From Leucadia, a Final Letter to Shareholders

It would be a stretch to classify the letter to shareholders as a literary genre. But for some companies, like Berkshire Hathaway or the Leucadia National Corporation, these annual dispatches are eagerly consumed not only by shareholders but also by interested observers.

For Leucadia, this line of communication is coming to an end. The company, which is entering a new phase of its corporate life after its acquisition of the Jefferies Group, has written its final shareholder letter, a copy of which was obtained by DealBook. (Leucadia’s annual meeting was Tuesday.)

The letter, full of anecdotes and humor, is a valedictory from Ian M. Cumming and Joseph S. Steinberg, the founders of Leucadia who are stepping down from their management roles. Mr. Steinberg will be chairman of the combined company, while Richard B. Handler, the chief executive of Jefferies, is taking the helm of Leucadia.

Mr. Cumming will be “cheering - and kibitzing - from the sidelines” as he builds a new family compay, according to the letter.

Leucadia, which is sometimes compared to a “baby Berkshire Hathaway” because of the wide range of its holdings, echoes Warren E. Buffett’s company in the folksy tone of its final letter. The “unofficial history” contained therein is “mostly written for the benefit of grandchildren,” the letter says.

“A 35-year partnership is rare in marriage and even rarer in business,” the founders say in the letter. “Those unfamiliar with our approach have sometimes been startled by the occasional tenacity of our interactions.”

In the letter, the founders tell how they got their start at an investment bank with the “curious” name of Carl Marks & Company, and how they first met Mr. Handler when he was a “26-year-old baby in the business.” They also explain how Leucadia, which started as the Talcott National Corporation, got its name:

“One afternoon we were driving north on the San Diego Freeway and happened upon the town! of Leucadia, California. Why not? The name was available and we liked the sound of it. One of our mothers thought it resembled a blood disease. But it looked great on that interstate exit sign and has served us well.”

In addition to chronicling the highs and lows of their decades of deal-making, the founders offer their thoughts on the current market, seeming to yearn for the good old days:

“In recent years we have found it increasingly difficult to find good companies in which to invest. Competition is fierce for the mediocre and even fiercer for the good. Hedge funds and private equity have raised vast sums and those of you who have read our previous letters know well our rants on the subject. At our core we are value investors and finding value has become harder.”

The topics in the letter include the joys of tax planning:

“One of us enjoys the creative and legal process of tax planning and is very good at it, the other beaks out in a rash when trapped for long hours with tax accountants and lawyers, but is deeply appreciative of his partner’s patience.”

And it includes an encounter with Ivan F. Boesky, a central figure in a 1980s insider-trading scandal:

“We were more successful in 1988 taking control of another English company, Cambrian & General Securities, which had been managed by Ivan Boesky who was also a substantial shareholder. Mr. Boesky had legal difficulties and as a result forfeited his shares to the S.E.C. as part of a $100 million fine.”

The letter also illustrates the unusual businesses that a company like Leucadia can find itself in:

“During those years we also invested elsewhere outside the United States. In Russia, we purchased vouchers in their ‘garage sale’ of privatization auctions with some small success. We then became the bottler for Pepsi Cola for most of eastern Russia.”

Despite it! s decades! in business, Leucadia never gained the name recognition of Berkshire, which was a business partner over the years and lent a syllable to a holding that the partners renamed Berkadia. But that didn’t bother the founders.

“Leucadia usually flies below the radar and is often unconventional in its choice of investments,” the letter says. “We have always preferred to make money, rather than headlines.”

From Leucadia, a Final Letter to Shareholders

It would be a stretch to classify the letter to shareholders as a literary genre. But for some companies, like Berkshire Hathaway or the Leucadia National Corporation, these annual dispatches are eagerly consumed not only by shareholders but also by interested observers.

For Leucadia, this line of communication is coming to an end. The company, which is entering a new phase of its corporate life after its acquisition of the Jefferies Group, has written its final shareholder letter, a copy of which was obtained by DealBook. (Leucadia’s annual meeting was Tuesday.)

The letter, full of anecdotes and humor, is a valedictory from Ian M. Cumming and Joseph S. Steinberg, the founders of Leucadia who are stepping down from their management roles. Mr. Steinberg will be chairman of the combined company, while Richard B. Handler, the chief executive of Jefferies, is taking the helm of Leucadia.

Mr. Cumming will be “cheering - and kibitzing - from the sidelines” as he builds a new family compay, according to the letter.

