T-Mobile Deal for MetroPCS Increases Pressure on Sprint

By clinching a deal to buy MetroPCS, T-Mobile USA is aiming not only to survive but also to turn up the pressure on its larger rival, Sprint Nextel.

The merger, formally announced on Wednesday, signals a renewed phase of jockeying among cellphone service providers as they race to draw in more smartphone users and upgrade to the latest high-speed data networks. And by taking one of the most attractive takeover targets, MetroPCS, off the table, T-Mobile may have strengthened its hand at the expense of Sprint.

The cellphone service industry is dominated by the virtual duopoly of Verizon Wireless and AT&T, which together claim 199 million customers, more than their next six competitors combined. That has left Sprint and T-Mobile to scramble, trying to undercut their big rivals on price even as they seek additional wireless spectrum that would support high-speed data networks.

The industry has long looked to consolidation to grow; last year, AT&T unsuccessfull y sought to buy T-Mobile for $39 billion, hoping to gain size and spectrum. Growth via merger also underpinned Sprint's aborted attempt to buy MetroPCS this year, a transaction scrapped at the 11th hour by Sprint's reluctant board.

MetroPCS represents a potentially big lost opportunity for Sprint. The two companies use the same network technology (CDMA), which would have made for a relatively smooth integration of customers and devices. T-Mobile runs on GSM, so the company will have to convert MetroPCS's 9.3 million customers to its technology over the next three years.

The newly enlarged T-Mobile will have about 42.5 million customers, compared with Sprint's 56 million. But the merger could potentially give T-Mobile additional clout to demand popular devices like the iPhone, which it does not now carry. Adding MetroPCS will also help T-Mobile build out more quickly its Long Term Evolution network, the speedy data standard that powers the latest batch of smartpho nes.

T-Mobile executives argue that the unified operator can offer unlimited data and cheaper prepaid service plans to more customers.

“When you look at this as an industry, we are the alternative choice for consumers,” John J. Legere, the company's chief executive, said in a telephone interview. “This can only be good for the industry to think about the competition and consumer.”

T-Mobile's parent, Deutsche Telekom, and MetroPCS held on-and-off discussions about a merger for years, according to people with direct knowledge of the matter who spoke anonymously because they were not authorized to speak publicly about private discussions. But after Sprint's board vetoed a takeover of the smaller service provider, T-Mobile and MetroPCS met early this summer to begin formal discussions about a deal.

Weeks of negotiations ensued, leading to a structure in which Deutsche Telekom would own 74 percent of the combined entity through a complicated stock swap. Existing MetroPCS shareholders will also receive $1.5 billion through a special dividend, worth about $4.09 a share.

And while antitrust officials fiercely opposed AT&T's takeover of T-Mobile, people involved in the MetroPCS transaction argued that Wednesday's deal was more likely to pass regulatory muster. Instead of fortifying one of the country's biggest service providers, it will bolster one of its weaker ones.

A spokesman for Sprint declined to comment.

With T-Mobile claiming MetroPCS, Sprint is likely to find itself even harder pressed to build out its next-generation network and pitch itself as the dominant low-cost service provider. Sprint's chief executive, Daniel R. Hesse, has said he expects to participate in mergers within the industry, but few attractive takeover targets remain.

Shares in Leap Wireless International, a smaller competitor often cited as a likely deal partner, plummeted nearly 18 percent on Wednesday, as investors sho ok off hopes that it would be acquired anytime soon. The company, a prepaid service provider, operates largely in less-attractive markets and is in the midst of a turnaround effort.

“I don't think that Leap would provide all that much,” Charles S. Golvin, an analyst at Forrester Research, said by telephone.

While some analysts have speculated about whether Sprint would try to outbid T-Mobile for MetroPCS, some industry deal makers were skeptical of the company's will to revisit a target it had already left at the altar.

Sprint is still scarred by the merger that produced its current incarnation: its 2005 union with Nextel Communications, an example still used in business schools as a classic case of a bad deal.

The tie-up was marred by incompatible phone networks and infighting. As a result, Sprint slipped further behind Verizon and AT&T in market share.

Sprint may still pursue deals, especially as a way to add to its stores of spectrum, wit hout resorting to full-on mergers. Analysts and deal specialists say one potential seller is Clearwire, which already helps provides a high-speed data network to Sprint.

Another is Dish Network, which has an abundance of spectrum but has been unable to set up its own mobile phone network. The company's chairman, Charles W. Ergen, hinted at an industry conference that with T-Mobile out of the running as a potential partner, he would be open to others.

“Sometimes when one door closes, a window opens somewhere else,” he said, according to a report in The Denver Post.

Analysts have floated one more, bolder, possibility: buying the newly enlarged T-Mobile, creating a third major company to combat Verizon and AT&T. Industry bankers disagree on whether such a deal would be opposed by the Federal Communications Commission.

Brian X. Chen contributed reporting.

Third Point Wins (Set to the Beat of \'90s Hip-Hop)

The hedge fund manager Daniel S. Loeb, who sits atop nearly $10 billion at his Third Point, is having a better year than most hedge funds - in part because of bets on Greece.

In his quarterly letter to investors, Mr. Loeb says that strategic positions in the debt of the shaky nation and other European credit have generated a 35 percent return on invested money over the last six months. That is contributing to year-to-date performance of about 11 percent for Third Point's offshore fund. The fund did so by nearly tripling its investments in the region, which in addition to going long on Greek bonds also included those of Portugal.

