Andrew Ross Sorkin’s Watershed Column?
There is some truth to short seller David Einhorn’s comments that the political, financial, and media Establishments conspire to quash truth-telling, at least when it comes to Mergers & Acquisitions reporting. Although it’s a given that billion dollar mergers almost always fail to achieve their stated goals, the investment bankers who concoct these ill-fated unions almost never are held accountable. Reporters dutifully note the M&A advisors when a deal is announced, but that is rarely the case when these same deals inevitably sour.
The omission is, regrettably, one of the compromises journalists must make to remain viable in today’s scoop-centric news industry. Given a choice between preserving future access to corporate sources with exclusive information or risk having that spigot turned off as the result of a negative merger-gone-bust story that fingers their sources for the blame, most reporters will opt for the former. By not holding Wall Street accountable for orchestrating mergers that are doomed to failure, the media becomes an unwitting accomplice to the investment bankers who continue to pocket tens of millions of dollars in fees while eroding – and in some cases destroying – healthy corporations. Rare indeed is the reporter who is willing to go out on a limb and say “these are the dealmakers who screwed up.”
That’s why I read with incredible interest Andrew Ross Sorkin’s especially passionate “Dealbook” commentary today in The New York Times. Mr. Sorkin, who to his credit has written more critical articles about the M&A industry than his competitors, is seemingly outraged that Tribune Company has filed for bankruptcy just one year after real estate magnate Sam Zell acquired it for some $8 billion and then saddled it with a staggering $13.2 billion in debt. (As an aside, Aaron Elstein at Crain’s New York Business takes a similarly critical and compelling look this week at Apollo Management and its missteps with soon-to-disappear Linens ‘n Things.)
What sticks most in Mr. Sorkin’s craw is the cast of characters that earned millions in fees for making the Tribune deal happen, and he is not afraid to name names. He reports that Citigroup and Merrill Lynch earned $35.8 million and $37 million, respectfully, for advising the Tribune board and then scooped up millions more on top of that in financing fees. Other companies dining at the trough were Morgan Stanley, which earned $7.5 million writing a “fairness opinion” as well as a $2.5 million “advisory fee”, and Valuation Research Corporation, which was paid $1 million to give a “solvency opinion”.
Some perspective is in order. A failed M&A deal is a dog-bites-man story, and the $8 billion Tribune deal is rather puny by today’s standards. Contrast Mr. Sorkin’s column to the Times‘ and other media outlets’ coverage of the $29.5 billion writedown Sprint Nextel announced earlier this year stemming from the ineffectual post-merger integration of Sprint and Nextel. Despite being significantly larger than the Tribune transaction, there is not even a passing mention in the news coverage of the masterminds behind this M&A debacle who got it so wrong.
The Tribune Company owns various media properties, including the Los Angeles Times and the Chicago Tribune, and its bankruptcy filing certainly doesn’t auger well for employees at any of them. And while the plight of fellow journalists is seemingly what has Mr. Sorkin most in a dither, the message of today’s column could have easily and more aptly been written months ago – years even – about countless other dealmakers and companies who, at the end of the day, failed shareholders and employees alike by trying to integrate oil and water.
Mr. Sorkin and his colleagues would do readers a great service by continuing today’s naming names approach in their future reporting of M&A dealshitting the skids. Holding investment bankers publicly accountable for their misguided advice and pricey opinions would be a far greater public service than publishing league tables that simply note which ones are involved in the most deals destined to fail.