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Bear Stearns' Empty Funds


It took a while, but the saga of two big hedge funds that lost a pile on the subprime market came to its inevitable conclusion this week. On July 17, Bear Stearns (headquarters, photo) notified investors that that they can expect to get back little if anything when the two funds are wound down. In a letter to investors in one fund, the firm says the process of tallying losses "has been much more time consuming than in prior months due to increasingly difficult market conditions." The funds had raised $1.6 billion but used bank loans to boost their buying power by billions.

At their peak, the two hedge funds controlled investments in nearly $20 billion worth of collateralized debt obligations, a sophisticated bond backed by mortgages to borrowers with iffy credit histories. Their downfall has sown fear on the Street. Indeed, in the past several weeks a number of smaller hedge funds that bet mainly on CDOs have racked up big losses, and some are moving to shut their doors.

The Dow Jones (DJ) board on July 17 gave its stamp of approval to News Corp.'s (NWS) $5 billion offer, so now shareholders will have their say. That means a potential showdown with some members of the controlling Bancroft family, who are known to be aghast and hunting for a white knight. The final vote could happen within a week. In a separate development, The Wall Street Journal said on July 18 that the SEC plans to file charges against a Dow Jones board member, David Li, in connection with an insider-trading case.

It courted. It bid. It lost. Two months after offering $27.5 billion for Canadian aluminum maker Alcan (AL), Alcoa (AA) gave up on July 12, conceding to mining giant Rio Tinto (RTP), which agreed to pay a shiny $38.1 billion. Alcoa may not be done with dealmaking, however. Analysts say another mining or metals outfit may stake a claim to it.

See "Rio Tinto-Alcan: Just the Start"

The dismissal of charges involving tax shelters against 13 former KPMG executives was no garden-variety defeat for prosecutors. On July 16 a New York federal court judge said the feds unconstitutionally "coerced" KPMG into refusing to pay attorneys' fees for the ex-employees. The opinion gives momentum to legislation that would ban a host of strong-arm tactics the Justice Dept. has used since Enron's collapse to target white-collar crime. Prosecutors are likely to appeal.

Secretive billionaire Len Blavatnik has been trying to build an empire in chemicals but keeps getting outbid. On July 17 he finally won. Through Basell, a Dutch chemical maker he bought in 2005, Blavatnik has agreed to pay $19 billion in cash for Lyondell Chemical (LYO), including debt. His combo will surpass DuPont (DD) in sales.

See "M&A: Now It's Chemicals' Turn"

It's a textbook case of a consolidating industry. The latest merger in the educational publishing field was announced on July 16, when British-Dutch Reed Elsevier sold the remaining units of its Harcourt Education unit to Houghton Mifflin for $4 billion. Houghton joins The McGraw Hill Companies (MHP), publisher of BusinessWeek, and Pearson (PSO) in a dwindling group of major players.

Apollo Management, the private equity firm founded by Leon Black, has watched rivals such as Blackstone Group (BX) raise a bundle through IPOs. Apollo would like to reap a few billion as well, but it's not keen on the scrutiny that would come with a public listing. Instead, according to The Wall Street Journal on July 12, Apollo shares will trade on a Goldman Sachs (GS) platform limited to institutional investors.

William Ackman, one of those investors who sets management quaking, disclosed on July 16 that his hedge fund has a 9.6% stake in upscale discounter Target (TGT). Ackman said in a regulatory filing that he wants to open discussions on ways to boost the stock price. He didn't say what he had in mind and didn't return a call seeking comment. Analysts suspect he sees value in Target's real estate--it owns 85% of its stores--or in selling its credit-card portfolio. Meanwhile, Women's Wear Daily reported on July 18 that KKR and Goldman Sachs will offer $24 billion for Macy's (M).

Ford (F) said some weeks back that it wasn't talking to anyone about selling its Volvo cars unit. Now it's changing gears. Executives said on July 16 that the company's financial advisers are exploring a sale. Ford is already seeking buyers for Land Rover and Jaguar as CEO Alan Mulally refocuses the company on the Ford brand worldwide. BMW, an investment group headed by the Wallenberg family of Sweden, and Renault are thought to be interested in Volvo, which could fetch $6.5 billion to $8 billion.

See "Who Wants Volvo?"

It could be the last big merger among European tobacco companies: British cigarette maker Imperial Tobacco (ITY) said on July 18 it plans to buy Franco-Spanish rival Altadis, maker of Gitanes and Gauloises, for $22.3 billion. The deal still could be scuppered by a richer offer.

See "A Match for European Tobacco Giants?"

Jeffrey Christian, who recruited Carly Fiorina to be CEO of Hewlett-Packard (HPQ) in 1999, pleaded no contest on July 16 to charges of "reckless homicide" related to the death of a fellow recruiter to whom he had given drugs and to another charge related to giving drugs to a minor. He's expected to serve two years of a three-year sentence.

See "No-Contest Pleas in the Jeff Christian Case"

Just how bad was the bad boy of tech's heyday? That question may be answered in court as an acrimonious civil lawsuit proceeds. The suit, first reported on July 13 in The Wall Street Journal, was filed by a former aide to Henry Nicholas III, co-founder of chipmaker Broadcom (BRCM). In his legal filing, Kenji Kato claims that Nicholas, known during the tech boom for fast cars and for calling employees into work at all hours, forced Kato to carry and use drugs. He also says Nicholas threw wild parties and hired prostitutes for clients. Nicholas, who stepped down suddenly in 2003, says the charges are baseless and part of an attempt to extort money. Federal officials have been investigating Nicholas and Broadcom for improper backdating of stock option grants and have expanded their probe to look into Kato's allegations, says the Journal. In January, Broadcom took a $2.24 billion charge, saying it found options for 232.9 million shares that had been backdated, with 9.7 million going to executives, not including Nicholas.


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