Mr. Loeb, quoting the deceased rapper Tupac Shakur, puts his strategy for distressed Europe simply: “I'm trying to make a dollar out of fifteen cents.”

Mr. Loeb is said to know the song “Keep Ya Head Up” by heart. (Hip-hop fans will recall the line was also used around the same time by Digital Underground's Shock G, a k a Humpty, in Tupac's “I Get Around”).

“We often make money in situations where our assumptions are not rosy, but less draconian than those of a market in panic,” he writes in the letter.

Buried in the letter, too, is a new long position for the hedge fund: Murphy Oil Corporation. The roughly $10.4 billion company, currently trading near $52 a share, is undervalued by as much as 60 percent, Mr. Loeb says.

Third Point invested in the company after seeing that Murphy's price was down 15 percent over a three-year period even as oil and gas indexes appreciated by about 49 percent, he writes.

Keeping the company from tapping its potential is a complex and cumbersome business, with an exploration and production segment, a refining business and a retail and marketing operation. And then there is the belief of Third Point that the company, which is a family business, is also stuck in the past.

That is evidenced, in part, by “management's decisio n to repeatedly delay spinning off its retail business,” which could be worth as much as $12 to $14 a share, he says.

“At this point, it appears sentimental attachment by management and the Murphy family is driving a stubborn desire to hold onto these and other non-strategic assets, creating a significant drag on enterprise value,” he writes.

In addition to spinning off the retail business, the fixes include selling the firm's roughly 145,000 acres of Canadian natural gas land, selling its 5 percent stake in the Syncrude Oil Sands project and finishing an exit from its refining business.

Murphy Oil did not immediately respond to a request for comment.

If the point by point guide wasn't clear, Mr. Loeb outright suggested he might go activist on the company. But not before offering another musical blast from the past. Known for a sharp, if peculiar, wit, Mr. Loeb quotes Boyz II Men's 1992 Hit “End of the Road.”

There reference, a not-so- subtle dig at management's inability to relinquish certain assets, goes: “Although we've come to the end of the road/ still I can't let you go.”

3M Abandons Deal to Buy Avery Dennison Unit

A month after the Justice Department had threatened to sue block the deal, 3M announced on Wednesday that it was terminating its agreement with Avery Dennison to buy its office and consumer products business for $550 million in cash.

Avery Dennison said in its statement that it would continue to seek a sale of the business, which had sales of $6 billion from continuing operations last year.

“While we are disappointed with this turn of events, we remain focused, as always, on investing in product innovation and providing our customers with a broad range of premier products,” Jesse Singh, vice president and general manager of the 3M stationery and office supplies division, said in a statement.

The deal was announced in January, and followed a flurry of acquisitions by 3M, including the purchase of Advanced Chemistry and Technology, a maker of aerospace sealants ; and Hybrivet Systems, which makes lead detection products.

But in September, the Ju stice Department announced that the two companies had abandoned the merger in the face of the department's competition concerns only to have the companies insist several hours later that they would work to try to address the regulator's concerns in order to salvage the deal.

As recently as Sept. 19, at an industry conference, 3M's chief financial officer, David Meline, held out some hope, saying that there was “a contract that remains in place at the present time and we are reviewing the situation.”

A combination of the Avery unit and 3M would have put together the closest competitors in the the market for adhesive labels and sticky notes. Last month, the Justice Department said, “The proposed acquisition would have substantially lessened competition in the sale of labels and sticky notes, resulting in higher prices and reduced innovation for products that millions of American consumers use every day.”

A Law Firm Name With a Curious Ring

Here at DealBook, when two companies issue a press release about a big merger, we are quick to focus our attention on the bottom two paragraphs of an announcement. It is there where we find the lists of bankers and lawyers who counseled on the deal.

The announcement on Wednesday about the combination of Deutsche Telekom's T-Mobile and MetroPCS listed 14 different advisers - yes, 14 - that now get credit in the coveted league tables for their involvement in the deal.

Many of the usual suspects appeared in the lineup. Lazard was the financial adviser to Deutsche Telekom. J.P. Morgan was the lead financial adviser to Metro PCS. Law firms on the deal included Wachtell, Lipton, Rosen & Katz (for Deutsche Telekom) and Gibson, Dunn & Crutcher (for MetroPCS).

But one name on the roster stood out from the rest: Telecommunications Law Professionals.

Telecommunications Law Professionals? Was this a real firm? Was it a placeholder in the news release for a firm name that someone had forgotten to insert?

Our interest piqued, we did what any voraciously curious reporter would do: We Googled the name. Up popped the homepage for a law firm that, indeed, is called Telecommunications Law Professionals.

We called, and chatted Michael Lazarus, one of six lawyers at the boutique Washington law firm. Mr. Lazarus gave us the 411.

Telecommunications Law Professionals was started in Aug. 2011 by five lawyers who spun out from Paul Hastings, one of the country's largest firms. The firm specializes in providing regulatory counsel to telecommunications companies, helping them navigate the Federal Communications Commission and the thicket of federal laws related to the worlds of voice, data and video services.

So what's with the name?

“When we split off and started a boutique, we wanted to go with something very descriptive with what we were doing,” said Mr. Lazarus. “In terms of marketing you know what you're g etting right away.”

True, but Northrop, Lazarus & Morentz - the three surnames of the founding partners - would have had a nice ring to it, no?

“We wanted to stay away from any other law firms that has last names involved,” Mr. Lazarus said. “We thought it was a better way to go.”

Mr. Lazarus noted that the rules of the bar in the District of Columbia allowed for such a generic name even though other state bar associations require that a law firm's name include the surnames of partners.

