Friday, May 31, 2013

While I Was Listening To Mr. Frazier at the Waldorf Astoria. . .

I'll note -- in passing -- what I saw pop up, on the EDGAR screen: Goldman Sachs and/or its affiliates are acting for, and advising on BOTH SIDES of the Valeant/Bausch + Lomb merger. The definitive commitment letter, and the merger agreement, were just filed this morning with the SEC on Form 8-K.

The crux of this anomaly -- in a deal of this size -- arises should fiduciary duties arguably require B + L to reject the Valeant bid, as against the interests of Valeant -- or the converse situation, where Valeant's board would arguably be duty-bound to reject the merger, due to material adverse events at B + L, or Valeant, or both.

Then -- in gluttony, there sits Goldman's bankers: on BOTH sides of the table -- with perhaps $180 million to $200 million in various fees at stake, should the deal not occur. True, Goldman will get a "kill" fee (one, from each side) -- a smaller payout -- if the deal doesn't close; but Goldman will reap much greater returns, if it closes the bridge and other lendings it is arranging for Valeant -- and thus the B + L deal, overall.

As I say, this is highly unusual -- seeing one bank, on both sides of a deal that approaches $9 billion. With circa 5X leverage (in pro forma 2013), this is -- in my experienced opinion -- more evidence that many people ("Fast" Fred plainly included here) may be pushing this just a little too far. Goldman is resurrecting the failed prior Valeant merger engagement of the first quarter 2013, in the form of this B + L deal -- and reusing much of its analysis, to get a very high-margin fee here.

These are matters the Valeant public stockholders ought to carefully consider: with all the world-class talent available to handle deals which approach $9 billion in price, why is it sound business judgment (at the board level of each company) to have the same bank, on BOTH sides? I. don't. get. it. [Unless there is more than meets the eye, here.] From the commitment letter, then:

. . . .In addition, please note that Goldman, Sachs & Co., an affiliate of GSLP and GS Bank has been retained by the Target [B + L] as the financial advisor (in such capacity, the “Financial Advisor”) to the Target in connection with the Acquisition. Each of the parties hereto agree to such retention, and further agree not to assert any claim you might allege based on any actual or potential conflicts of interest that might be asserted to arise or result from, on the one hand, the engagement of the Financial Advisor or GSLP and/or its affiliates’ arranging or providing or contemplating arranging or providing financing for a competing bidder and, on the other hand, our and our affiliates’ relationships with you as described and referred to herein. Each of the parties hereto acknowledge that, in such capacity, the Financial Advisor may recommend that the Target not pursue or accept your offer or proposal for the Acquisition or advise the Target in other manners adverse to your interests. . . .
And, oh. Nothing materially-new from the Bernstein conference with Merck in Manhattan, this morning.

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