at5

1) In practice there is no way the deal would have proceeded without GS giving the go ahead. Nowhere in your sources does GS say they said no to the deal as was consummated.

3) Was a lawyer before banking. Can assure you the stake matters. Try not practising law without a license perhaps? In a court of law the difference is trivial.

2) Depends on the market. 99 was a once in a career market hence a VP leading the deal.

In any case never said it was a legal issue. GS messed up. No bank wants to be in a position where they point to clauses in their engagement letter to point out that they did fine by the client.

Ah yea but bankers are like real estate agents; their incentive is to maximize their return per unit of time invested. If GS didn't think there's going to be a large marginal return (on time) in asking for more from the buyer then they'll say ok, you're happy I'm happy. It's about incentives. And yea I am aware they don't sign off but the Bakers aren't exactly experts; they would have said yes if the bankers said yes and the numbers seem high enough for them. It raises the question of whether there is any value in standalone M&A advice. Sophisticated sellers don't need pitchbooks and are well able to pull together their own models. Unsophisticated sellers basically go along with the bankers; who have no skin in the game and just want to close the deal. And then these sellers potentially end up with bad outcomes.

And yea the Bakers definitely should have gone with a smaller bank given the deal size. But hey, BODs make that mistake all the time too. Also given the size of the Bakers stake (50+%), not much difference between board advisory and management advisory is there? Theirs is the deciding vote.

Agreed with you on the last point. Been on more than one deal team where we've had to talk clients out of shooting themselves in the foot. But that's part of the game. No engagement letter covers that but a sensible client would expect that from their banker. Legally GS was always in the clear.

Never said it was illegal...

Lock up periods. Would apply to the banker too I'd imagine

I think you misunderstand. It's not a legal issue. It's whether you provided adequate service. And Goldman didn't. And bankers are almost never liable fyi because of the language baked into engagement letters.

It's also not about forensic accounting. A 5 person deal team is quite tiny especially if they're mostly junior. The acquiree should absolutely have access to internal documents in an all stock deal; your future is at stake here. Something like already factored receivables somehow requiring payments to be made in future periods makes no sense and would jump out immediately to anyone half competent who bothered to look.

Not showing up for a meeting is not the same as saying after the fact, 'ok guys let's close this'. I can guarantee you Goldman signed off on it. You don't sign merger documents at the meeting itself. GS likely said "fuck it all stock it is". They get paid anyway, in cash.

Oh not illegal for sure. But they dropped the ball. Bankers are shielded from practically every type of litigation based on engagement letters. But that doesn't mean that they didn't fail their client. I mean practically speaking if bank A botched a deal for Facebook, not many large tech companies would be lining up to engage them. They can't hold their hands up and say well its your fault so boo hoo. If that was acceptable behaviour in the market, nobody would hire bankers. Having seen bankers roll out a deal on a company that later proved to be a complete fraud, believe me when I say that people get fired for messing up. Which should give you some idea of whether the bank itself thinks someone dropped the ball.

Also it sounds like he said she said on the all stock thing. The Bakers say bankers weren't around. Also any decent banker would be able to tell you to up your asking price to account for rolling hedging costs and/or other risks.

86bps is an ok fee given that you had a VP running this who was on vacation for a number of key events during the deal (http://dealbreaker.com/2013/06/goldman-was-professionally-ne...)

PE firms pay a few hundred grand for senior level attention more often than you'd think. Fee grids are based off the complexity of the deal, and frankly the seniority and number of people involved. Banks think about the ROI of their salary payments on a daily basis

Technically you're right. But a banker's role is really to provide advice on the deal and work in the best interests of the client. Sophisticated clients don't need bankers so don't pay them much (PE firms sometimes pay as little as a few hundred grand). And it's fairly justified because short of leveraging their sales force and/or balance sheet, bankers add little value in standard processes like M&A or capital raises. Definitely dropped the ball. If Goldman was a no name shop their argument that they were let off the hook in a court of law would not help them win clients.