Telecommunications Law Professionals has kept a good relationship with Paul Hastings - both firms are located in the same building and have worked closely together on deals.

On the T-Mobile/MetroPCS combination, Telecommunications Law Professionals provided regulatory advice to MetroPCS, while Gibson Dunn served as deal counsel and Paul Hastings advised on antitrust issues.

Among the reasons the lawyers split off from Paul Hastings was because of conflicts. MetroPCS was a big client of Mr. Northrop and Mr. Lazarus, and they would sometimes run into conflicts because Paul Hastings represented AT&T. Last summer, MetroPCS raised concerns over the ultimately scuttled the AT&T/T-Mobile mega-merger.

DealBook asked Mr. Lazarus if he had thought about whether the firm was pigeonholing itself by so narrowly defining its practice. What if, for example, Coca-Cola or Exxon was looking for legal advice inside the Beltway?

Mr. Lazarus appreciated our concern, and explained that they had begun calling themselves “T.L.P.” in the event that they eventually broaden out their practice.

“We're very happy with our name,” said Mr. Lazarus, “but T.L.P. might be what we end up as.”

Overseas Cash and the Tax Games Multinationals Play

More than a trillion dollars in cash and short-term investments sits in offshore holding companies, awaiting a repatriation tax holiday. In the meantime, tax professionals spin out ways to game the system.

The tax code provides multinationals based in the United States with many incentives to shift income to foreign low-tax jurisdictions. In theory, American corporations are taxed at 35 percent on their worldwide income. But income earned by an active controlled foreign corporation is not usually taxed until the cash is repatriated to the parent company in the United States as a dividend.

From a policy perspective, the problem is not so much that tax on foreign income is deferred, but rather that United States income is being masqueraded as foreign income.

Many multinationals use transfer pricing (the pricing of goods and services sold between affiliates of a parent company) to minimize their global tax rate. After transferring intellectual property to l ow-tax jurisdictions like Puerto Rico, Ireland and Singapore, companies manipulate licensing and cost-sharing arrangements to avoid or reduce United States taxes. Cash from global operations is then parked offshore until the tax professionals can figure out how to get it home tax-free.

Microsoft, for example, now holds more than $50 billion in foreign cash, cash equivalents and short-term investments. Apple holds more than $100 billion in foreign cash and investments - an amount roughly equivalent to the gross domestic product of Vietnam.

Accounting rules make the situation worse. Based on a presumption that the earnings of a foreign subsidiary will eventually be distributed to the United States parent company, the promise of a future 35 percent tax on repatriated income often creates a deferred tax liability on the consolidated balance sheet. There is an exception, however, for “permanently reinvested earnings” - that is, earnings the parent company does not need and is indefinitely or permanently reinvesting overseas. If a company can convince its accountants that the cash will be reinvested overseas and is not needed at home, the company can avoid recognizing a tax liability on its balance sheet.

Congress is largely to blame. In 2004, the United States temporarily reduced the tax rate on repatriations to roughly 5 percent. The problem was not just the lost revenue or the false promise of a flood of new domestic investment. The tax holiday also raised expectations for future tax holidays, and companies have changed their behavior accordingly by hoarding cash offshore.

Many companies now find themselves holding a particularly awkward pose - simultaneously accessing cash for stock buybacks, acquisitions and working capital needs while maintaining the false financial-reporting premise that the cash is indefinitely reinvested overseas.

A recent hearing by the Senate Permanent Subcommittee on Investigations highli ghted one technique. According to the subcommittee report, Hewlett-Packard used a loan program employing overseas cash to de facto repatriate billions of dollars each year to finance most of H.P.'s American operations without paying the repatriation tax.

H.P. used alternating loans from two offshore entities, one in Belgium and another in the Cayman Islands, during 45-day windows to technically meet an exception for “short term” loans. The subcommittee report explains that a pattern of “continuous lending appeared to be occurring for most of the period between 2008 through 2011.”

The legality of this loan program is questionable. In similar cases, the Internal Revenue Service has successfully argued that a series of short-term loans should be recast as what it is in substance: a single long-term loan that would be treated as a cash repatriation under Section 956 of the tax code. In an e-mail attached as an exhibit to the subcommittee report, an Ernst & Yo ung adviser warned that with respect to the H.P. loan program, “the I.R.S. may seek to apply the substance over form [doctrine] to transactions that it views as abusive.”

A conservative adviser might have stopped there and advised against the scheme. Instead, Ernst & Young sprinkled holy water on the transaction, explaining: “We do believe that we can get comfortable with a ‘should' level of opinion, assuming H.P. avoids behavior that could be interpreted as abusive.”

Should-level opinions and getting comfortable are, increasingly, telltale signs of aggressive tax behavior, as is a warning not to write down the goal of the transactions. “Documents and/or workpapers that indicate an intention to circumvent or otherwise abuse the spirit of section 956,” the e-mail warns, “could prove particularly troublesome and thus should be avoided.”

No one will be surprised when, after a new tax holiday, companies bring back “permanently” reinvested cash to conduct stock buybacks. As another Ernst & Young adviser wrote: “An assertion of indefinite or permanent investment until Congress changes the law allowing cheaper repatriation again doesn't sound permanent.”

Hoarding cash in tax havens is evidence of the implicit cost of international tax deferral, as companies engage in wasteful tax planning techniques and fail to allocate economic resources in an efficient manner.

