Hold Your Applause, Please, Until After the Toasts

Gentlemen, ladies, please take your seats.

It is time for DealBook's annual “Closing Dinner,” where we toast - and more important, roast - the deal makers of 2012 (and some of the still-hammering-out-the-fiscal-cliff-deal makers).

This year's dinner is in Washington so that some of esteemed attendees can run back for negotiations.

We have a number of Wall Street deal makers at the front table: Jamie Dimon, Lloyd C. Blankfein and Warren E. Buffett. They may have an easier time negotiating than some of our elected officials because, as Mr. Buffett likes to say, “My idea of a group decisio n is to look in the mirror.”

Across the way is Steven A. Cohen of SAC Capital. We sat him next to Preet Bharara, the United States attorney for the Southern District of New York, so they could get to know each other a little better. Steve, a little advice: don't let Preet borrow your cellphone.

Greg Smith, the former Goldman Sachs banker who wrote a tell-all called “Why I Left Goldman Sachs,” is here. Mr. Smith managed to wangle a reported $1.5 million payday from his publisher, but his book sold poorly and his publisher was left with a huge loss. Nice to see you learned something from your years in banking, Greg.

Timothy F. Geithner and Ben S. Bernanke are sitting at the dais this year, as is Mario Draghi. Strangely, they are playing Monopoly under the table with real dollar bills. (I heard Mr. Bernanke tell Mr. Draghi, “We can always print more.”)

The board of Hewlett-Packard is at the tab le at the back. Senator Harry Reid and Senator Mitch McConnell, whatever you do, don't ask Meg Whitman for pointers on how to make the numbers work.

We're pleased that Speaker John Boehner also decided to join us this year. We had asked him to invite some other se nior members of his caucus, but as you can see from the empty seats at his table, none of them were willing to join him. So we've stuck him next to Vikram Pandit.

Mitt Romney just arrived and is sitting at the table sponsored by the Private Equity Growth Capital Council. He is with some of his supporters, among them Leon Cooperman of Omega Advisors and the Koch Brothers. And yes, Mitt, there is a hidden video camera in the floral arrangement in front of you.

Finally, a quick thank you to the folks from Barclays and UBS. Their teams who got caught up in the Libor scandal agreed to pay for tonight's dinner. Apparently, there is some dispute with the caterer, however, because the bankers are trying to set the rate. (Rimshot.)

And now, before the humor runs out (if it hasn't already), onto the official toasts and roasts of 2012:

TURNAROUND OF THE YEAR Robert H. Benmosche, A.I.G.'s chief executive, take a bow. The bailout of your company at the height of the financial crisis will probably never be popular, but it will be profitable. (And it should be a bit more popular, too.)

The Treasury Department sold its last shares in the company in 2012, racking up a profit of $22.7 billion for taxpayers. Mr. Benmosche, a tough-talking executive who at one point early in his tenure at A.I.G. threatened to quit because of efforts by the government to meddle in the business, revived a company that had been left for dead. Most of the media, the pundits and the speculators got it wrong. You got it right. We do all owe you a thank you.

LEADERSHIP LESSON: JAMIE DIMON Mr. Dimon, the biggest failure of your career happened in 2012 with the loss of more than $5 billion by a group of your traders, including one known as the “London Whale.” Many C.E.O.'s would have lost their jobs and certainly would not be given a toast.

But you did something most executives would not have done: you admitted to the mistake. In an age when it's almost de rigueur on Wall Street to hide problems, obfuscate and shade the truth, you to ld it how it was: “We have egg on our face, and we deserve any criticism we get.”

That's not to say the situation was handled perfectly; the lack of details about the loss and your continued pushback against regulations raised more questions than answers. But your insistence that “We made a terrible, egregious mistake” is a lesson in leadership for your peers.

CREDIT WHERE CREDIT IS DUE: MARIO DRAGHI Mr. Draghi, the economist and former Goldman Sachs banker turned president of the European Central Bank, nearly single-handedly saved the euro zone in 2012. In a master stroke, he said: “Within our mandate, the E.C.B. is ready to do whatever it takes to preserve the euro.”

That sentence will go down in history for the confidence it inspired in the markets and in countries like Greece, Spain and Italy that were thought to be on the precipice. Through behind-the-scenes shuttle diplomacy with leaders like Angela Merkel of Germany and Mario Monti of Italy, Mr. Draghi was able to convince reluctant politicians that it was in his purview to start buying up bonds if a country needed help - and requested it. So far, his comments alone have served as a remarkable backstop; no country has sought his help.

A BOARD IN NEED OF HELP, AGAIN Bashing the board of Hewlett-Packard is becoming boring. Its members, who have routinely turned over, had another tough year.

The company's stock fell about 45 percent. H.P. disclosed that its $11.7 billion acquisition of Autonomy, in which it paid an 80 percent premium, had turned out to be a mess (which was n't exactly a secret) - or worse, a fraud. But in a strange twist, perhaps trying to remove some of the blame for the disaster of a deal, the board attributed at least $5 billion of the write-down of the deal simply to accounting chicanery.

Some have questioned H.P.'s math. Perhaps some of the write-down is the result of accounting problems, but $5 billion? C'mon. Hewlett's board, however, still has some friends: It has paid an estimated $81 million to Wall Street to help orchestrate some its failed deals in recent years.

SEEKING FACEBOOK ‘FRIENDS' Mark Zuckerberg, Facebook's C.E.O., has been attending our “Clos ing Dinner” for years. (He wore Adidas flip-flops to his first.) Back then, he was the “It” boy - the one everyone in the room wanted to “friend.” This year, after Facebook pursued its I.P.O., some investors want to “unfriend” him.

As everyone knows, the market has not been kind to Facebook shares, which were sold at $38 a share and at one point this year dropped by half. The good news is that Facebook's shares have rebounded and are now at about $26 a share; the bad news is that long-term shareholders are still down about 30 percent.

With questions about Facebook's privacy policies and mobile strategy still at the fore, Mr. Zuckerberg has some work to do. Hopefully, when we reconvene next year, more investors will want to sit at your table. (My apologies for sticking you next to Andrew Mas on of Groupon.)

YAHOO FINALLY GETS IT RIGHT For nearly the last five years, if not decade, Yahoo had clearly lost its luster. It went through a series of C.E.O.'s, its best engineers left to work at Google and Facebook, and its stock had tanked.

Enter Daniel S. Loeb, the activist investor. He saw value where others didn't. He also used some clever powers of persuasion to get on the company's board: He ousted Scott Thompson, Yahoo's new chief (remember him?) for lying on his résumé by saying he had a computer science degree when, in truth, he had an accounting degree. That sleuthing, and the ensuing embarrassment for the board, gave Mr. Loeb an opening to get his slate of directors on the board.

But most important, once he got on the board, he did something nobody expected: He hired Marissa Mayer, a true Silicon Valley star from Google, to run the company. The jury is still out on the company's future, but for the first time in ages, people are talking about the company as if it actually has a future. Kudos.

Looking Ahead to Civil and Criminal Cases to Come

It is not really of question of whether there will be a major white-collar crime that captures the public's attention in 2013; it's a question of when and how costly it will be.

If the cases of 2012 can serve as a guide, too many loopholes in the system allow fraud to go undetected.

Take for instance the onetime futures trading firm PFGBest, whose founder confessed to having committed fraud for years at the company, which has about $200 million missing from its accounts. Though futures regulators have spent months wringing their hands on how such a fraud could have gone on for so long, the fact remains that some financiers may keep one step ahead of law enforcement when it comes to white-collar crimes.

Federal prosecutors, however, are likely to remain strongly focused on the insider trading cases. The United States attorney's office in Manhattan has already racked up an impressive record of winning convictions in every insider trading case that went to t rial. They are even winning cases the old-fashioned way by relying primarily on the testimony of cooperating witnesses.

