The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

The Huffington Post, Ariana Huffington’s news and political focused website, has been acquired by AOL for $315 million — $300 million cash, the rest in stock.

Huff Po began in 2005 with a $1 million investment; it has since grown into one of the most heavily visited news Web sites in the country. The NYT called the deal “an unlikely pairing of two online media giants.” It is the company’s largest acquisition since the break up of AOL Time Warner in 2009.

In a surprise, Arianna Huffington will take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group. The Times notes she will have oversight not only of “AOL’s national, local and financial news operations, but also of the company’s other media enterprises like MapQuest and Moviefone.” The deal was signed on Sunday at the Super Bowl in Dallas, where Huffington and AOL CEO Tim Armstrong were watching the game.

AOL owns a series of well-known digital brands, including Mapquest, Politics Daily, the pop-culture news site PopEater, movie-news and ticket reservation service Moviefone, and the tech-news and review sites Engadget and TechCrunch, and local site Patch.com. This is at least the 5th acquisition by AOL since September 2010 (About.me, TechCrunch, 5min Media, Thing Labs).

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Sources:
Betting on News, AOL Is Buying The Huffington Post
JEREMY W. PETERS and VERNE G. KOPYTOFF
NYT, February 7, 2011
http://www.nytimes.com/2011/02/07/business/media/07aol.html

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The WSJ is reporting that the SEC is looking at specific Health Care takeovers that seemed to be tipped in advance to several big hedge funds. The chart (above) shows the extent and timing.

There are many legal reasons to have owned these names, but the issue here is whether or not the funds received material non public inside information about the takeovers from their “expert networks.” If that turns out to be the case — and so far, we do not know if it is — it would be problematic.

Are these so called expert networks nothing more than good old fashioned inside M&A information being exchanged for cash? If that was the case, there will likely be jail sentences . . .

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Source:
Holdings Spiked Near Deal Time
JENNY STRASBURG, MICHAEL ROTHFELD, TOM MCGINTY and SUSAN PULLIAM
WSJ, December 2, 2010
http://online.wsj.com/article/SB10001424052748704377004575651260207181920.html

The WSJ occasionally buries huge stories in its much less read weekend edition; recall the option backdating investigation in 2006.

This past weekend was a classic example of this:

“Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.

The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.”

The criminal investigation was examining how nonpublic information was being passed to traders by consultants. These people work for companies that provide “expert network” services to hedge funds.

• Primary Global Research LLC, a Mountain View, California, firm
• Goldman Sachs Group Inc. bankers
• Broadband Research LLC in Portland, Ore

There is a laundry list of potential targets for SEC violations. Trading firms possibly under investigation include SAC, First New York Securities, Wellington, MFS, Janus,  Citadel, Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank.

Companies whose stock trading were under review include Schering-Plough (before its takeover by Merck), MedImmune’s takeover by AstraZeneca, Abbott Laboratories take over of Advanced Medical Optics.

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Source:
U.S. in Vast Insider Trading Probe
SUSAN PULLIAM, MICHAEL ROTHFELD,JENNY STRASBURG and GREGORY ZUCKERMAN
WSJ, NOVEMBER 20, 2010
http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html

Jess Bachman, who did several of the fantastic illustrations for Bailout Nation, turns his attention to this epic infographic of all of Google’s acquisitions in the pipe:

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click for ginormous graphic

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via SEO site Scores.com

Barron’s has some interesting data points on deal activity in 2010:

• 1,701: volume of deals in the first half, about stable with the like period in 2009

• $362 billion: total value of deals in the first half

• 8.7%: rise in first-half deal value from the 2009 period

• $41.6 billion: value of private-equity exits in the period, versus $35 billion in all of 2009

All data via Mergermarket and Merrill DataSite.

As a stark counterpoint to How Goldman Sachs Bagged Clients, I recall ever so fondly how Merrill Lynch bagged itself:  With a Sept. 2006, top-of-the-market, $1.3 billion acquisition of sub-prime originator First Franklin from National City:

First Franklin is one of the nation’s leading originators of non-prime residential mortgage loans through a wholesale network.  [...]