There is reason to be equally concerned about companies that respect the accounting rules and, in order to avoid the repatriation tax, actually reinvest overseas. Evidence suggests that accounting-motivated foreign direct investments achieve a lower rate of return than investments in the United States. As economic theory would predict, corporate managers are willing to accept a lower pretax rate of return and create jobs overseas rather than paying the repatriation tax and create jobs at home.

The tax system that creates these incen tives is in need of attention. A territorial tax system with better policing of transfer pricing is one option. A worldwide consolidation system without tax deferral is a better one. And a lower corporate tax rate would help.

Until then, we can expect further scrutiny of tax professionals struggling to navigate a system that begs for gamesmanship.

******************

For further reading on accounting for deferred taxes, see a sturdy by Jennifer L. Blouin, Linda K. Krull and Leslie A. Robinson titled “Where in the World are ‘Permanently Reinvested' Earnings?”

Business Day Live: Cellphone Providers Fight Compete Against Bigger Rivals

A look at the merger of MetroPCS and T-Mobile. | The slow market for luxury penthouse offices.

T-Mobile Seals Deal With MetroPCS

The parent company of T-Mobile agreed to buy MetroPCS on Wednesday, as the cell phone providers look to compete with bigger rivals.

The merger is aimed at making T-Mobile a more robust competitor to Sprint Nextel, particularly in low-cost cellphone service. The deal will also help T-Mobile gain more customers and resources to build out a next-generation data network.

Under the terms of the complex transaction, MetroPCS will conduct a 1-for-2 reverse stock split and pay out $1.5 billion in cash to its existing shareholders, or about $4.09 a share. It will then issue new stock worth about 74 percent to T-Mobile's parent, Deutsche Telekom, leaving existing MetroPCS investors with a 26 percent stake.

Morgan Stanley advised Deutsche Telekom's board, while Lazard advised the German telecom's management team. Legal advice was provided by Wachtell, Lipton, Rosen & Katz, Cleary Gottlieb Steen & Hamilton, K&L Gates, and Wiley Rein.

MetroPCS was advised by JPM organ Chase, Credit Suisse and the law firms Gibson, Dunn & Crutcher, Paul Hastings and Telecommunications Law Professionals. A special committee of its board was advised by Evercore Partners and the law firms Akin Gump and Fulbright & Jaworski.

T-Mobile Courts MetroPCS

T-Mobile Courts MetroPCS  |  Deutsche Telekom of Germany, the parent company of T-Mobile USA, is in talks to buy MetroPCS, a deal that could be announced as soon as Wednesday, DealBook reports.

The acquisition would help strengthen T-Mobile after AT&T's failed attempt last year to buy the cellphone service provider. Deutsche Telekom could also use a MetroPCS deal to pare back its American exposure. If the companies structure the deal as a reverse merger, as a Heard on the Street column notes, T-Mobile would have a United States stock listing, allowing Deutsche Telekom to exit gracefully from its American subsidiary over time.

As with any deal, investors handicapped the winners and the losers. Leap Wireless International, another logical acquisition target, rose 8 percent. But shares of Sprint Nextel, the No. 3 carrier, fell more than 5 percent on Tuesday on fears of a new competitive threat.

 

Political Ads Define Wall Street Loosely  |  This election season, politicians love attacking opponents for their ties to Wall Street - even ones that are flimsy, DealBook's Peter Lattman writes. “I visited Wall Street once, in 1980, as a tourist at the New York Stock Exchange,” said Keith J. Rothfus, a Pittsburgh lawyer who is running for Congress in Pennsylvania. “If I'm a Wall Street lawyer, then the 7,500 people that work for Mellon bank in western Pennsylvania are fast-money traders who charter private jets to the Hamptons on weekends.”

The anti-Wall Street rhetoric is bound to be on display in the presidential debate on Wednesday night, where references to Mitt Romney's time at the private equity firm Bain Capital can be expected. Still, one prominent private equity boss says the attacks are having a beneficial side effe ct. “Ironically, it gave the public and other people a chance to think through these arguments,” Stephen A. Schwarzman, head of the Blackstone Group, told Bloomberg Television. He added, “We have not seen any of the blowback that you might expect.”

 

Pay Rises With the Market  |  Companies always trumpet that stock rewards help link compensation to performance. But it may be more about the luck of the market for top Wall Street executives, the Deal Professor writes. During the depths of the financial crisis, banks on government assistance handed out millions of options and stock incentives at low prices. Now, executives could reap huge gains. On average, those packages gained 221 percent, according to Equilar data. “The sad thing is that these executives were compensated not because of the work they did at their firms, but because of a lucky rise in the stock market. It is anything but pay for performance,” the Deal Professor says.

 

Einhorn's New Short  | 
You know your ideas hold sway when your name is used as a verb. David Einhorn, the president of Greenlight Capital, once again moved stocks, announcing his latest picks and pans at an industry conference on Tuesday. He praised General Motors and the health care company Cigna, giving a lift to their shares. He also prompted a sell-off in Chipotle Mexican Grill, his latest short.

But the hedge fund manager's power is not absolute. He had harsh words on Tuesday for Green Mountain Coffee Roasters, his short-selling target from last year, but that stock rose 3 percent by the end of the day.

 

On the Agenda  |  While he's unlikely to talk shorts, David Einhorn and his brother, Daniel (who was recently profiled in DealBook), are speaking on Wednesday at an event at the Milwaukee Jewish Federation. In New York, Bloomberg Link is hosting a conference on state and municipal finance. The hedge fund manager Kyle Bass, of Hayman Capital Management, is on CNBC at 10:40 a.m.