Leucadia, which is sometimes compared to a “baby Berkshire Hathaway” because of the wide range of its holdings, echoes Warren E. Buffett’s company in the folksy tone of its final letter. The “unofficial history” contained therein is “mostly written for the benefit of grandchildren,” the letter says.

“A 35-year partnership is rare in marriage and even rarer in business,” the founders say in the letter. “Those unfamiliar with our approach have sometimes been startled by the occasional tenacity of our interactions.”

In the letter, the founders tell how they got their start at an investment bank with the “curious” name of Carl Marks & Company, and how they first met Mr. Handler when he was a “26-year-old baby in the business.” They also explain how Leucadia, which started as the Talcott National Corporation, got its name:

“One afternoon we were driving north on the San Diego Freeway and happened upon the town! of Leucadia, California. Why not? The name was available and we liked the sound of it. One of our mothers thought it resembled a blood disease. But it looked great on that interstate exit sign and has served us well.”

In addition to chronicling the highs and lows of their decades of deal-making, the founders offer their thoughts on the current market, seeming to yearn for the good old days:

“In recent years we have found it increasingly difficult to find good companies in which to invest. Competition is fierce for the mediocre and even fiercer for the good. Hedge funds and private equity have raised vast sums and those of you who have read our previous letters know well our rants on the subject. At our core we are value investors and finding value has become harder.”

The topics in the letter include the joys of tax planning:

“One of us enjoys the creative and legal process of tax planning and is very good at it, the other beaks out in a rash when trapped for long hours with tax accountants and lawyers, but is deeply appreciative of his partner’s patience.”

And it includes an encounter with Ivan F. Boesky, a central figure in a 1980s insider-trading scandal:

“We were more successful in 1988 taking control of another English company, Cambrian & General Securities, which had been managed by Ivan Boesky who was also a substantial shareholder. Mr. Boesky had legal difficulties and as a result forfeited his shares to the S.E.C. as part of a $100 million fine.”

The letter also illustrates the unusual businesses that a company like Leucadia can find itself in:

“During those years we also invested elsewhere outside the United States. In Russia, we purchased vouchers in their ‘garage sale’ of privatization auctions with some small success. We then became the bottler for Pepsi Cola for most of eastern Russia.”

Despite it! s decades! in business, Leucadia never gained the name recognition of Berkshire, which was a business partner over the years and lent a syllable to a holding that the partners renamed Berkadia. But that didn’t bother the founders.

“Leucadia usually flies below the radar and is often unconventional in its choice of investments,” the letter says. “We have always preferred to make money, rather than headlines.”

Losing Ground on Nook, Barnes & Noble Ceases Its Manufacture of Color Versions

Barnes & Noble conceded on Tuesday that it cannot compete head-to-head with the iPad and the Kindle Fire.

Reporting a big loss at its Nook e-reader division that dragged down the company’s fourth-quarter results, Barnes & Noble said that it would no longer make its own color tablets. Instead, it will work with third parties, which will make the devices in exchange for co-branding opportunities.

The announcement is essentially Barnes & Noble’s white flag, signaling that it cannot compete in a market dominated by Apple, Amazon.com and Samsung. It will still make and sell the black-and-white versions of the Nook, which generate the majority of the company’s digital book sales.

Thecompany plans to discount its remaining Nook tablets through the holidays.

“Our aim is to sell great tablets connected to our best content catalog and high-quality bookstore services we’ve done, but do so without the sizable upfront risk,” William J. Lynch Jr., Barnes & Noble’s chief executive, said on a call with analysts.

The development raises questions about what lies ahead for the embattled bookseller, which remains under pressure from better-financed digital rivals like Amazon. The company’s loss of $2.11 a share exceeded the average analyst estimate of 99 cents, according to data from Capital IQ. Revenue decreased 7.4 percent, to $1.28 billion, while the net loss was $118.6 million.

Company executives were silent about talks with Leonard S. Riggio, Barnes & Noble’s chairman, who has sough! t to buy the chain’s 675 stores. Nor did they discuss the state of talks with Microsoft, an investor in the Nook business that had shown interest in buying the division’s digital assets.

Talks about possible transactions were still continuing, according to a person briefed on the matter, though it was unclear if or when a deal would be reached. Barnes & Noble has indicated that it will not part with its core retail stores for anything less than $1 billion.

Though the company’s latest results gave investors heartburn â€" shares in Barnes & Noble tumbled 17 percent Tuesday, to $15.61 â€" stopping some of the red ink in the Nook unit may help stabilize the business and make it more attractive to potential suitors.

