Buy Sealy

The mattress maker Tempur-Pedic announced on Thursday that it was buying rival Sealy for $2.20 a share, or $228.6 million. Including the assumption of debt, the transaction is valued at $1.3 billion.

The per-share price represents a premium of about 23 percent to the 30-day average of Sealy’s shares.

“This is a transformational deal that brings together two great companies,” Tempur-Pedic’s chief executive, Mark Sarvary, said in a statement. ”In addition, our global footprint will span over 80 countries. The shared know-how and improved efficiencies of the combined company will result in tremendous value for our consumers, retailers and shareholders.”

Under the deal, which is expected to close in the first half of next year, Sealy will finally cut ties with Kohlberg Kravis Roberts, which owns about 46 percent of the publicly traded company.

Sealy has been in private equity hands since 1989, when it was first taken private by Gibbons, Green, van Amerongen, a New York-based buyout shop. Bain Capital acquired the company in 1997 and then handed it off to K.K.R. in 2004, for $1.5 billion. Two years later, K.K.R. took the mattress-maker public, but maintained a sizable stake and influence in the company.

However, K.K.R.’s management of Sealy has often tested investors’ patience. Earlier this year, several investors blamed K.K.R. for Sealy’s poor financial performance and lobbied for a shakeup of the company’s board. In one March filing, H Partners, a hedge fund with a minority interest in the company, said K.K.R. held a “dominance” over the board, because the majority of the directors had current or previous ties to K.K.R. Last year, the company recorded a loss of $9.8 million.

According to Tempur-Pedic’s statement on Thursday, Sealy will continue to operate as an independent unit. Its longtime chief executive, Larry Rogers, will stay on as the head of Sealy, reporting to Mr. Sarvary.

Article source: http://dealbook.nytimes.com/2012/09/27/tempur-pedic-to-buy-sealy/?partner=rss&emc=rss