 

Not Much New in JPMorgan Chase  |  The lawsuit filed by New York's attorney general against JPMorgan Chase rehashes the same old stuff, Peter J. Henning writes in his White Collar Watch: “Like so many cases related to the financial crisis, no individuals are named in the complaint. Nor does it appear that any criminal charges will emerge this long after Bear Stearns was pushed into the arms of JPMorgan by the federal government in a transaction routinely described as a fire sale.”

Still, there may be an advantage to revisiting old complaints. The lawsuit's “broad scope presents an opportunity not only to punish wrongdoing at one bank, but to apply the methods and findings of the case to other banks,” the editorial board of The New York Times writes. And the case highlights a legal weapon that past attorneys general have used to take on Wall Street.

 

Dimon Gets the Vanity Fair Treatment  |  Jamie Dimon, JPMorgan Chase's chief executive, is photographed by Annie Leibovitz in the magazine's November issue.

 

Ellison's Island ‘Laboratory'  |  Larry Ellison, the Oracle C.E.O. who recently purchased most of the Hawaiian island of Lanai, told CNBC that he planned to fill the island with organic farms and electric cars as a “laboratory for sustainability in businesses.”

 

 

 

Mergers & Acquisitions '

Best Buy Founder Said to Move Ahead With Buyout Plan  |  Reuters reports: “Richard Schulze and at least four private equity firms have started examining the books of the world's largest consumer electronics chain, early steps toward what could become a potential $11 billion buyout, according to people familiar with the matter.” REUTERS

 

Deal Speculation Lifts AIA Shares  |  The AIA Group was said to be approaching a deal to buy ING's Malaysian and Thai units. BLOOMBERG NEWS

 

Elpida Memory Says Ruling on Takeover Is Delayed  | 
R EUTERS

 

INVESTMENT BANKING '

The Rise and Fall of Ina Drew  |  Ina Drew, JPMorgan Chase's former chief investment officer, who oversaw the unit behind the bank's huge trading loss, is profiled in The New York Times Magazine this weekend: “Her fall is a murkier tale about how executives are coping with the growing public scrutiny and skepticism about what exactly banks are doing with all our money.” NEW YORK TIMES MAGAZINE

 

European Regulator to Weigh In on Bank Capital  |  The European Union's bank regulator is releasing an assessment of banks' recent efforts to raise capital. BLOOMBERG NEWS

 

Fo rmer Goldman Partner Buys Duplex for $19.3 Million  |  Jonathan Sobel, a former Goldman Sachs partner, has bought into 740 Park Avenue, according to records filed on Tuesday, Bloomberg News reports. BLOOMBERG NEWS

 

For Brokerage Firms, Brand Names Matter Less  |  Reuters reports: “Frequent consolidations and name changes in the industry have jaded many brokers and advisers. And at brokerages that were absorbed into big banks, many brokers are irked by negative headlines about the financial missteps of their parent company. Wealth clients are increasingly relying on individual financial advisers more than the firm they work for.” REUTERS

 

Pimco's Gross Warns Again on Treasury Bonds  |  Bill Gross, managing director of Pimco, writes in his latest investment outlook letter that the United States is like “an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth.” PIMCO

 

PRIVATE EQUITY '

Carlyle Group's Move in Commodities Trading  |  The Carlyle Group said it had acquired a 55 percent stake in Vermillion Asset Management, a commodities trading firm, Reuters reports. REUTERS

 

Global Infrastructure Partners Raises $8.25 Billion Fund  | 
BLOOMBERG NEWS

 

Goldman Is Said to Step Up P ressure on Nine Entertainment  |  Goldman Sachs wrote to Nine Entertainment, the struggling Australian media company, and CVC Asia Pacific, urging Nine to restructure its debt, The Wall Street Journal reports, citing an unidentified person familiar with the matter. WALL STREET JOURNAL

 

Chinese Private Equity Contends With Slowdown  |  Jiuding Capital, a high-flying private equity firm in China, is feeling the effects of slower economic growth and a sagging stock market, The Wall Street Journal reports. WALL STREET JOURNAL

 

HEDGE FUNDS '

Humane Society Enlists Icahn as Adviser  |  Carl C. Icahn is advising the Humane Society in its effort to seek a board seat at Tyson Foods, The Wall Street Journal reports. WALL STREET JOURNAL

 

More Insider Trading Investigations  |  The number of government investigations into insider trading in the United States has grown “by almost half in the past year,” according to The Financial Times. FINANCIAL TIMES

 

BlackRock Expected to Benefit From Advertising Rules  |  New rules on hedge fund advertising are expected to benefit the biggest financial firms, like BlackRock and JPMorgan Chase, more than actual hedge funds, according to Bloomberg News. BLOOMBERG NEWS

 

I.P.O./OFFERINGS '

Facebook Pitches Madison Avenue  |  Sheryl Sandberg, Facebook's chief operating officer, said at an event for marketers in New York on Tuesday: “Rather than just talk at large groups of anonymous people, businesses can relate to a consumer and establish an ongoing relationship.” NEW YORK TIMES

 

Telefonica Expected to Seek Up to $1.9 Billion in I.P.O.  |  An I.P.O. filing from the Spanish phone company Telefónica is imminent, two unidentified people with knowledge of the matter told Bloomberg News. BLOOMBERG NEWS

 

VENTURE CAPITAL '

Kleiner Perkins Partner Says She Was Fired  |  Ellen Pao, who sued Kleiner Perkin s Caufield & Byers for discrimination in May, said the firm fired her on Monday afternoon, the Bits blog reports. NEW YORK TIMES BITS