The one black eye that remains for the government is the lack of signature prosecutions emerging from the near collapse of the financial system in 2008. Although the Justice Department and the New York attorney general, Eric T. Schneiderman, have filed civil cases seeking billions in recovery for the sale of questionable securities tied to toxic subprime mortgages, the cases are likely to take years to play out.

Looking ahead to 2013, several major investigations remain open and are likely to bring significant criminal or civil penalties:

Still More to Come on Libor

The investigation of manipulation of the London interbank offered rate, or Libor, had been moving quietly along until the British bank Barclays announced a $450 million settlement in June 2012. The subsequent firestorm in Parliament over the bank's conduct led to the resignation of its chief executive, Robert E. Diamond Jr., and a push to shift control of the interest rate mechanism into more trustworthy hands.

In hindsight, Barclays got off easily as the first bank to reach a settlement, although it probably did not feel like it in the days after the announcement. UBS has become the new focus of attention for Libor manipulation; it recently paid a $1.5 billion settlement, and its Japanese subsidiary pleaded guilty to fraud.
Other banks caught up in the investigation have to be dreading whether the UBS settlement is the new benchmark. If so, then a billion dollars may be the starting point for any negotiations with the Justice Department and Commodity Futures Trading Commission, which have been leading the investigation in this country. Add to that any penalties assessed by foreign regulators, and the cost of resolving the investigation will be a significant hit to the bottom line of some global banks.

More ominous is the possibility that the Justice Department will demand g uilty pleas from banks. That requires an acknowledgement of wrongdoing, which could prove to be useful in the numerous civil lawsuits that have been filed against the banks, meaning more money could be paid out to resolve those cases.

Tackling Bribery and Corruption

As The New York Times has detailed, Wal-Mart is dealing with significant corruption issues in its Mexican subsidiary. The company also acknowledged that it was reviewing its global operations, and had already spent nearly $100 million on its internal investigation.

Though the Foreign Corrupt Practices Act was enacted in 1977, only in the past few years have the Justice Department and Securities and Exchange Commission started to extract significant penalties, often in sectors that had not previously been involved in overseas bribery cases.

For example, among the settlements in 2012 included four companies in the medical field, which all paid significant penalties: Smith & Nephew, $22 million; Biomet, $22.8 m illion; Pfizer, $60 million; and Eli Lilly, $29 million.

As more companies get caught up in these investigations, it will be interesting to see whether the courts punish repeat offenders more harshly. For instance, I.B.M. reached settlements with the S.E.C. in 2000 and again in 2011 over violations of the Foreign Corrupt Practices Act. A federal district judge in Washington is demanding greater accountability from the company before he will approve the proposed resolution of the case.

Insider Trading in the Cross Hairs

Although insider trading cases have become a staple of federal action in the last three years, the new attention has been on Steven A. Cohen and his hedge fund firm, SAC Capital.

Prosecutors have charged a number of defendants with ties to SAC, and came close to Mr. Cohen in the insider trading indictment of the portfolio manager Mathew Martoma, Although Mr. Cohen is not named in the charges, prosecutors went out of their way to describe the “Hedge Fund Owner” as someone involved in the trading at issue, a sure sign the government is focusing on him.

Mr. Martoma's lawyer said his client was innocent, which probably m eans that he will not cooperate with the government if it pursues a case against Mr. Cohen. Without that path to build a case, an interesting question is whether the S.E.C. will use its authority to hold SAC responsible as a “controlling person” for insider trading by its employees, which could result in a triple penalty being imposed. The firm received a so-called Wells notice stating that the agency is considering civil charges.

If the S.E.C. files such a case, this would be a new front in the fight over insider trading that shifts attention to the hedge funds and investment firms that employ the people who capitalized on confidential information. That could potentially expose firms to enormous liability even if their managers were not specifically aware of any legal violations.

Rogue Traders

Every year seems to bring news of a major trading loss as a result of a breakdown in the internal controls at a major financial institution. In 2011, UBS revealed that actions by Kweku Adoboli, a trader in London, cost the bank about $2.3 billion. In 2012, JPMorgan Chase said that a hedging strategy by traders in London had cost the bank at least $6 billion in losses.

On a smaller scale, the boutique brokerage firm Rochdale Securities suffered a $5 million loss when a trader bought about $1 billion in Apple shares, far beyond what he was permitted to do.

Although many of the outsize losses hurt banks' shareholders rather than the general public, such actions have drawn p ublic calls for accountability.

Prosecutors in London successfully obtained a conviction against Mr. Adoboli this year, and UBS was fined $47.5 million over failing to prevent the actions.

More cases like these are likely to play out. As DealBook reported in October, investigators are looking into the actions of four people who previously worked for JPMorgan in London.

The nature of the markets may allow for more such blowups. Lightning-fast electronic trading allows huge positions to be built up in minutes, heightening the risk of sizable losses if anything goes awry.

And even when there is no sign of intentional wrongdoing, a small error can easily affect glo bal markets. A software glitch at Knight Capital ended up costing the firm about $460 million, while memories of the 2010 “flash crash” are still fresh.

As the new year comes, white-collar cases will continue to serve up new object lessons of the perils and the pitfalls of the financial system. Some will come as a result of creative maneuverings by financiers, and some may call into question whether regulators are effectively overseeing the markets.

Tribune Emerges From Chapter 11

 
After four years, the Tribune Company, whose holdings include The Los Angeles Times and The Chicago Tribune along with nearly two dozen television stations and other media assets, has emerged from bankruptcy protection, the company announced Monday.

The company's reorganization plan was approved by the United States Bankruptcy Court in Delaware in July and had awaited final approvals from the Federal Communications Commission, which it received in November.
 
The announcement marks the end of a prolonged process for a company whose assets have been tied up in court proceedings while the media industry has undergone a major transformation to digital. In a letter to employees, Eddy Hartenstein, the company's chief executive, acknowledged that the past four years “have been a challengi ng period.”
 
“You have been resilient, dedicated to serving the company, our customers and your fellow employees,” he told the staff. ”You are what sets Tribune apart from our competitors.”
 
The company also announced a seven-member board. The directors include Mr. Hartenstein along with Peter Liguori, a former chief operating officer of Discovery Communications, who is expected to be named chief executive. Bruce Karsh, a founder of Oaktree Capital Management, which is a major shareholder in the company, also sits on the board, as well as Ross Levinsohn, the former interim chief at Yahoo. The company said it expected to resolve details about board members' responsibilities at its first meeting in the next few weeks.
 
The company is emerging from bankruptcy protection with a $300 million loan to finance what the company described as its “ongoing operations” as well as a $1.1 billion loan to fund payments for its reorgan ization.
 
The end of the bankruptcy opens the company's assets up to potential sale. Rupert Murdoch and David Geffen are among those who have expressed interest in buying some of Tribune's newspapers.

Big Depositors Seek a New Safety Net

On the first day of the New Year, $1.5 trillion of bank deposits will lose an unlimited government guarantee that was granted during the financial crisis to assure skittish customers that their cash was safe. For a handful of boutique firms that service banks, it's a boon for business.

Frank Sorrentino, chief of North Jersey Community Bank, where some deposits have extra protection.

The accounts losing the insurance are used by businesses, municipalities and other entities like nonprofits that are willing to forgo any interest in order to have immediate access to their large pools of cash.

These accounts hold about 20 percent of all deposits in United States banks. Starting Jan. 1, only $250,000 in each noninterest bearing account will be backed by the Federal Deposit Insurance Corporation.

Now a scramble is under way to make sure these customers do not withdraw large sums out of banks, particularly community banks that have benefited from the guarantee. Because a depositor is barred from spreading out $1 million into four accounts within the same bank, many smaller banks are turning to a handful of specialized cash-management firms that can split up deposits into multiple $250,000 chunks and distribute them among a network of banks, each of which can insure $250,000.