“This transaction accelerates our vertical integration in mortgages, complementing the three other acquisitions we have made in this area and enhancing our ability to drive growth and returns. We look forward to working with the experienced teams at these companies to serve their clients and leverage our broad range of mortgage products and services.” — Dow Kim, president of Merrill Lynch’s Global Markets & Investment Banking Group

A close friend who was in the employ of seller National City told me at the time that they couldn’t believe their good fortune at having found a buyer for their turd factory.  (National City itself was eventually picked up on the cheap by PNC.)

The operation was being wound down about one year later, representing what might be one of the all-time boneheaded acquisitions in corporate history.

The saddest part of all is that Merrill had a chief economist — David Rosenberg — who was screaming about an inflating housing market bubble [PDF].  Had they listened to their own economist — not an unreasonable thing to do — Merrill could have come out smelling like a rose.  Instead, they chose to ignore Rosie and plough headlong into what would have undoubtedly been bankruptcy if not for B of A.

Good times!

Discussing Pershing Square’s stake in Kraft, with William Ackman, Pershing Square Capital Management.

Part I

Part II

Airtime: Wed. Jan. 20 2010 | 7:21 AM ET

Dump the dog, buy the thoroughbred:

• Berkshire Buys Burlington Northern in Buffett’s Biggest Takeover (Bloomberg)

• Buffett’s Berkshire Sells More Moody’s (Barron’s)

Prior to the takeover, Berkshire owned 22.6% of Burlington Santa Fe.

At the end of 2008, Berkshire held 48 million shares of Moody’s. Their stake is now down to 38 million shares, or 16.1%.

Some of the emails that recently came to light — from prior to the Merrill acquisition closing — makes it pretty hard for the company to claim MAC — Material Adverse Condition. The email exchanges make clear it they had a pretty good idea about the lousy condition Merrill Lynch was in. To my read, it looks like they got cold feet once they realized they bid too much too soon.

I think Kenny has some ‘splainin to do!

“Congressional investigators think that reams of internal documents turned over by Bank of America last Friday show that its executives were alarmed by mounting losses at Merrill Lynch well before shareholders voted to approve the merger, according to sources familiar with the matter.

Investigators also think the documents, combined with prior testimony and fresh interviews with a key executive, suggest that Bank of America chief executive Kenneth D. Lewis used the threat of backing out of the government-backed deal as leverage for billions more in taxpayer bailout money, the sources said.”

The lawyers are not going to be happy about this one . . .

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Source:
Documents raise skepticism on Hill about Bank of America
Tomoeh Murakami Tse
Washington Post October 21, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/20/AR2009102004159.html

Huge Bloomberg article on BofA’s Merrill acquisition. My view is that the vast majority of all mega-mergers are unmitigated disasters. The one true exception seem seems to be Commodity mergers (especially Energy/Oil), where you increase reserves but cut admin overhead.

As disastrous and expensive as the acquisition has been, the Bloomberg column argues it also has helped the bank compete with JPMorgan (JPM).

Merrill’s businesses contributed $1.8 billion to Bank of America’s first-half net profit of $7.5 billion, or 28 percent, even after the bank posted $27 billion in loan charge-offs and higher loan-loss reserves, according to company filings. Those businesses are likely to account for 25 percent to 30 percent of the bank’s profits over the next three years, said John McDonald, an analyst at Sanford C. Bernstein & Co. in New York.

The share of the bank’s revenue that came from investment banking and wealth management rose to 47 percent in the first half, after the Merrill acquisition, from 29 percent last year, according to the bank.

I don’t agree with much of the analysis, but it is nonetheless worth a read.

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Source:
Merrill Bringing Down Lewis Gives Bank 30% Profits
David Mildenberg
Bloomberg, October 5 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aFVffgBHrpZk