Cash flow fraud is extremely easy to follow if you look for it; more so if you have monthly/weekly invoices and reconcile that with the cash flows. You'd have noticed the loan treatment of factored receivables quite quickly.

On the hedge (and the whole lawsuit); looks like a he said she said really. Goldman says the all-stock deal was approved without their presence; Baker says they didn't show up.

Former banker here. Really impressed you guys get paid in the same form of consideration as your clients. 100% the way to go.

What? Part of a due diligence process is looking at internal financial statements. Cashflow issues would have jumped out immediately. GS absolutely dropped the ball on this one. Also not recommending your client put in a collar after an all stock deal? Don't know about Goldman but that was pretty much standard advice at mine.

Why do you say that?

They absolutely need to take blame for not atleast advising James Baker to put in a collar. All stock deals are hugely risky. A deal being run by a VP and associate is also a no no at most banks, and one would presume Goldman after this fiasco.

100%. Many boards think that by getting Goldman or Morgan you're covering your ass. They don't realize that unless you're atleast $1BN in size they really are not incentivized to do a thorough job. Why? Because M&A deals are priced off a % fee grid (50bps to ~2% depending on the deal). 2% on 580 doesn't shift the dial for Goldman.

Actually not surprising that GS would let a VP and an associate run this deal. $580MM is small potatoes for Goldman, and it was 99 so they were up to their eyeballs in deals. There was probably a senior banker committee overseeing the deal but they really just rubber stamp stuff and never look at the details. The details in this case were what crushed James Baker's take. Note that a good/experienced banker would advise the client to put in a collar in an all stock deal.

Sentiment expressed by westerners towards others stand. Still possible for him/her to be racist towards arabs. You would do well to recognize its patronising tone. Read the poem perhaps.

Iraqis arent children and don't need anyones approval before voting. Unreal

Not just fratboys tbh. Wall Street is only about the money. Like power it tends to attract the worst and corrupt the best.

Not much in the way of bs in the big short tbh. A little dramatisation of the characters probably but hey, gotta sell a book right? Facts were pretty spot on. The book atleast; no clue about the movie.

Maybe because we in the west are biased towards our own and vilify the other? And quite frankly who gives a damn what the west thinks about one of its leaders? Hardly an objective POV is it? Why not ask the victims or observers with data and facts?

In this case, given that Churchill was prime minister of a colonial power, its more akin to starving POWs while siphoning their crops to a different locale; a crime in any post war court. Your analogy is way off base.

Would also add that part of the crop failures thing is because the British forced the locals to grow cash crops over several centuries. Funny how independent India has yet to have a drought that escalated into a famine and has effectively dealt with droughts huh?

Your assertions are based on? Intuition? Mine are backed by data from market studies. Twitter is a known quantity and those who haven't signed up don't because they don't have a need to. Social networks are valuable because of the type and quantity of people there. You can do many things to monetize that. Not much you can do when that number doesn't grow. Notice the stock has fallen despite revenue growth being spectacular.

This is why people in industry don't always make it as CEOs. Knowing which game to play is key. Thinking like an investor is key too. Don't take it from me; take it from Buffett.

No. There are basically 5 ways make more money as a company. Professional investors usually have a better handle on these than the companies themselves.

Time and time again, companies come up with supply driven theses that give birth to products that fail. Demand driven products succeed. Knowing when to engage in M&A, sell assets, cut costs, expand to new markets and engage in corporate actions requires judgement that few companies have. It's not always about iterating on the product you already have.

Facebook understands this which is why they have made several key acquisitions. They're looking to be the home of the best innovations in social media; whether it comes from internal sources or external teams.

In Twitter's case, they have hit the limit of mind share in most markets. Everyone knows about it; few on the margin have incentives to sign up. Periscope has potential if data costs come down.