One firm doing this parceling work, Reich & Tang, has had an influx of 25 new banks in the last few weeks sign up for the program, a 20 percent growth. Deposits managed by another firm, StoneCastle Cash Management, have surged to roughly $3 billion from just over $2 billion in September. “Interest has picked up dramatically,” said Joshua Siegel, managing principal of StoneCastle.

The end of the unlimited insurance, known as the Transaction Account Guarantee, is the latest twist in the government's effort to scale back its support for the financial system, and the banking industry's effort to mute the impact of the new lower limits.

Many analysts assume that even with the end of the government guarantee, the vast majority of the deposits will remain in the banks because the government will continue serving as some sort of backstop for most of the $1.5 trillion.

For small banks, there are programs like Reich & Tang's, with the government fully insuring the scattered deposits. For the nation's largest banks, there is a widely shared assumption that the government would be forced to provide a backstop to protect depositors in a crisis, as it did in 2008.

“Implicitly or explicitly, most of this money is going to still be guaranteed,” said Bruce Hinkle, an executive with Farin & Associates, a consulting firm that works with banks.

The unlimited guarantee was created in the depths of the crisis by the Federal Deposit Insurance Corporation, in order to stop a migration of customers from smaller banks to larger ones that were viewed as less likely to fail.

Most individual savers keep their money in interest-bearing accounts, where since the crisis the insurance coverage was raised to $250,000 from $100,000. Some families have gotten around the insurance limit by dividing money into separate $250,000 accounts under the names of different family members.

Firms like Reich & Tang will do this more systematically for wealthy clients. The end of the unlimited guarantee for corporate and municipal depositors is set to significantly increase business at these firms.

Mr. Siegel, managing principal of StoneCastle, which runs one of the largest programs, said he had seen a tenfold increase in interest from community banks in the last month. Begun in 2011, the service, called the Federally Insured Cash Account program, distributes large deposits throughout a network of roughly 500 banks.

StoneCastle and other firms make money by charging banks a small percentage of any deposits they distribute, generally less than 0.2 percent.

Frederick L. Cannon, a bank analyst at Keefe Bruyette & Woods, says that the expansion of the practice from wealthy individuals to corporate customers makes the F.D.I.C.'s limits toothless and exposes the government to more risk if banks fail in the future.

“You want these limits so there is some kind of market discipline on these banks,” said Mr. Cannon. “If I were on the F.D.I.C. board, I would be concerned about this.”

This article has been revised to reflect the following correction:

Correction: December 30, 2012

An earlier version of this article misidentified the federal insurer of bank deposits. It is the Federal Deposit Insurance Corporation, not the Federal Deposit Insurance Company.

A version of this article appeared in print on December 31, 2012, on page B1 of the New York edition with the headline: Big Depositors Seek a New Safety Net.

Duff & Phelps to Be Sold for $665.5 Million

Duff & Phelps, which provides valuation and merger advice to other companies, is finding itself on the other side of the table.

The firm announced Sunday that it had reached a $665.5 million deal to be acquired by a consortium that includes the Carlyle Group.

The offering price of $15.55 a share in cash is a 19.2 percent premium to Duff & Phelps's closing price on Friday. The consortium purchasing the firm also includes Stone Point Capital, Pictet & Cie and the Edmond de Rothschild Group. No single member of the consortium will own more than 35 percent of the company, Duff & Phelps said in its statement.

The merger agreement includes a “go-shop” period that will allow the company to solicit and evaluate other bids u ntil Feb. 8. The agreement provides for a break-up fee of about $6.65 million.

“This transaction is in the best interest of our stockholders, who will receive an immediate and certain cash premium for their shares,” Noah Gottdiener, chief executive of Duff & Phelps, said in a statement. “Importantly, the transaction will be structured to preserve the firm's independence as we serve our clients in the future.”

“Regulatory demands, implementation of new accounting policies and requirements for increased corporate disclosure and third party validation provide significant growth opportunities for Duff & Phelps core products and services,” Olivier Sarkozy, managing director and head of Carlyle's global financial services group, said in a statement. He added that the involvement of Pictet and the Edmond de Rothschild Group would help with international expansion.

Centerview Partners provided financial advice to Duff & Phelps while Kirkland & Ellis pr ovided legal counsel. The merger advisers to the consortium include Sandler O'Neill, Credit Suisse, Barclays and RBC Capital Markets, while financing advice was provided by Credit Suisse, Barclays and RBC Capital Markets. The consortium's legal adviser was Wachtell, Lipton, Rosen & Katz.

William Baer Confirmed as Justice Department Antitrust Chief

William J. Baer was confirmed by the Senate on Sunday as the government's top antitrust lawyer, placing him in charge of the Justice Department division that reviews corporate mergers and prosecutes price-fixing cases.

Amid the heated negotiations to reach an agreement to head off large tax increases and vast spending cuts in the new year, the Senate voted 64 to 26 in favor of Mr. Baer, a prominent antitrust lawyer at the law firm Arnold & Porter.

The confirmation of Mr. Baer to serve as assistant attorney general for the antitrust division was widely expected, but had been stalled since September, when the Senate Judiciary Committee approved his nomination by a 12 to 5 vote. President Obama first nominated Mr. Baer last February.

The Justice Department has not had a permanent antitrust chief since August 2011, when Christine A. Varney stepped down to become a partner at the Cravath, Swaine & Moore law firm. In the interim, Sharis A. Pozen and Joseph F. Wayland have temporarily led the division, and both have also left for private practice.

White House officials have expressed frustration with partisanship on Capitol Hill and the slow pace of Congress in confirming judicial nominations and executive branch posts.

“The major question is why the position that Baer will fill has lacked a permanent appointee for so long and why the Senate needed 11 months to vote on his nomination,” said Carl Tobias, a law professor at the University of Richmond. “He needs to begin working on the critical issues that the division faces.”

Antitrust experts expect Mr. Baer to continue what has been widely seen as the Justice Department's reinvigorated enforcement of antitrust laws after a period of lax oversight during the Bush admin istration. Its newfound vigilance was evident a year ago, when the agency opposed the proposed merger between AT&T and T-Mobile USA.

There will be a number of significant issues on Mr. Baer's docket, including the continuing government inquiry into Google's business practices and whether it abuses its market power by favoring its own services over its competitors in search results. The Federal Trade Commission has conducted its own investigation, but consumer watchdogs, fearing that Google will avoid formal punishment by the F.T.C., have urged the Justice Department to take the case.

There is also a trial set for June in a lawsuit that the division filed accusing book publishers of conspiring with Apple to fix the prices of e-books.

The F.T.C. and the Justice Department's antitrust division are the two government bureaus that police monopolistic behavior.

Mr. Baer is a Washington fixture and well-known in antitrust circles. A Wisconsin native and Stanford Law School graduate, Mr. Baer, 62, has spent his career rotating between private practice and government work. He has had two stints at the F.T.C., including serving as director of its competition bureau from 1995 to 1999.

Aside from his government service, Mr. Baer worked at Arnold & Porter, where he had a number of prominent cases, including successfully defending General Electric against price-fixing accusations in the 1990s.

“Bill is a highly skilled and well-respected antitrust lawyer who understands the importance of promoting competition in order for consumers to reap the benefits of lower prices and better quality products and services,” Attorney General Eric H. Holder Jr. said in a statement. “I have no doubt that he will lead the antitrust division effectively in its vigorous enforcement of the antitrust laws.”

Questions Remain Over Hewlett\'s Big Charge on Autonomy Acquisition

The $5 billion fight over accounting allegations at Hewlett-Packard shows no sign of abating.

In November, H.P. took a $8.8 billion charge as it wrote down its acquisition of Autonomy, a British software company that it acquired in 2011. H.P. said that “more than $5 billion” of the charge was related to accounting and disclosure abuses at Autonomy. H.P. added that a senior executive at Autonomy pointed to the questionable practices after Mike Lynch, Autonomy's founder and former chief executive, left H.P.