 

Thiel Fund Leads Investment in Brazilian Start-Up  |  Peter Thiel's Valar Ventures Management has made its first foray in Brazil, leading an investment in an e-commerce start-up that is trying to shake up the traditional furniture market here and take on an established retailer recently acquired by the Carlyle Group. DealBook '

 

Getting Paid to Share on Social Media  |  The New York Times reports: “In a little-known practice, social media shopping sites are offering payments to shoppers who post product links that drive Web traffic and sales to retailers.” NEW YORK TIMES

 

LEGAL/REGULATORY '

How Europe's Central Bank Shifted Strategy  |  The European Central Bank has become more active in its effort to save the euro, The Wall Street Journal says. WALL STREET JOURNAL

 

Freddie Mac's Financing Effort Hits a Snag  |  The mortgage giant is looking to provide loans to investors to buy foreclosed homes and rent them out, but the Federal Housing Finance Agency “has put those plans on hold,” according to The Wall Street Journal. WALL STREET JOURNAL

 

Regulator Urges Appeal of Dodd-Frank Court Ruling  |  Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, on Tuesday assailed a recent court ruling that overturned limits on speculative trading, calling it “deeply flawed” and vulnerable to appeal. DealBook '

 

2 Lawmakers Criticize Geithner Over Libor  |  Two Republican senators, Chuck Grassley and Mark Kirk, wrote a letter to Treasury Secretary Timothy F. Geithner taking him to task for, according to Reuters, “failing to wean U.S. firms off a key British benchmark interest rate that he knew was being rigged.” REUTERS

 

The Intangible Costs of Bankruptcies  |  Indirect costs of a company's financial distress, which are more abstract, have not been studied enough, Stephen J. Lubben writes in the In Deb t column.
DealBook '

 

Carlyle Buys Control of Vermillion, a Commodities Trader

WASHINGTON & NEW YORK--(BUSINESS WIRE)--Global alternative asset manager The Carlyle Group (NASDAQ: CG) and Vermillion Asset Management (Vermillion) announced that the Carlyle publicly traded partnership has purchased, effective October 1, 2012, a 55% stake in Vermillion, a New York-based commodities investment manager with approximately $2.2 billion of assets under management as of September 30, 2012, which has become affiliated with Carlyle's Global Market Strategies business.

“As we move forward, we are especially grateful to our employees, our many investors and their advisors for their support of this transaction.”

Mitch Petrick, Carlyle Managing Director and Head of Global Market Strategies, said, “This is an important addition to Carlyle's GMS platform. For many years Carlyle has successfully invested in a variety of energy, agriculture and infrastructure companies. Vermillion employs a liquid, relative-value, low volatility approach to trading both physical commodities and their derivatives to produce positive, uncorrelated returns.”

Drew Gilbert, Co-Managing Partner and Co-Founder of Vermillion, said, “Our team looks forward to leveraging Carlyle's global network and deep knowledge of local markets to better exploit trading opportunities and inefficiencies in the global commodities markets.”

“Global, secular trends are fundamentally reshaping the supply and demand balance for many commodities worldwide. Our partnership with Carlyle will help us maximize these opportunities to deliver more alpha to our investors,” said Chris Nygaard, Co-Managing Partner and Co-Founder of Vermillion. “As we move forward, we are especially grateful to our employees, our many investors and their advisors for their support of this transaction.”

Vermillion was established in 2005 by Drew Gilbert and Chris Nygaard. Today, Vermillion manages three commodities-focused strategies, including relative value, enhanced index and long-biased physical commodities. Each strategy utilizes Vermillion's ability to make and take physical delivery, unique among its peer group.

Vermillion will become Carlyle's exclusive commodities trading platform and Gilbert and Nygaard will continue in their current roles as co-Chief Investment Officers, managing investments and the day-to-day operations of Vermillion.

The Vermillion ownership stake was acquired by Carlyle in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments payable over five and a quarter years. If Vermillion achieves certain performance targets, Carlyle has agreed to issue to the Vermillion principals up to 1,439,788 Carlyle Holdings partnership units over a four and a quarter-year period. These units will be exchangeable one-for-one on a private placement basis for common units of The Carlyle Group L.P. subject to the terms of Carlyle's exchange agreement. Vermillion's principals reinvested cash proceeds from the transaction into Vermillion's funds. The transaction received the requisite fund consents. Further terms of the transaction were not disclosed.

Carlyle's Global Market Strategies business comprises an array of long/short credit hedge funds, emerging markets equities and macroeconomic strategy hedge funds, structured credit, middle-market credit, energy mezzanine and distressed products â€" 53 funds with $29 billion in assets managed by 100 investment professionals in New York, Washington, DC, Los Angeles, Houston, Hong Kong and London as of June 30, 2012.

Sandler O'Neill + Partners, L.P. and Katten Muchin Rosenman LLP served as financial and legal advisors to Vermillion, respectively. Simpson Thacher & Bartlett LLP served as legal advisor to Carlyle.

