Some shareholders have taken
Dell Inc.'s slogan—"The Power to Do More"—to heart. They want the
computer maker to do more than just accept a $24.4 billion bid for the
computer group by its founder
Michael Dell and private-equity firms.
The activist investor Carl
Icahn is leading the pack of critics. Last week, he
wrote to the special committee of independent Dell directors charged
with evaluating offers, threatening to fire them and sue them if they
don't back down on the deal and return cash to investors instead. The
committee members replied that they are working hard for all shareholders.
Corporate directors, be afraid. Be very afraid. As financial and economic
conditions improve and mergers and acquisitions pick up, your acumen in
judging deals and upholding the interests of shareholders will come under
intense public and legal scrutiny.
The Dell drama is still
unfolding, but for a cautionary tale of how boards, even when they may be
well-intentioned, can harm investors of a takeover target, take
Gleacher & Co. Shares in the small investment bank have lost more than
60% in the past year as the prospects for a deal evaporated, business
dwindled and star traders left.
Former Chairman Eric
Ironically for a firm that bears the name of Eric Gleacher, who made his
name advising on big deals in the 1980s, the company failed to sell
itself. At least as some critics see it, its independent directors are to
Here is what happened. On June
4 last year, Mr. Gleacher, then chairman, received a
letter from Ronald Kruszewski chief executive of
Stifel Financial Corp, a rival firm. Stifel was interested in buying
Gleacher for $250 million, according to the letter, which was reviewed by
The Wall Street Journal. Excluding a special bonus for top employees, that
price was some 80% higher than Gleacher's shares on the day. My
intelligence is that both Mr. Gleacher, who owns around 12% of the
company, and MatlinPatterson Global Advisers LLC, a private-equity firm
that owns a further 28%, wanted to entertain the proposal.
Gleacher's board appointed a
special committee and launched a "strategic review" to determine whether
the discussed bid was in the interests of all shareholders. The committee
in turn hired
Credit Suisse AG to check for alternatives.
Months passed without a decision, and Gleacher's shares continued to
slide. In September, Mr. Kruszewski wrote again, this time to Thomas
Hughes, Gleacher's chief executive, with a $150 million price tag.
February, Mr. Hughes told investors that the review had ended without
finding an offer that "adequately reflected Gleacher's value." Ten days
later, in a highly unusual move, the four directors on the special
committee—Robert Yingling, Henry Bienen, Robert Gerard and Bruce
Rohde—said they would leave at the annual meeting in May because
MatlinPatterson and Mr. Gleacher, who resigned the chairmanship in
January, would have opposed their re-election.
Behind the scenes, the directors, Stifel, Mr. Gleacher and MatlinPatterson
disagree on some of the key events. Did Stifel offer a good price, since
it was pitching the bid well below some metrics of Gleacher's worth? Was
the Stifel bid real, or just an attempt to kick the tires and maybe poach
some employees? Was the coolness by directors and management toward the
letters motivated by the desire to keep their jobs?
One number, though, is incontrovertible: Gleacher's shares have lost
nearly 40% since Stifel's first letter.
Like its Dell counterpart, Gleacher's special committee deserves some
sympathy. They could have been damned if they sold the company for less
than its worth, and now they are damned (by some) for missing out on a
potential offer. But unlike at the computer company, where Mr. Dell's dual
roles as bidder and CEO give him an incentive, and some leverage, to push
down the takeover price, shareholders controlling nearly 40% of Gleacher
wanted to sell.
The special committee and Credit Suisse should have been supersure that
better options were available before declaring that they couldn't find a
decent offer. And Dell's shareholders will get to vote on the deal, while
Gleacher's never did.
The bank's fate underlines the dangers of taking a wrong turn during a
deal. Takeovers are a zero-sum game: For someone to win, someone else has
to lose, unless you believe in the mumbo-jumbo about "merger of equals."
As such, M&A talks are often riven by conflicts, diffidence and
Independent directors are shareholders' last line of defense against a bad
deal, or striking out on a good one. Unless they take that job
seriously—and are held accountable by shareholders—the much-predicted M&A
tide won't lift many investors' boats.
—Liz Moyer contributed to
—Francesco Guerrera is The Wall Street Journal's Financial Editor. Write
to him at:
email@example.com and follow him on Twitter:
A version of this article
appeared March 12, 2013, on page C1 in the U.S. edition of The Wall Street
Journal, with the headline: Failed Bank Deal Provides Warning.