Mr. Lynch denied the allegations. In November, he said the accounting moves that H.P. highlighted were legitimate under international accounting rules, and he demanded that the company be more specific in how it arrived at the $5 billion number. H.P. on Thursday released its annual report for its 2012 fiscal year, noting that the United States Justice Department “had opened an investigation relating to Autonomy.”

The report discusses the methodology it employed when making the $8.8 billion charge, but it did not break out exactly how the alleged accounting improprieties were behind $5 billion of that charge.

Mr. Lynch seized on that. In a statement on Friday, he said that H.P.'s report had “failed to provide any detailed information on the alleged accounting impropriety, or how this could possibly have resulted in such a substantial write-down.”

This accounting rabbit hole has real world consequences.

H.P. management, led by the company's chief executive, Meg Whitman, has proceeded with a feisty certainty since the outset of this spat. If the $5 billion figure is not ultimately substantiated, shareholders may doubt H.P. management's judgment. Also, annual reports are supposed to be exactly the place that investors can go to get their questions answered.

The fact that the $5 billion part of H.P.'s case is not repeated there should give shareholders pause. The report avoids words and phrases that would help a reader understand just how much of an impact the alleged improprieties had. The report says lower financial projections for Autonomy contributed to the write-down. In one part, it said those financial projections “incorporate” H.P.'s analysis of what it believed to be improper accounting. In another section, the report says the changed financial projections were “driven” by the alleged abuses.

That sort of language led Mr. Lynch to say in his Friday statement that, “H.P. is backtracking.”

H.P., however, says it's doing nothing of the sort. In a statement released after Mr. Lynch's on Friday, the company. said, “As we have said previously, the majority of this impairment charge, more than $5 billion, is linked to serious accounting improprieties, disclosure failures and outright misrepresentations.”

The statement also appeared to respond to the criticism that more details about the $5 billion should have appeared in the annual report. H.P. said the report, “is meant to provide the necessary overview of H.P.'s financial condition, including our audited financial statements, which is what our filing does.” The company added, “We continue to believe that the authorities and the courts are the appropriate venues in which to address the wrongdoing discovered at Autonomy.”

Sifting through the Autonomy weeds could obscure the bigger question: Was everything above board at Autonomy? H.P. may have overstated the impact of what it calls improprieties in the charge. But Autonomy may still have had unreliable numbers that overstat ed its value at the time of its acquisition.

Mr. Lynch says the poor performance of Autonomy once it was part of H.P. was down to H.P.'s mismanagement. But it could also have been because the new owners were not benefiting from the accounting that they have since questioned.

In some ways, the most intriguing detail in this mystery is the supposed whistle-blower who brought the accounting issues to management's attention. This person may have been able to show how what he or she believed to be chicanery was hidden from the accounting firms that checked Autonomy's books.

H.P. has enough performance issues that its executives will probably see the Autonomy issue as a distraction and shareholders may get little extra detail. By the sounds of it, that probably won't satisfy Mr. Lynch.

“It is time for Meg Whitman to stop making allegations and to start offering explanations,” is how he signed off his Friday statement.

Imagining a Future of Lower Hedge Fund Fees

Anticipated publication of this column around 2020:

The most surprising thing about the demise of 2-and-20 hedge fund fees is how long it took. Neither losses in the 2008 credit crunch nor the feeble returns during the ensuing seven-year euro zone crisis did much to bring down the archetypal fee structure: 2 percent management fee and 20 percent of gains. Now, though, it can finally be said: 2-and-20 is dead.

Back in September 2012, the average hedge fund still charged 1.6 percent annually in management fees and collected 18.7 percent of any gains, according to data provider Preqin. Through November that year, the average global hedge fund investor earned just 2.6 percent, according to the HFRX global index maintained by Hedge Fund Research. In 2011 investors lost nearly 9 percent. The average annual return from 2009 to 2012, supposedly recovery years following the losses of more than 20 percent in 2008, was a measly 3 percent.

A few investors - including huge institutions like California's giant pension fund, Calpers - managed to negotiate better deals. More often, funds that did badly simply shut down, while investors often signed up for new funds at the usual fees in the hope that the high-return strategy so elegantly set out for them by the latest persuasive trading titan turned out to work.

And a few duff years did little to dent demand. Hedge fund assets reached $2.2 trillion by the third quarter of 2012, some 17 percent above the 2007 pre-crisis peak. By 2015 they were still rising.

Yet it now looks as if those traumatic years marked the beginning of the end for the image of hedgies as superhuman traders. Faced with unpredictable markets, heavy central bank intervention and increasing red tape, some managers simply gave up. Pioneer Stanley Druckenmiller closed his fund in 2010, noting tellingly that managing more than $10 billion didn't allow him to make the kind of returns he wanted. Some others did the s ame or returned money to outside investors. A wave of insider-trading scandals further tarnished the sector's image, casting doubt along the way about the legitimacy of some top managers' returns.

It didn't help that hedge funds were becoming an industry. After the 2008 collapse, regulators and investors alike watched funds more closely. Managers needed to have large businesses to justify the required information and compliance systems, and diverse ones to avoid concentrated risks that might scare cautious institutional investors like pension funds. As Mr. Druckenmiller had foreseen, big firms ended up making lower returns, on average. And for the fund firm bosses, management fees approaching 2 percent made a large-scale business a ticket to riches even without stellar returns.

Investors initially settled for modest returns during good years and capital protection in bad times. But then many realized that the 2-and-20 fee structure was out of kilter. Pension fund managers' own rising liabilities made them tougher in claiming a higher proportion of the investment returns on their money. The most sophisticated ones set up their own in-house managers, staffed with refugees from shrunken investment banks and unlucky hedge funds.

Now in 2020, there's still a lot of money run by hedge funds. But there's a clear bifurcation. It's hard to distinguish parts of the industry from traditional asset managers like BlackRock and Fidelity - and those behemoths have snapped up some funds. In this branch, firms can still charge a management fee of 1 percent. But performance fees have shrunk to 5 percent or less, often after a minimum risk-free return is reached, in recognition of the more earthbound expectations investors now have of performance.

The other wing of the industry consists of hedge funds that have essentially gone back in time to something closer to the original concept - impressive returns in all market conditions, with fees to match as long as the returns are forthcoming. In the 1960s, Warren E. Buffett ran a fund charging no management fee but taking 25 percent of investment gains above a 6 percent threshold return.

In 2012 Guy Spier, whose $100 million-plus Aquamarine Capital Management has a class of shares that follows Mr. Buffett's old structure, referred to the “microscopically small proportion of investment managers who decline to charge a management fee.” Eight years on, there are more of them, though it's the harder and lonelier - if arguably the most investor-friendly - of the two hedge fund roads. Neither would look familiar to a manager who retired hugely wealthy in the early part of the past decade. But as places to invest, at least both now have fees that are a better fit.

Neil Unmack is a columnist and Richard Beales is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit b reakingviews.com.

State Court Review Sought in Argentine Debt Dispute

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Mergers That Benefit Market Structure

Larry Tabb is the chief executive of the Tabb Group, a financial markets research and strategic advisory firm, and TabbForum, a capital markets community Web site.

A recent editorial in The New York Times looked at the proposed acquisition of the New York Stock Exchange by the IntercontinentalExchange and that of Knight Capital by Getco. The editorial argued the following: that these acquisitions and the promotion of high-speed trading put smaller investors at risk; that the regulatory infrastructure is not sufficient to oversee the combined futures and securities exchanges; that acquisitions of this type created larger derivatives players that escalated systemic risk and posed a risk to taxpayers, and that the two acquisitions were tied to the little progress in developing comprehensive rules to stave off another financial crisis.

These ideas are misguided. Here's why:

Let's start with the Knight-Getco deal. While the private Getco is buying the public Knight, this will be a reverse merger and the merged company will be public, hence more transparent and with greater oversight by the Securities and Exchange Commission. The consolidated entity also will face the scrutiny that all public companies face - not only from the S.E.C., but from securities analysts and, most of all, investors.

