Wednesday, June 17, 2009

In The "Oh, My Fees Are BIGGER Than Your Fees" Department. . . . has once again done a stellar job of outlining the overlooked* -- this time the nearly $100 million the financial advisors to Merck and Schering-Plough stand to pocket, should this deal close. Do go read it all, over there.

Now, come back here -- I'll readily agree that $100 million is huge -- and the WSJ Blogs went on at length about how outsized these fees are, decrying 'em as the third highest, in a decade. . . .

[I guess, conversely, (or perversely -- click at right!) all of these firms discussed below, lumped together, on the Schering-Plough/Merck deal, are only receiving about two-thirds of what CEO Hassan's golden-parachute is likely to billow outward, into -- if the merger yields over $25 per share for SGP common.]

However, as to the WSJ's claims -- in about only two minutes of Googling (is that officially a verb, Mr. Webster? I dunno), I was able to discern that even though Pfizer's deal to buy Wyeth, announced less than two full months before SCH-Merck's, is only one-third larger -- those PFE-WYE financial advisors may pocket more than double what the SCH-Merck advisors are getting. Double -- like $200 million, or more, per Bloomberg (January 24, 2009). Wow! To be fair, now, Wyeth's advisors are largely Schering-Plough's advisors, and vice-versa -- so all of this dinero ends up in only three or four bankers' pockets. Significant overlap, there. Cozy.

Here is a cleaned-up version of my comment at

. . . .I did see this yesterday, in the S-4, as amended, but then went off to scout the Pfizer deal’s fees — as it is about a third larger than the SCH-Merck deal.

From the Pfizer S-4 (pages 83 and 91) we can confidently deduce that Morgan Stanley (advising Wyeth) will receive $65 million, of which $50 million is contingent on the deal’s closing, and Evercore will receive $24 million, of which $19 million is contingent upon a closed deal.

More murky is the fee total for Pfizer’s half on the deal. I honestly cannot find it in the various 424’s, 425’s and S-4/A’s Pfizer has filed. However, Bloomberg reports it thus:
". . . .Pfizer’s advisers — Bank of America, Goldman Sachs, JPMorgan, Barclays Plc and Citigroup Inc. — together may get $82 million in fees, not counting what they’ll earn arranging a $22.5 billion one-year loan that will be replaced later with bonds. . . ."

Bloomberg estimates the fees-feast all-in, grand total at over $200 million for PFE-WYE advisors.

If that is accurate, PFE-WYE dwarfs SGP-MRK on fees, and is grotesquely out of proportion (at over twice the fee-levels, but only one-third larger, in transaction values).

It could be argued that PFE-WYE advisors were deeper in the "China-Syndrome" core of the markets' melt-down, while they evaluated the financing, and acquring risks — and by comparison, SGP-MRK advisors faced somewhat less-troubled markets in March of 2009 — but that argument doesn’t cut a whole lot of ice. And fairness opinion fees/financial advisory signatures are are not to be up-sold, on a risk-adjusted basis (a la insurance policies' premiums) -- or at least that is what the SEC would like the investors to believe. Look, either the deal is fair from a financial point of view, or it is not. The fee charged for these outliers' "fairness" begins to look like a bought-commodity, not a truly independent opinion of a professional, when one reaches these stratospheric numbers.

So I think the PFE-WYE deal takes the "Golden Trough" award, for 2009 — and perhaps, the decade. By the way, the WSJ Blog copied your stuff, but completely missed this PFE-WYE angle in its recital of outsized fees of the decade. . . .

Remember the entire offices of Schering-Plough's (and Merck's) financial advisors will make less than CEO Hassan, alone, on this deal. And this -- for a guy whose company earned a "D" -- from the Corporate Library, on governance, independence and pay practices. Yikes.


* This whole topic was one, as irony would have it, that I (a self-confessed maven of minutiae), had just "overlooked". Until this commenter alerted me to it, that is. Thanks!


Michelle Leder said...

Thanks for the mention of and for digging into the Wyeth/Pfizer fees too, which I didn't get to.

Nice to know someone else is also taking the deep dive into documents!

Condor said...

Yeh -- I pass out the snorkeling gear, around my office -- each and every morning. Do stop back, Michelle!