And the company can still point to its inventory of digital books as its single most valuable asset, which may draw pssible buyers.

But the outsourcing of the device manufacturing reflects the difficulties for Barnes & Noble in refashioning itself more in the Apple mold.

Introduced in 2009, the Nook was meant to help usher the company into the Internet media age, allowing it to compete head-to-head with Amazon in both devices and digital books.

The next year, Barnes & Noble took the even riskier step of introducing a color tablet, the Nook Color, that was aimed more at competing with the iPad. The company introduced ever more sophisticated models, including a 9-inch high-definition tablet.

Such was the promise of the Nook that it drew in both Microsoft and the British publisher Pearson, which together bought 23 percent of the business and valued it at about $1.8 billion. And several Nook tablets have won higher praise from reviewers than their Kindle rivals.

That has not translated into sales, and the division meant to revive Barnes & Noble has instead weighed down the rest of the comp! any. In t! he fiscal fourth quarter, the Nook unit lost $177 million before interest, taxes, depreciation and amortization, or Ebitda, more than doubling the loss from the period a year earlier. Sales fell 34 percent, to $108 million.

The company has also had to grapple with the high costs of manufacturing its own devices. Unsold tablets accounted for a $133 million write-down in the fourth quarter and $222 million for the entire 2013 fiscal year.

Mr. Lynch outlined some of the expenses involved in supporting its tablet business to analysts. Not only was the company responsible for the hardware, it also invested in developing the software and in marketing the devices.

Barnes & Noble’s physical bookstores have not fared much better. Fourth-quarter Ebitda at the company’s retail arm fell 24 percent, to $51 million, while revenue declined 10 percent, to $948 million.

One sign of the company’s troubles: the fourth quarter suffered in comparison to the year-ago period, which reaped huge benefis from sales of “The Hunger Games” and the “Fifty Shades of Grey” trilogies.

Mr. Lynch told analysts that while the company opened two retail stores last year, it closed 18. Barnes & Noble will open five locations this year, but will close 15 to 20 existing ones.

One brighter spot for Barnes & Noble was its college bookstore business, which had $3.8 million in Ebitda for the quarter on $252 million in revenue.

Royal Bank of Canada Gains by Putting the Brakes on Traders

The spoils on Wall Street generally go to the firm that is the fastest and most opaque. But one upstart contender is trying a distinctly counterintuitive approach.

In the financial equivalent of the Tortoise and the Hare, Royal Bank of Canada has risen up the ranks of the biggest stock trading firms in the United States by embracing a rather Canadian restraint and prudence.

At the center of the efforts by the bank’s New York trading desk is a technology that actually slows down its customers’ orders so as to evade high frequency traders. And unlike nearly every other large bank in New York, it has elected not to open its own dark pool, where banks privately carry out customer trades away from the public exchanges. Recently, the firm has also been calling for regulatory changes in Washington.

While the big names like Credit Suisse and Goldman Sachs still trade many more shares of American stocks, the Canadian bank has become particularly popular with the largest, most sophisticated mutual funds and investors, according to a recent survey by the Tabb Group. Over all, it has risen to become the ninth largest broker for American stocks last year, up from the 18th largest in 2010, according to the brokerage and research firm Abel/Noser.

Its efforts to shake up American stock trading is, to some degree, an outg! rowth of a broader Canadian skepticism about the turbocharged American trading business. On Tuesday, the bank’s executives in Canada announced that it and several other investment firms would create a new exchange in Canada with the aim of having a trading platform that would be less hospitable to high-speed traders than the Toronto Stock Exchange.

Critics of modern markets say that recent innovations in trading have ended up creating conflicts of interests between banks with extensive trading operations and the customers who send them trades to execute. In some cases, the banks have an incentive to trade in exchanges that reward them with rebates, or in their own dark pool, rather than where they can get the best price for their customers.

Royal Bank of Canada says that its trading programs ignore the fees and rebates, and its customers say they notice the difference.

“They really go out of their way to try to find ways to support our business â€" sometimes actually to their own detrient,” said Robert McGrath, the head of trading at Schroders, which manages $360 billion and uses R.B.C. “That’s pretty unique in the industry.”

Some competitors say that the approach is more a marketing pitch than anything else. And given the complexity of the markets, it can be hard to get reliable statistics on whether the bank’s results are actually better for the client.

But Mr. McGrath said that according to his firm’s analysis Royal Bank of Canada spends more than other brokers to get his orders done, and gets better results.