Yes, it is true that electronic trading is controversial, and yes, problems stemming from electronic trading cost Knight $440 million and precipitated this takeover. Academic literature, however, has praised electronic trading for making the markets more efficient, especially for retail investors. While the efficiency created by fragmentation may make it more challenging for large asset managers to acquire blocks of stock, for individuals buying hundreds or even thousands of shares, electronic trading has made investing more democratic, transparent, faster and much less expensive.

Investors, by definition, invest â€" and traders trade. An investor holding a stock longer than a few hours is only benefited by greater trading volumes; greater volumes demonstrate increased price competition, enabling the market to validate more efficiently the price at which everyone trades. A more efficient price means a more accurate price for everyone.

Investors with short holding periods are by definition traders. Smaller traders, it is true, are disadvantaged by electronic firms. These electronic firms invest millions of dollars to ascertain the right price of every asset they trade by the millisecond. This investment generally enables investors to receive more accurate prices and pay substantially lower commissions. But it is day traders who are disadvantaged by high-speed trading â€" not intermediate or longer-term investors.

Then there is the regulatory issue. Neither the Knight-Getco merger nor an acquisition of the New York Stock Exchange by ICE will make it harder or easier for regulators to audit the markets.

Admittedly, both the S.E.C. and the Commodity Futures Trading Commission are not equipped to monitor fully the vast amount of today's trading. That said, there are outstanding proposals to develop a consolidated audit trail that will enable regulators to capture, monitor and police all securities and futures transactions more adequately.

But what about the oversight challenges posed by mixing futures and securities entities regulated by different agencies? Securities markets are regulated by the S.E.C.; the futures and commodities markets by the C.F.T.C. Both share derivatives oversight depending on the underlying product. Because they trade securities, futures and derivatives, Getco and Knight are already regulated by both agencies.

The consolidation of the se two companies will not impact oversight and may actually make it easier to oversee joint operations, because they will be consolidated under one organization and are likely to combine some of their infrastructures.

Regulatory jurisdiction has more bearing on the ICE-N.Y.S.E. acquisition. While the Big Board is primarily overseen by the S.E.C. and ICE by the C.F.T.C., in reality it is much more complex. Besides owning three equity exchanges and two options exchanges in the United States, the parent of the N.Y.S.E., NYSE-Euronext, owns equities and futures markets in Europe as well. Euronext is a composite of four equities exchanges (Paris, Brussels, Amsterdam and Lisbon) and one futures exchange. This organization is not only monitored by the four national securities regulators but by the European securities and futures regulators as well; and because it is located in London, it also is regulated by the Financial Services Authority of Britain.

ICE, besides bei ng an Atlanta-based futures exchange, owns a credit default swap clearinghouse, overseen by the Federal Reserve. It also owns ICE Futures Europe (the old International Petroleum Exchange); ICE Trust Europe (C.D.S. clearing) and other European financial assets. All these entities are heavily regulated in the United States and Europe.

Just because these firms combine does not mean that any of the myriad central banks or securities or futures regulators will give up an inch of oversight scope.

Another misconception is the idea that a combination of these firms will create larger derivatives operations that could post a threat to taxpayers because their failure could threaten the broader economy. While the acquisition of NYSE Euronext by ICE is all about derivatives, it is about transparent exchange-traded and centrally cleared derivatives â€" not the opaque, bilateral, over-the-counter transactions that interconnect global banks. The transactions that ICE and NYSE Euronext will be trading through this new entity will be like any other exchange-traded, centrally cleared product. It will be traded in the open, with pre- and post-trade market data and transactions sent to a central clearinghouse that will collect margin and manage risk.

This deal is creating exactly the kind of market infrastructure that the regulators in the United States and Europe have been trying to promote.

So while many of us in the financial markets pine for days past when people traded stocks and derivatives were something you learned (or not) in calculus class, those days are gone. Just like we remember wit h fondness the days of the '57 Corvette, the Porsche Roadster or the '69 GTO, those cars, while fun, were unsafe, noisy, uncomfortable and problematic. Technology, communications and advanced-processing techniques rendered those machines obsolete â€" just as they have done to the trading floors, practices and products of years past.

Pearson to Take Stake in Nook Unit

Pearson, the British publisher and education company, announced on Friday that it was investing $89.5 million in Barnes & Noble‘s digital Nook business for a 5 percent stake.

The investment follows a $300 million investment in the e-reader by Microsoft in April.

Will Ethridge, the chief executive of Pearson North America, said in a statement: “Pearson and Barnes & Noble have been valued partners for decades, and in recent years both have invested heavily and imaginatively to provide engaging and eff ective digital reading and learning experiences. This new agreement extends our partnership and deepens our commitment to provide better, easier experiences for our customers.”

The Nook has been trying to challenge Amazon‘s dominance of the e-book market. The latest investment gives it backing from one of the world's largest education companies, as well as the publisher of The Financial Times newspaper. Shares of Barnes & Noble were up sharply in pre-market trading.

After the Pearson investment, the bookseller Barnes & Noble will own 78.2 percent of the Nook unit and Microsoft will own 16.8 percent. Pearson will also be granted warrants to buy an addition 5 percent of Nook at a pre-investment valuation of $1.79 billion.

In a Weak Market for Mergers and Acquisitions, Signs of Strength

Paul T. Schnell has worked on some of the biggest mergers announced this year. Even so, he says that the business of buying and selling companies is in the doldrums, the likes of which he hasn't often seen in his three-decade career at Skadden, Arps, Slate, Meagher & Flom.

“I'd liken the M.&A. market to getting over an earthquake and its aftershocks,” he said. “And we had the biggest economic earthquake in 80 years.”

Four years after the financial crisis nearly shut down the markets, the mergers business has been slow to return to the heights it attained before 2008. Deal volume dropped 3.7 percent this year from 2011, to $2.36 trillion, according to Thomson Reuters data.

Despite the doldrums, Skadden has been the leading law firm in the deal industry this year, having advised on 206 d eals worth $326 billion as of Dec. 28. A year ago, it was No. 3.

During the 1970s and 1980s, the New York-based Skadden emerged as a powerhouse in advising on mergers and acquisitions, especially on more controversial deals involving hostile takeovers and proxy fights.

Leading the law firm through this period was Joseph H. Flom, who died early in 2011. He built a specialty in M.&.A. at a time when loosened antitrust laws and deregulation hastened a boom in corporate deal-making. On the back of its pioneering mergers practice, the firm expanded into other areas and geographies, becoming a model for the global mega-firm that today dominates the legal industry.

Mr. Schnell has been among the busiest lawyers at the firm, having advised on transactions like Anheuser-Busch InBev's $20.1 billion takeover of the rest of Grupo Modelo that it did not already own and Pfizer's $11.9 billion sale of its infant nutrition business to Nestlé.

A philosophy major given to professorial disquisitions - his ideal alternative job would be to teach philosophy in high school - Mr. Schnell ascribes the weak deal market to a collective battered psyche that is deterring many executives from going through on deals.

This year, there has been uncertainty over the presidential election, the economies of several European countries and the battle between President Obama and House Republicans over tax and spending cuts.

“You're still seeing a manic-depressive M.&A. market, one that's reacting strongly to positive news and then to negative news,” he said.

And despite a flurry of deals in the last weeks of the year, it's unclear whether the environment is picking up. Nonetheless, merger bankers and lawyers, an ever-optimistic lot, have said that the buzz among their clients for deals has been getting louder. The amount of deal volume announced in the fourth quarter is up 16 percent from the year-ago period, though the number of transactions is down 26 percent.

Deals can be completed, Mr. Schnell said. Directors are increasingly asking their management teams about potential opportunities. And advisers are keeping busy: Mr. Schnell recalled having to cut short a family vacation in London this spring, with business forcing him to keep long hours. “I got to know the graveyard shift very well,” he said.

