Posts filed under “M&A”
Time to put on the lawyer hat again:
As soon as this story broke, the immediate question was “Why would you be actively trading stocks for your own account when you work for Warren Buffett and recommend acquisitions?”
That seems fraught with potential for problems. Does anyone on Berkshire’s legal staff and/or compliance department have an iota of common sense? (Apparently not)
The second piece of silliness from the non-legal analyst community is that Buffett’s lieutenant Sokol was “trapped” by the Berkshire purchase of Lubrizol. That reads more like a defense attorney’s trial balloon than any sort of actual legal analysis.
We will surely learn more details in the future, but the facts we know are as follows:
1. You recommend a company for acquisition (repeatedly) to your employer
2. The company rejects it
3. You make a substantial share purchase for your own account
4. Your company makes the acquisition.
5. You keep your trade profits
That pattern does not suggest black letter insider trading. But it does reveal problematic decision making, and some very poor judgment. Not only is the trading for one’s own account an issue given Sokol’s job, but the fact pattern above, for a public company, is simply foolish.
I am curious: Did some Berkshire lawyer merely opine: “Well, technically, its not really insider trading.”
Consider the legal advice that should have been given. Once your employer agrees purchase a company that you recommended and then purchased, you have issues: Beyond the legal concerns, you have conflict of interest concerns, PR problems. (There is certainly the appearance of impropriety, but that is not a standard I believe Sokol is legally held to).
Better advice: Transfer your purchase to Berkshire on announcement of acquisition. The personal buys should be deemed “on the company’s behalf,” and you agree to transfer the shares to BRK. Perhaps they throw you a nice bonus for your troubles.
It is proactive approach, avoids any conflicts of interest, removes concerns about insider trading. End of problem, end of story.
One of the consistent things that surprise me in these sensational legal cases is how apparently poor legal advice by high priced legal talent can roil a company, and how following bad advice or ignoring good counsel leads to unpleasant surprises.
The flipside of this are situations that do not show up in public view. There are millions of decisions that don’t blow up in players’ faces, that reflect better advice, judgment, outcomes, etc. We do not hear about these because they do not cause a problem, and there is no media coverage.
Too bad we don’t get to quantify the data on legal advice on major corporate events. It would be nice to be able to see the batting records of major law firms and in house legal departments at the major investment banks . . .
> CNBC’s John Melloy mentions what may be the best analysis I’ve seen on the “Charlie Sheen effect.” It comes from Lou Kerner, a keen eyed analyst at Wedbush. (See chart above) Kerner notes that Sheen may be Twitter’s “Lazy Sunday” moment: Content Creators #Winning In December, 2005 a Saturday Night Live skit called Lazy…Read More
> The recent a merger chatter between the NYSE and the Deutsche Börse got us wondering: How might life at the NYSE change under their new German management? 10. Effective immediately: No more bell ringing when Chairman David Hasselhoff has a hangover. 9. NYSE changes its tagline to “Das Equities.” 8. Sylvia Wadhwa on the…Read More
It’s day two of the $315 million AOL-Huffington Post deal and the non-news just keeps on coming. On the same day that there was $16 billion in M&A, we’re still talking about a tiny deal for advertising inventory. Tim Armstrong’s deal isn’t really the issue. The most important takeaway from the deal is the limited…Read More
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…Read More
> 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…Read More
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…Read More
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…Read More
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…Read More