About The Carlyle Group

The Carlyle Group (NASDAQ: CG) is a global alternative asset manager with $156 billion of assets under management across 99 funds and 63 fund of fund vehicles as of June 30, 2012. Carlyle's purpose is to invest wisely and create value. Carlyle invests across four segments â€" Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions â€" in Africa, Asia, Australia, Europe, the Middle East, North America and South America. Carlyle has expertise in various industries, including: aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, technology & business services, telecommunications & media and transportation. The Carlyle Group employs 1,300 people in 32 offices across six continents.
The Carlyle Group â€" Website
The Carlyle Group â€" YouTube Channel
www.twitter.com/onecarlyle

About Vermillion Asset Management

Vermillion Asset Management, LLC is an SEC registered investment advisor offering global commodities-focused strategies via a number of collective investment vehicles. The firm's 43 member team approaches commodities markets with discrete market-neutral and long-biased strategies that invest across the spectrum of interests, including physical commodities, exchange-listed futures and options and commodity-related equities. Vermillion actively pursues opportunities in agricultural commodities, soft commodities, ferrous, non-ferrous and precious metals, as well as freight and energy. Vermillion was founded in May 2005 and is headquartered in New York City. As of September 30, 2012, the firm managed three investment vehicles with an approximately $2.2 billion investor base spanning a variety of institutions, fund of funds and family offices.

Forward Looking Statements

This press release may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements related to the benefits we expect to realize as a result of our acquisition of an interest in Vermillion Asset Management, as well as our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. These statements are subject to risks, uncertainties and assumptions, including those associated with the failure of Vermillion to perform as we expect and/or our inability to successfully integrate Vermillion into our business, as well as those described under the section entitled “Risk Factors” in our prospectus dated May 2, 2012, filed with the SEC pursuant to Rule 424(b) of the Securities Act on May 4, 2012, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.

This release does not constitute an offer for any Carlyle fund.

Carlyle Buys Control of Vermillion, a Commodities Trader

WASHINGTON & NEW YORK--(BUSINESS WIRE)--Global alternative asset manager The Carlyle Group (NASDAQ: CG) and Vermillion Asset Management (Vermillion) announced that the Carlyle publicly traded partnership has purchased, effective October 1, 2012, a 55% stake in Vermillion, a New York-based commodities investment manager with approximately $2.2 billion of assets under management as of September 30, 2012, which has become affiliated with Carlyle's Global Market Strategies business.

“Our team looks forward to leveraging Carlyle's global network and deep knowledge of local markets to better exploit trading opportunities and inefficiencies in the global commodities markets.”

Mitch Petrick, Carlyle Managing Director and Head of Global Market Strategies, said, “This is an important addition to Carlyle's GMS platform. For many years Carlyle has successfully invested in a variety of energy, agriculture and infrastructure companies. Vermillion employs a liquid, relative-value, low volatility approach to trading both physical commodities and their derivatives to produce positive, uncorrelated returns.”

Drew Gilbert, Co-Managing Partner and Co-Founder of Vermillion, said, “Our team looks forward to leveraging Carlyle's global network and deep knowledge of local markets to better exploit trading opportunities and inefficiencies in the global commodities markets.”

“Global, secular trends are fundamentally reshaping the supply and demand balance for many commodities worldwide. Our partnership with Carlyle will help us maximize these opportunities to deliver more alpha to our investors,” said Chris Nygaard, Co-Managing Partner and Co-Founder of Vermillion. “As we move forward, we are especially grateful to our employees, our many investors and their advisors for their support of this transaction.”

Vermillion was established in 2005 by Drew Gilbert and Chris Nygaard. Today, Vermillion manages three commodities-focused strategies, including relative value, enhanced index and long-biased physical commodities. Each strategy utilizes Vermillion's ability to make and take physical delivery, unique among its peer group.

Vermillion will become Carlyle's exclusive commodities trading platform and Gilbert and Nygaard will continue in their current roles as co-Chief Investment Officers, managing investments and the day-to-day operations of Vermillion.

The Vermillion ownership stake was acquired by Carlyle in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments payable over five and a quarter years. If Vermillion achieves certain performance targets, Carlyle has agreed to issue to the Vermillion principals up to 1,439,788 Carlyle Holdings partnership units over a four and a quarter-year period. These units will be exchangeable one-for-one on a private placement basis for common units of The Carlyle Group L.P. subject to the terms of Carlyle's exchange agreement. Vermillion's principals reinvested cash proceeds from the transaction into Vermillion's funds. The transaction received the requisite fund consents. Further terms of the transaction were not disclosed.

Carlyle's Global Market Strategies business comprises an array of long/short credit hedge funds, emerging markets equities and macroeconomic strategy hedge funds, structured credit, middle-market credit, energy mezzanine and distressed products â€" 53 funds with $29 billion in assets managed by 100 investment professionals in New York, Washington, DC, Los Angeles, Houston, Hong Kong and London as of June 30, 2012.

Sandler O'Neill + Partners, L.P. and Katten Muchin Rosenman LLP served as financial and legal advisors to Vermillion, respectively. Simpson Thacher & Bartlett LLP served as legal advisor to Carlyle.

About The Carlyle Group

The Carlyle Group (NASDAQ: CG) is a global alternative asset manager with $156 billion of assets under management across 99 funds and 63 fund of fund vehicles as of June 30, 2012. Carlyle's purpose is to invest wisely and create value. Carlyle invests across four segments â€" Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions â€" in Africa, Asia, Australia, Europe, the Middle East, North America and South America. Carlyle has expertise in various industries, including: aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, technology & business services, telecommunications & media and transportation. The Carlyle Group employs 1,300 people in 32 offices across six continents.
The Carlyle Group â€" Website
The Carlyle Group â€" YouTube Channel
www.twitter.com/onecarlyle

About Vermillion Asset Management

Vermillion Asset Management, LLC is an SEC registered investment advisor offering global commodities-focused strategies via a number of collective investment vehicles. The firm's 43 member team approaches commodities markets with discrete market-neutral and long-biased strategies that invest across the spectrum of interests, including physical commodities, exchange-listed futures and options and commodity-related equities. Vermillion actively pursues opportunities in agricultural commodities, soft commodities, ferrous, non-ferrous and precious metals, as well as freight and energy. Vermillion was founded in May 2005 and is headquartered in New York City. As of September 30, 2012, the firm managed three investment vehicles with an approximately $2.2 billion investor base spanning a variety of institutions, fund of funds and family offices.