Still many deals tend to be “bolt-on acquisitions” that add incrementally to an existing business. From June to August, for example, the dollar value of announced mergers plummeted to some of its lowest levels since 2007. Yet at 3,400, the takeover were the second-highest number of dea ls since the summer of 2007, according to data from Standard & Poor's Capital IQ.

“In uncertain times, it's harder to do a bet-your-company type deal,” he said. “Bolt-on acquisitions are safer-sounding and are a safer kind of deal to do.”

Bigger deals require some combination of special features, according to Mr. Schnell, including having well-known brands or serving as valuable entry points to new markets.

Modelo, with its Corona brand and its dominant position in the Mexican beer market, was perhaps an inevitable purchase for its bigger partner, Anheuser-Busch InBev. And the German conglomerate Joh. A. Benckiser had an opportunity to acquire well-known brands when it bought Peet's Coffee & Tea and Caribou Coffee for a combined $1.3 billion.

Not all announced deals are successful, ho wever. Mr. Schnell advised Coty, which is owned by Joh. A. Benckiser, in its unsuccessful $11 billion offer for Avon Products.

Banks are willing to finance deals again as well, including takeovers by blue-chip companies and leveraged buyouts by private equity firms and riskier junk-grade buyers. And more permissive forms of financing, like so-called covenant lite loans that carry fewer limits, are creeping back into the market.

But lenders' eagerness usually extends only to smaller transactions, denting the ability of buyers like buyout firms to strike deals above $5 billion.

Some industries have been buoyed by other factors as well. Oil and ga s remains the busiest industry for mergers, accounting for 14 percent of all M.&A. activity in 2012, according to Thomson Reuters, driven by a seemingly limitless hunger for shale oil and gas properties.

Mr. Schnell remains optimistic about the deals business eventually bouncing back, having seen his share of ups and downs in the market, many spent alongside prominent colleagues like Mr. Flom and Roger S. Aaron. (The expansive office of Mr. Aaron, who died in February, is around the corner from Mr. Schnell's.)

Paraphrasing Mr. Flom, Mr. Schnell said that in most crises, one would wait for the pendulum to swing back. “But in this crisis, you were worried the pendulum would be knocked over,” he said.

That said, he added, “the longer I do this, the more I'm sure you can't predict where things are going.”

Porsche Wins Dismissal of Hedge Fund \"Short Squeeze\" Lawsuit

A New York state appeals court dismissed a lawsuit brought by hedge funds against Porsche on Thursday, handing the German automaker a big victory in the long-running legal battle over its controversial takeover of Volkswagen.

The Appellate Division decided that the hedge funds lacked jurisdiction to bring a lawsuit in a New York state court, ruling that there was an inadequate connections between New York and the facts of the case. The opinion reverses a trial court ruling this past summer that had upheld the action. The decision also mirrors a federal court ruling two years ago that bounced the hedge funds claim.

“The only alleged connections be tween the action and New York are the phone calls between plaintiffs in New York and a representative of defendant in German, and the e-mails sent to plaintiffs in New York but generally disseminated to parties elsewhere,” said the brief opinion. “We find that these connections failed to create a substantial nexus with New York, given that the events of the underlying transaction otherwise occurred entirely in a foreign jurisdiction.”

The litigation stems from historic “short squeeze” in the shares of Volkswagen in 2008. For years, hedge fund speculators had followed Porsche's protracted attempt to gain control of Volkswagen.

Several dozen hedge funds had put a large bet in place that Volkswagen would decline in value because they thought Porsche had stopped buying Volkswagen stock. But in October 2008, when Porsche disclosed that it owned a 75 percent stake in Volkswagen, shares of Volkswagen spiked and the funds absorbed huge losses when they closed o ut their negative bet, or short positions.

The hedge funds - a group that included Elliot Associates, Viking Global Equities, and Glenview Capital Partners - accused Porsche of misleading investors about its stake in Volkswagen. They argued that Porsche should have disclosed its Volkswagen position much earlier than it did, and committed securities fraud by making deceptive public statements about the holding.

They first filed a lawsuit in federal court. A federal judge in Manhattan dismissed that case in December 2010, citing a 2010 United States Supreme Court ruling - Morrison v. National Australia Bank - that severely limited shareholders' ability to sue a foreign company in the United States if that company's shares traded on an overseas exchange. The hedge funds have a ppealed that decision to the federal appeals court.

Meanwhile, after losing in federal court, 26 of the funds brought a parallel action in state court. The funds scored a win this summer when the trial court judge, Justice Charles Ramos, denied Porsche's motion to dismiss the case. But Thursday's appellate ruling puts the kibosh on the funds' attempts to sue the carmaker in New York state court.

But wait, there's more. Some of the funds that lost in federal court also sued in Germany, and those actions are pending. For Porsche, though, the prospect of litigating the dispute in its home country is not nearly as daunting. German courts typically don't award big damage like United States courts do, and there also aren't juries in Germany.

Representing Porsche in the case is Robert J. Giuffra, Jr., of Sullivan & Cromwell, who called the ruling “an important victory” for his client.

James B. Heaton III of Bartlit Beck Herman Plaenchar & Scott argued th e case for the hedge funds. He did not immediately respond to a request for comment.

Bank C.E.O.\'s on Thinning Ice

At least one of the three big bank chief executives to survive the financial crisis could be without a job by the end of 2013.

Goldman Sachs's Lloyd Blankfein, JPMorgan Chase‘s Jamie Dimon and Brady Dougan at Credit Suisse have each suffered setbacks in the past year or more. The two U.S.-based bosses have done a better job of shrugging those off. But Mr. Dougan looks vulnerable.

Holding on to the top role at a bank during the financial crisis has required guts and skill. The survivors' club halved in size in 2012: Deutsche Bank's Joseph Ackermann, Citigroup's Vikram Pandit and Robert Diamond at Barclays all left their banks â€" though for very different reasons.

Mr. Blankfein has weathered almost three years as the lightning rod for criticism of Wall Street's role in the crisis and of its excessive pay. He's not out of the woods: Goldman's return on equity for the first nine months of the year was a disappointing 8.8 percent. But for now, calls for his head have all but ceased.

Mr. Dimon, meanwhile, was knocked in 2012 by some disastrous trades that stripped shareholders of $6 billion of revenue. This blow to his reputation as a prudent risk manager forced him to reshuffle his executive team, putting two of them in the race to succeed him. But for now he has a good hold on the reins of a firm that still cranked out an 11 percent return on equity in the first three quarters.

Across the Atlantic, Mr. Dougan's summer flip-flop over whether to raise the capital deemed necessary by the Swiss central bank made him look weak and may have strained relations with the regulator. And UBS's October decision to quit most fixed-income trading called his strategy of sticking with the business into question. His rival's shares soared by a fifth.

Some major shareholders still support Mr. Dougan. And he has no obvious successor. But investor support can be fickle. And unlike his two American counterparts, Mr. Dougan does not hold the chairmanship. Citi showed in October how effective that role could be when Chairman Michael O'Neill ousted Mr. Pandit. None of the three crisis survivors should feel too secure in the corner office. But Mr. Dougan has the most to worry about.

Dominic Elliott is a columnist and Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Accountants Skirt Shareholder Lawsuits

The accountants who service publicly traded companies are likely to have something to be thankful for this year: shareholders are not filing federal securities fraud lawsuits against them.

Just 10 years ago, public company accountants were in the cross hairs of shareholders, regulators and prosecutors. A criminal indictment destroyed Enron's auditor, Arthur Andersen. Congress created a new regulator, the Public Company Accounting Oversight Board, to oversee the profession. And in dozens of lawsuits in the years afterward, shareholders named accountants as co-defendants when alle ging accounting fraud.

But things have changed. According to NERA Economic Consulting, which tracks shareholder litigation and reported on the decline in accounting firm defendants in its midyear report in July, not one accounting firm has been named a defendant so far this year. One of the study's co-authors, Ron I. Miller, confirmed that the trend has continued at least through November.