Making the point that views of Stalin and Churchill are quite far apart from each other despite similar actions. Churchill denied food aid from other allied countries that wanted to feed the starving in Bengal. His role went beyond prioritizing his country over the colonies; he actively prevented the Indians from being helped. http://content.time.com/time/magazine/article/0,9171,2031992...

The point you're making is that they can't be compared because Stalin killed more people? I suppose there is a minimum number in millions that must die to be considered a terrible person?

You should read up on the relish Churchill took in killing "savages". Read Late Victorian Holocausts too.

Big difference between perfection and a monster no? I mean he's known for the same thing Stalin is. Interesting that my comment sits in the negative. Says a lot about the crowd around here.

Investors compare earnings quality across all sectors. Very very few companies trade at 8x revenue. Tech companies typically get a premium because they usually are quasi monopolies (See MSFT at 4x EV/Rev) and have solid growth rates. If you're not adding users, it means your growth is in question; how do you then justify an 8x multiple?

For reference most run of the mill companies trade somewhere around 1x revenue.

Why would their costs go down rapidly; stock based comp? Typically stock based comp has a strike price lower than the current share price. So they save but maybe not as much as the stock price collapse might suggest. Also, they'd still be unprofitable. A lot of professional investors feel they should cut costs, focus on periscope, and start making money off the new organisations that make money off of having access to information now. Things like charging the times and the journal for a live feed from ground action in Syria.

Guess someone should have pointed it out to him, that his childhood hero was an avowed racist ("I hate Indians. They are a beastly people with a beastly religion". Also see the Bengal famine; right up there with Holomdor.)

Why not call it Stalin solitaire then?

https://en.wikipedia.org/wiki/Bengal_famine_of_1943

Still possible for Uber to be overvalued though. Fedex, a proven business, has an EV of $39BN and FCF of ~$700MM. Uber has a $63BN valuation and loses money. Uber could take over the world. Or it might not. A lot of assumptions baked into that $63BN number. Will be interesting

Have to disagree. They're still preferred equity instruments with unique trigger provisions. Higher up in the capital structure but not debt; you can't credit bid using these instruments in a Chapter 11 scenario and they aren't afforded the same protections in bankruptcy court. What attracts investors to debt instruments are the interest payments. You'd prefer PIK (payment in kind) interest on debt as opposed to cash payments in a low interest rate environment but that doesn't translate to pref equity instruments.

The unique feature of debt vs equity is that debt has a concave investment profile; you know exactly what you should be getting upon maturity (principal + interest payments). Equity has a convex investment profile; you get the residual value after subtracting face value of debt from the enterprise value.

As an outsider who analysed moving to a startup, parts of this struck me as being particularly accurate. The employee takes on more risk via

1) Not having full access to the financials and discussions over change of control events 2) Having options with a trigger that activates upon leaving the company 3) Being exposed to massive dilution and having a comparatively small stake

while at the same time being "just an employee". If the startup goes under, founders could possibly parlay their experience into bigger and better things. They can take some money off the table in financing rounds. The employee has to suck it up and go find another job.

No. R&D spend has risk because you only succeed a certain % of the time. Valeant succeeded by jacking up prices. They were able to do so by partially paying copays. Here then you have a version of the principal agent problem. Customer gets more meds than needed and gets brand name valeant meds at no cost to themselves; valeant gets its money by gaming the payment system from PBMs. Thats why esrx and CVS cut ties with philidor(guilty sub of valeant).

You're actually quite right. Capital intensiveness is a barrier to entry. That's why software businesses rise rapidly and fall rapidly at a greater frequency than other types of businesses.

Tons always have. Look up the valuation of Macy's real estate; it is about 2x the market cap. Even adjusting for the full EV value its at a discount. They would realize more value by shutting down the retail business and selling off the real estate. But investors feel the chances of that happening are slim to none which leads to the low valuation. Yahoo is a tech company but revenue, growth rates, net income and free cash flow are common to all companies.