Forward Looking Statements

This press release may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements related to the benefits we expect to realize as a result of our acquisition of an interest in Vermillion Asset Management, as well as our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. These statements are subject to risks, uncertainties and assumptions, including those associated with the failure of Vermillion to perform as we expect and/or our inability to successfully integrate Vermillion into our business, as well as those described under the section entitled “Risk Factors” in our prospectus dated May 2, 2012, filed with the SEC pursuant to Rule 424(b) of the Securities Act on May 4, 2012, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.

This release does not constitute an offer for any Carlyle fund.

Telefonica to Take German Unit Public

Telefónica said on Wednesday that it plans to take its German unit public on the Frankfurt Stock Exchange by year end, as part of the Spanish telecom company's plan to pay down debt.

It is the latest Spanish company to sell off assets, as the country continues to grapple with severe economic problems that threaten to drag down businesses there. Last week, Banco Santander held an initial public offering for its Mexican unit.

The Telefónica Deutschland business, which is comprised principally of the O2 brand in Germany, has posted big improvements in financial performance over the past three years. It earned 71 million euros last year atop 5 billion euros in revenue.

Telefónica said that it hasn't yet decided how many shares it plans to sell in the offering. To draw in potential investors, Telefónica said that the German unit plans to pay out about 500 million euros in dividends next year.

“We are convinced that an I.P.O. will enable us to raise our profile further, and to continue the successful growth story of Telefónica Deutschland in Germany in the long term,” René Schuster, the chief executive of Telefónica Deutschland, said in a statement.

The Rise and Fall of JPMorgan\'s Ina Drew

Christaan Felber for The New York Times

The JPMorgan Chase headquarters (below) and the building where Ina Drew was given an office after leaving the bank (top).

In February of 2011, , the chief executive officer of , approached the podium of one of the ballrooms at the Ritz-Carlton Hotel in Key Biscayne, Fla., where 300 senior executives from around the world were attending the bank's annual off-site conference. By that time, the cold fear of the financial crisis was cordoned off in the near-distant past, replaced by a dawning recognition that the ensuing changes in business - the comparatively trifling risk limits, the dwindling bonuses, the elevated stress levels - might actually be permanent. That day, Dimon took the opportunity, according to a bank employee in attendance, to try to inspire his team, to rouse them from the industrywide sense of malaise. Yes, there were challenges, Dimon said, but it was the job of leadership to be strong. They should be prudent, but step up - be bold. He looked out into the audience, where Ina Drew, the 54-year-old chief investment officer, was sitting at one of the tables. “Ina,” he said, si ngling her out, “is bold.”

Perhaps by now when bankers hear that kind of public praise, they simultaneously hear a distant clanging, a dim alarm that provokes an undercurrent of anxiety. It seems inevitable that an acknowledgment of such star power will eventually lead to a fall, a big one, and one year and three months later, Drew succumbed. Her team had been bold, so bold that along with Dimon, she had become the public face attached to a $6 billion mistake, a trading loss so startling in size that it dominated the business press, put Dimon on the defensive and cost Drew her job. Over and over again, online and on television, in stories about the loss, the same corporate headshot appeared: a woman wearing a hot pink bouclé jacket, showing a smile so faint it was almost frank in its discomfort.

Drew never craved public recognition, which is one reason, up until the trading error, almost no one outside of Wall Street had heard of her. Her longstanding anonymity is astonishing only in retrospect: All told, she invested nearly $350 billion for JPMorgan Chase. Drew had her hand on a major economic lever and was one of the key figures whose judgment Dimon relied on in keeping the bank steady through the financial crisis. Drew was part of the team that helped establish him as a model of restraint at a time when other bankers offered only tongue-tied defenses of their reckless behavior. Now she was responsible for the traders who had made Dimon look as fallible as everyone else, and at the very moment when he was trying, once again, to assure government regulators that banks could manage themselves, that bankers could risk-proof their balance sheets.

The $6 billion blunder has turned out to be no more than a minor ding on JPMorgan Chase's mighty balance sheet. The company's stock has rebounded strongly, and the financial world has moved on to other obsessions. But for Ina Drew, this is a scorching moment of failure from which it could be hard to recover. In 30 years in the banking industry, she ascended to a level of power and wealth that few women have known. Her rise tells an unlikely story of what it takes to succeed as an interloper in the Wall Street boys' club. Her fall is a murkier tale about how executives are coping with the growing public scrutiny and skepticism about what exactly banks are doing with all our money. Five years ago, would anyone have cared about a large trading loss incurred by a strong, well-capitalized bank? When the business press, including this paper, first started digging into the debacle, it seemed possible that Dimon himself could go down. He didn't, of course, but the conversation reflec ts how precarious power in banking has become. Nobody understands that better now than Ina Drew. But who exactly was she? She has declined to speak to the media, and various investigations are continuing that will reveal a more complete picture of the story. But interviews with dozens of friends and former colleagues over the last three months begin to fill in the picture of a woman whose career traced a period of dramatic change on Wall Street.