Monday, August 22, 2011

Bad Business Deals in 2008

Yahoo Rejects Microsoft Bid

On Jan. 31, Steve Ballmer, CEO of the software giant Microsoft, sent a letter to the board of directors of Yahoo, offering to buy the Web company for $31 a share — a 62% premium to what the stock was trading for at the time. Yahoo rebuffed the offer, saying it vastly understated what the company was worth. Since then, Yahoo has watched its shares become worth 60% less, as investors grow ever-more-disenchanted with how the firm stacks up to Google in the game of squeezing ad revenue from the Internet. In November, Yahoo CEO Jerry Yang stepped down and the company made overtures that it might be open to a Microsoft deal. Ballmer has said in no uncertain terms that he's no longer interested in buying Yahoo.



Joseph Lewis buys Bear Stearns stock

A lot of people lost money in Bear Stearns. Joseph Lewis puts them all to shame. The legendary currency trader, born in Britain but living in tax exile in the Bahamas, bought a 7% stake in the investment bank late last year. When the stock sank, Lewis doubled down, bringing his ownership up to 9.4%. By the time Bear collapsed in March, Lewis held 11 million shares, having paid some $1.2 billion all told. When JP Morgan Chase agreed to buy Bear for $2 a share, Lewis was looking at a loss north of a billion dollars. Later, that offer was revised to $10 a share, but even that price hit far below the average $107 Lewis paid — not to mention the $150 the stock was trading at a mere 12 months earlier.



TPG and Apollo make bad casino investment

By the time buyout shops Texas Pacific Group and Apollo Management officially took over Harrah's, the world's largest casino operator, in January, the deal was starting to look less like private equity's ascension to the top of the business world and more like an idea gone horribly awry. Casinos, long held to be "recession-proof," haven't proved so lucky this time. Falling revenue, combined with a whopping $24 billion debt load, much of it from the take-over, have driven Harrah's into the red for the better part of a year. By the summer, Apollo and TPG were writing down their $1.3 billion stakes by 20% to 25%, but the situation could already be much worse. One co-investor has written down the value of its equity investment by some 75%. There are better odds at roulette.



Traders bring down SemGroup

There are still major questions surrounding the July collapse of Oklahoma oil-and-gas transporter SemGroup, but at the heart of the company's sudden bankruptcy are $2.4 billion in losses from traders betting oil prices would decline — smack in the middle of a run-up to $147 a barrel. There would have been plenty of business reason for SemGroup to be hedging, yet the stunning $2 billion margin call that knocked the firm into illiquidity definitely implies the strategy was more one of speculation, as does the odd fact that the company's then-CEO was personally responsible for about $290 million of the losses through his own trading company. A former director of the FBI has been appointed by the bankruptcy court to investigate the trades; most of the people involved so far haven't talked.



Mitsubishi buys Morgan Stanley stake

In late September, Mitsubishi UFJ Financial Group (MUFG) agreed to buy a 21% stake in Morgan Stanley for $9 billion, a seemingly sensible move for the expansion-hungry Japanese bank, and a lifeline for the capital-depleted American investment bank. Within weeks, though, Morgan Stanley was being pounded in the market. On Oct. 10, its stock closed below $10 — some 60% below the price MUFJ had agreed to pay for common shares. The deal was renegotiated, and salvaged, but the damage was hardly contained. By late October, MUFG had announced that it would be raising $10.6 billion of its own, thanks to the battering it had taken in the Tokyo stock market and its adventures in investing in Morgan Stanley.



Selling Big Media

Sumner Redstone's media empire took a massive hit in October, as loan covenants on $1.6 billion of debt held by his National Amusements movie theater chain forced the 85-year-old mogul to sell some $233 million worth of CBS and Viacom stock. It was the tumbling share price of the two companies, where Redstone is controlling shareholder, that triggered the margin-call-like clauses in National Amusements's loans — and Redstone to sell at obscenely low prices. CBS stock was trading around its 10-year low. A month and a half later, Redstone cashed out of his 87% stake in videogame-maker Midway Games, selling it to a private investor for less than a penny a share while the stock was trading at 38 cents. Redstone's loss may have generated a massive tax benefit — but he still lost the bulk of the hundreds of millions of dollars he'd plowed into the company over the years.



DHL makes bad buy in Airborne Express

When DHL entered the U.S. express package delivery business by buying Airborne Express in 2003, it promised to quickly become a rival presence to the UPS-FedEx duopoly. In many other parts of the world, DHL is the market leader, but in the U.S., it never was able to grab significant share from its competitors. After five years of trying, in November DHL folded its domestic U.S. business, writing down $3.9 billion to cover severance and restructuring costs, and pushing its parent company, Deutsche Post, to a $1 billion loss for the year. All told, the company said, it had lost $10 billion on the venture.



No More Shopping for Sarah Jessica Parker

The list of retailers falling into liquidation in the face of tight credit and disappearing consumers is long, but perhaps no tale of a store gone bust is as dramatic as the one of Steve & Barry's. The 20-year-old company, which built itself up around college campuses, was riding high in early 2008 as it captured the spotlight with clothing lines affiliated with celebrities like actress Sarah Jessica Parker and basketball player Stephon Marbury. But the retailer, like so many, expanded too quickly just as spending was starting to slow, and would up in bankruptcy protection over the summer. In August, private-equity firm Bay Harbour Management and hedge fund York Capital Management gave the store a new lease on life, buying it out of bankruptcy for $168 million. Autumn sales, though, didn't hold up. By November, Steve & Barry's was going out of business for good.



Texas Loses

David Bonderman, founder of private equity shop Texas Pacific Group, knew Washington Mutual pretty well. When his firm sold a failed California thrift to the one-time Seattle giant in 1996, he got a seat on the board, which he kept until 2002. In April, TPG returned to Washington Mutual — leading a $7 billion investment to shore up the thrift's capital base. TPG put $1.3 billion of its own money on the line, fully understanding things might get worse before they got better. The terms of the deal ensured that TPG wouldn't lose out if Washington Mutual had to go out and raise more money. What Bonderman and his colleagues weren't anticipating was what happened in September. Facing a fleeing depositor base, the federal government seized the thrift, and flipped the bulk of its assets to JPMorgan Chase, wiping out existing shareholders.



Wells Wins!

When Citigroup, one of the world's largest financial institutions, went to buy the banking operations Wachovia in late September, the deal was presented as a way to rescue Wachovia. It was. But federal regulators were also extending a pre-emptive lifeline to Citi by agreeing to absorb billions of dollars in potential losses tied to souring loans. Days later, Wells Fargo rode in with a counteroffer that didn't require a government guarantee. Eventually, Wells won the prize in a deal that was better for Wachovia and for taxpayers — at least in the short term. Citi didn't stop teetering and eventually received a bailout all its own — a $27 billion capital injection and guarantee on $306 billion in assets.

No comments:

Post a Comment