That prompts the question, why don't shareholders sue accountants anymore?

“To the extent that firms have been burned for a lot of money, they have some pretty strong incentives to try to behave,” Mr. Miller said. “That's the hopeful side of the legal system: You hope that if you put in penalties, that those penalties change people's actions.”

The less positive alternative, he added, is that public companies “have gotten better at hiding it.”

From 2005 to 2009, accordin g to the NERA report, 12 percent of securities class action cases included accounting firm co-defendants. The range of federal securities fraud class action cases filed per year in that period was 132 to 244.

The absence of accounting firm defendants this year can probably be explained at least in part by court decisions; the Supreme Court has issued rulings, as in Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. in 2008, making it more difficult to recover damages from third parties in fraud cases.

So perhaps more shareholder suits would take aim at accountants, if the plaintiffs believed that their claims would survive a defendant's motion to dismiss. And it is possible that plaintiffs will add accounting firm as defendants to existing cases in the future, if claimants get information to support such claims.

Over all, fewer shareholder class action lawsuits are based on alle gations of accounting fraud, as opposed to other types of fraud. The NERA midyear report found that in the first six months of 2012, about 25 percent of complaints in securities class action cases included allegations of accounting fraud, down from nearly 40 percent in all of 2011.

Perhaps the Sarbanes-Oxley Act, the legislative response to the accounting scandals of the early 2000s, actually worked, Mr. Miller said.

“There's been a lot of complaining about SOX, and certainly the compliance costs are high for smaller publicly traded companies,” he said, but accounting fraud “is to a large extent what SOX was intended to stop.”

Public company accountants still have potential civil liability to worry about, said Joseph A. Grundfest, a former commissioner of the Securities and Exchange Commission who teaches at Stanford Law School. Regulators, he said, are investigating potential misconduct involving accounting firms.

“There's some coal in that stocking,” Professor Grundfest said, “because all of the major public accounting firms have their knickers in a knot with the S.E.C. over accounting practices involving their China affiliates.”

Jonathan D. Glater, who for several years covered the legal profession and law schools for The New York Times, now teaches at the University of California, Irvine, School of Law.

$2 Billion Fiber Optic Network Deal

BOXBOROUGH, MA and NEW YORK, NY--(Marketwire - Dec 27, 2012) - Lightower Fiber Networks, the premier metro fiber and bandwidth provider in the Northeast, and Sidera Networks, the leading provider of tailored, high-capacity communications services to large enterprise, carrier and data center customers, announced that they have signed a definitive agreement for a transaction valued at over $2 billion led by Berkshire Partners, a Boston-based investment firm, and management, to acquire and merge both companies. M/C Partners and Pamlico Capital acquired Lightower from National Grid plc in August 2007. Pamlico Capital, a significant Lightower investor, and ABRY Partners, a significant Sidera investor, will remain as investors in the new company. The combined c ompany will be led by current Lightower CEO, Rob Shanahan. The merger is pending regulatory approval and is expected to close in the second quarter of 2013.

"Lightower and Sidera together will offer customers an industry-leading, fiber-based network with a deeply experienced team supporting it," stated Rob Shanahan, CEO of Lightower. "Both companies have a shared vision of network excellence, customized solutions and superior customer support. Once merged, we will offer customers more services, more routes and more access options with the same high levels of performance, diversity, reliability and support that our customers have come to expect from us."

Following the merger, the combined company will operate a high-performance, fiber-based network throughout the Northeast, Mid-Atlantic and Midwest, with connections to critical landing sites and exchanges internationally. The combined network will offer customers over 20,000 route miles and provide access to more than 6,000 on-net locations, including commercial buildings, data centers, financial exchanges, content hubs and other critical interconnection facilities.

"This combination is highly complementary," commented Mike Sicoli, CEO of Sidera. "The broad reach and scale of our combined network, the cumulative expertise of our dedicated employees and our shared passion for customer service and satisfaction will set the new company apart and deliver tangible benefits to our customers."

"Berkshire is excited to be working with both Lightower and Sidera -- two great companies and two great teams," explained Randy Peeler, Managing Director of Berkshire. "We have invested in the telecommunications infrastructure space for nearly 20 years and believe that the combined company, with its incredibly robust network, is well positioned for continued growth serving customers with an ever-increasing need for high-performance bandwidth."

More Customer Options with More Routes and More Access

The merger of the two networks accelerates the strategies of both companies to provide best-in-class, fiber-based networking solutions to enterprise, carrier and government customers. The combined company will provide customers with enhanced access to a unique, diverse and dense high-performance network that can serve the most demanding application requirements. The combined network will have both a larger footprint and greater density throughout the Northeast, Midwest and Mid-Atlantic regions, while dramatically increasing the number of data centers, financial exchanges and interconnection facilities that are served with fiber-based access.

Lightower and Sidera both currently offer fiber-based networking solutions comprised of Ethernet, dark fiber, wavelengths, Internet access, private networks and colocation services. Both companies also offer industry-specific solutions such as ultra-low latency connections for financial services firms, video transport for media companies, wireless backhaul for wireless operators, as well as diverse cloud, content and data center connectivity.

Additional terms of the deal were not disclosed.

Current Lightower Fiber Networks investors include M/C Partners, Pamlico Capital and Ridgemont Equity Partners. Current Sidera Networks investors include ABRY Partners and Spectrum Equity Investors.

About Lightower Fiber Networks
Lightower Fiber Networks is the premier metro fiber and bandwidth provider in the Northeast, offering over 6,600 fiber route miles coupled with comprehensive transport, alternative access and nationwide long-haul services. Lightower's fiber footprint extends from New England, to eastern New York State, New Jersey, Long Island and New York City. With access to over 3,500 service locations, Lightower offers unparalleled regional density, performance, scalability, security and reliability in the Northeast. Lightower Fiber is headquartered in Boxborough, MA. For more information, visit www.lightower.com or call 888-LT-FIBER.

About Sidera Networks
Sidera Networks, LLC, www.sidera.net, is the premier provider of tailored, high-capacity communications services to large enterprise, carrier and data center customers with a focus on how customers connect to cloud services and access or distribute content. Sidera Networks offers a comprehensive suite of facilities-based services including: Ethernet, SONET, Wavelength, Dark Fiber, Internet Access, Colocation and more. With a fiber-optic network leveraging unique rights-of-way that delivers connectivity to the major metropolitan areas from Maine to Virginia and out to Chicago, as well as access to Toronto and London, Sidera is committed to delivering cost-effective, custom solutions coupled with superior industry expertise, service and support. Learn more about Sidera at www.sidera.net or call 877-669-6366.

About Berkshire Partners
Berkshire Partners LLC, the Boston-based investment firm, has invested in over 100 middle market companies since 1986 through eight investment funds with aggregate capital commitments of over $11 billion. Berkshire has developed specific industry experience in several areas, including communications, consumer products and retail, business services, industrial manufacturing and transportation. Within communications, the firm has particular expertise in infrastructure investments including Crown Castle International (NYSE: CCI) and The Telx Group. Berkshire has a strong history of partnering with management teams to grow the companies in which it invests, with the goal of consistently achieving superior investment returns. The firm seeks to invest $50 million to $500 million of equity capital in each portfolio company. For additional information, visit < a href="http://ctt.marketwire.com/?release=969464&id=2424535&type=1&url=http%3a%2f%2fwww.berkshirepartners.com%2f">www.berkshirepartners.com or call 617-227-0050.

Toshiba in Talks to Sell Westinghouse Stake

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Trying to Hold On to Merger Advisers

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SeaWorld Files to Go Public

SeaWorld Entertainment, the Blackstone Group-controlled theme park operator famous for its killer whales, filed for an initial public offering on Thursday.

Under the terms of the listing, Blackstone, which bought the theme park group from Anheuser-Busch InBev in 2009 for around $2.7 billion, will keep a majority of the voting rights in SeaWorld. The company did not provide a specific timeline for the I.P.O.

In the filing, SeaWorld said the offering would raise as much as $100 million, but that was a figure used to calculate the registration fee and could chang e. Reuters reported earlier this month that the offering could raise as much as $600 million, citing unnamed sources.

SeaWorld is one of the largest entertainment park operators in the U.S. after the Walt Disney Company. It operates 11 theme parks across the United States, including the Busch Gardens parks in Williamsburg, Va., and in Tampa, Fla., and Sesame Place in Langhorne, Pa., as well as Sea World parks in Orlando, Fla., San Diego and San Antonio, Texas. The company says it has “the largest group of killer whales in human care,” with 28.

The parks attracted 24 million visitors during the 12 months through Sept. 30, according to the filing with the Securities and Exchange Commission. The company generated $1.2 billion of revenue during the first nine months of 2012, according to the filing.

SeaWorld said the money raised through the offering would be used to repay debt, make a one-time payment to a Blackstone affiliate and for other business activities.

Goldman Sachs, JPMorgan Chase, Citigroup , Bank of America Merrill Lynch, Barclays and Wells Fargo are leading the underwriting of the SeaWorld offering.

SK Capital to Buy Units from Clariant for $551 Million

The private equity firm SK Capital agreed on Thursday to buy three divisions from the Swiss chemical company Clariant for a combined 502 million Swiss francs ($551 million). The sale includes Clariant's textile chemicals, paper specialties and emulsions businesses, and is expected to close by the end of the second quarter of next year. Read more »

Investing in Asia\'s Frontier, With Eyes on the Horizon

PHNOM PENH, Cambodia - Investors started poking around for deals here five years ago, as the war-torn country began to move past its legacy of genocide and coups. When the global financial crisis struck, Cambodia's fast-growing economy crashed and the dollars flowing from abroad evaporated.

Douglas Clayton stayed put. In the midst of the crisis, he raised $34 million, starting the first investment fund focused on Cambodia.

“High risk also means the potential for high returns,” said Mr. Clayton, the founder of Leopard Capital.

Persistence can pay in this frontier market of 15 million people. Despite some rocky deals, the fund over all has posted solid gains on several investments, according to Leopard Capital. The three investments sold so far by Leopard have generated average annual returns of 36 percent.

“We got in early and have done well,” said Mr. Clayton, 52.

Building on the experience, Mr. Clayton is expanding into other regions with similar characteristics. This year, Leopard Capital started the first big investment fund in Haiti, backed by economic development organizations like the World Bank's International Finance Corporation. In coming months, he plans to start portfolios focused on Myanmar, Bangladesh and Mongolia. He also plans the first investment fund for Bhutan, which has been reticent about outside money.

“We are trying to pioneer this investment class,” he said. “We can put money in places it's never really been, and get good results.”

He will have to tread cautiously. Mr. Clayton is moving into treacherous investment territory, plagued by infrastructure problems, corruption, political instability and weak or nonexistent regulatory leadership. For example, Mongolia's economy is on shaky ground , after a series of political maneuvers left foreign investors nervous.

“We've proven ourselves here in Cambodia, and feel we can go anywhere,” Mr. Clayton said.

The potential payoff can be substantial. Some investors can double or triple their capital, according to Kathleen Ng, managing director at the Center for Asia Private Equity Research, which tracks fund performance in the region.

Ms. Ng said that China has been the hottest area for investment in Asia for years, but as returns have peaked, many began looking further afield, to places like Vietnam and Indonesia. Countries like Cambodia, Laos and Bangladesh - all Leopard targets - are just now getting on investors' radars.

“Frontier markets really attract a different investor,” Ms. Ng said. “For the right fund - and a first mover - you can make a lot of money.” Even now, Ms. Ng notes, Leopard remains one of the few private equity funds focused exclusively on the region.

Still, investors need strong reserves to make money in such far-flung places. Returns can be choppy. Over the last five years, an index that tracks the frontier markets around the world is off nearly 42 percent, according to data from Thomson Reuters.

“On the surface, there is so much opportunity here,” said Nicholas Lazos, an investment manager at Insitor, a fund in Cambodia. “But executing is quite difficult.”

Mr. Clayton knows the challenges, having spent much of his career in Asia,

Originally from Madison, Conn., Mr. Clayton graduated from Cornell in 1982 and then served four years in the Army. While stationed in Korea, he became enamored with Asia.

After leaving the Army in 1986, he moved to Hong Kong and persuaded Sun Hung Kai Securities to give him a job as a trader, despite his lack of experience. “China was just opening up,” he said. “This company wanted some foreigners. I got hired and traded to learn.”

Three years later, he was hired by Kerry Securities to head its investment research in Thailand. In 1999, he opened his own firm in Bangkok, Abacas Equity Partners. The firm specialized in distressed assets, plentiful in Thailand after the Asian currency crisis of 1997.

He made his first trip to Cambodia in 2005, during a period of personal reflection. His first marriage had ended, and he was weary of the frenetic pace in Asian hot spots like Singapore, India, Thailand and Hong Kong.

Cambodia reignited his drive. “It was kind of spooky and scary,” he recalled. Yet he also sensed unique opportunity. “Nobody was here yet. It was really unknown, and exciting.†

He started the Leopard Cambodia Fund in April 2008 with $10 million, mainly from family and friends. Then prospects dried up in the global crisis. Many other firms withdrew from the country.

Mr. Clayton remained committed. Over the next two years, he visited 50 cities around the globe, pitching investment opportunities in Cambodia. He originally aimed for a goal of $100 million for the fund, but scaled back during the global financial crisis. “It was a hard sell,” he said.

Since then, he has invested about $36 million in a dozen companies, placing small bets in various industries. He put $5 million into ACLEDA Bank, a stake that has soared, and earned double-digit gains on telecoms and utilities in the region.

The money manager has experienced his share of difficulties. The firm took an aggressive stance with Nautisco Seafood, buying up debt and forcing a restructuring.

Leopard wound up in court over the deal. The founders charged Leopard with interference, a situation that resulted in big layoffs and an eventual takeover. Leopard denied the allegations, and the suit was eventually dismissed.

Mr. Clayton is applying his experience to investment opportunities across Asia and beyond.

The private equity firm has started the Leopard Haiti Fund, supported by the International Finance Corporation, the Netherlands Development Finance Company and the Multilateral Investment Fund. These three agencies committed $20 million to the fund, which will focus on shifting capital into food processing, tourism, affordable housing and renewable energy.

“This is a big signal to investors looking at Haiti,” said Sergio A. Pombo, an investment officer at the I.F.C.

Mr. Clayton has also looked to the I.F.C. for support in Bangladesh, where Leopard plans to start a $100 million fund. Mr. Clayton compared Bangladesh to neighboring India a few decades ago, with a large, low-cost labor force.

Leopard i s also contemplating starting a $15 million to $20 million fund for Bhutan, a former Buddhist kingdom in the Himalayas. Bhutan has no investment funds operating in the country, few industries and only 700,000 people.

Mr. Clayton is most bullish about Myanmar, which is going through drastic political reforms. Largely closed to Western investment by the military regime that has ruled for decades, Myanmar, formerly known as Burma, is suddenly open for business.

“This will be a real core country for Leopard in the future.” He predicted the trajectory will follow other Asian nations in the 1980s to 1990s, only at a more rapid pace. “It really seems full speed ahead.”

Still, he cautioned that challenges remained. Foreign investment laws have only recently been announced, and many industries remain closed. Hotels in the capital of Yangon are packed with business delegations, but many outside investors complain that there are few surefire deals, and corrupt ion is a major worry.

Still, Mr. Clayton is focused on the long-term picture for these frontier markets. “These places can be good for investment,” he said. “You just need to do your research, build good local teams and make the right deals.”