There are downsides. The strategy makes the bank less money on each trade than other firms receive, but it aims to make up for that by winning client loyalty.

“Our philosophy is, and we sit around here all the time saying it: Doing the right thing is not always the most profitable thing,” said Robert Grubert, the head of trading at R.B.C. “As business people that’s not great, but it’s an investment in our client and the long te! rm.”

Canadian banks have generally been viewed more positively in recent years after they largely stayed away from the risky subprime mortgage market and sailed through the financial crisis. Canada’s six large banks were all recently ranked by Global Finance magazine as safer than any large American bank.

When it comes to stock trading, Canadian banks and regulators have taken a conspicuously cautious approach compared with their American counterparts. Canadian regulators last year put rules in place to limit both dark pools and high-frequency trading firms, which hit exchanges with tens of thousands of orders each second in order to take advantage of small discrepancies in stock prices.

Canadian banks, unlike American banks, have mostly hesitated to build their own high-speed trading desks. Although such trading accounts for about 42 percent of all stock trading in Canada, much of that is done by American firms.

In the United States, Royal Bank of Canada’s stock trading staff of about 30 sits together on a trading floor in the World Financial Center in Lower Manhattan. Its conference room is filled with pictures of soothing icebergs and idyllic Canadian prairies. There is a small team of employees whose only job is to study the structure of the complex stock markets and help explain it to clients.

The bank began its push to enter the big leagues of stock trading in America in 2009, just as the market’s computerized aspects went into overdrive. Before that, it was rarely a popular broker for investors looking to trade American stocks.

The man leading the effort, Brad Katsuyama, was educated in Waterloo, Ontario, and moved to New York after only a few years on R.B.C.’s trading desk in Toronto.

The operation that Mr. Katsuyama built certainly does not shun technology. In fact, it is made up largely of computer programmers who were hired from banks and high-speed trading firms. What the group aimed to do was look for ways in which the new market structure was put! ting inve! stors at a disadvantage.

One of the first things that Mr. Katsuyama’s team noticed, members said, was that his traders were having trouble getting their trades done at exchanges that were geographically closer. They discovered that in the time that it took for a trade from R.B.C. to travel through fiber optic cables from a slightly closer exchange to a slightly farther exchange, a high-speed trading firm could spot the trade, cancel its order on one exchange and raise the price on another in order to take advantage of the R.B.C. client.

The discovery led to the invention of the bank’s trading program, named Thor, which was approved last month for a patent. The program factors in the distance between exchanges and slows down signals to the closer location so that the orders reach all of the exchanges at exactly the same moment.

Dan Royal, the head of trading at the asset manager Janus Capital, said that he noticed that after Royal Bank of Canada started using Thor, he was able to buy moe stocks at the price he initially saw, rather than being forced to offer more for the same stock.

Royal Bank of Canada is generally among the best brokers in getting clients better prices, and has been improving each year, according to data from Abel/Noser.

On top of its technological innovations, the bank has recently become more of a public presence in the public debates about what the markets should look like, often standing as the lone bank in favor of a major market overhaul.

R.B.C. executives recently asked American regulators to introduce a new program that would ban exchanges from paying rebates to banks that send in customer orders. Most brokers like the rebates, and exchanges argue that the payments are necessary to stop all the trades from going into dark pools. But the bank and other financial experts have said that the rebates encourage brokers to go where they get the biggest payment, not where they get the best price for their customers.

Richard Steiner, who le! ads these! market structure efforts at Royal Bank of Canada, said, “You get to a point in the marketplace where unfortunately you need regulatory action to level the playing field.”

In the meantime, even admirers of the bank say that there is a limit to how many orders they will send to it. The bigger banks still see more orders â€" in part because of the dark pools they operate â€" and that makes them essential for investors who want to get their trades done immediately, even if it costs a bit more.

Mr. Katsuyama left Royal Bank of Canada’s offices last year to start a new exchange that caters to longer-term investors like mutual funds. Few of the remaining people on the 36-person electronic trading team are from Canada. But Mr. Grubert said a certain Canadian sobriety still pervades the company. When the news of Thor’s patent approval came through, there were just a few high fives.

“We don’t get crazy,” Mr. Grubert said. “That’s part of the culture.”

Royal Bank of Canada Gains by Putting the Brakes on Traders

The spoils on Wall Street generally go to the firm that is the fastest and most opaque. But one upstart contender is trying a distinctly counterintuitive approach.

In the financial equivalent of the Tortoise and the Hare, Royal Bank of Canada has risen up the ranks of the biggest stock trading firms in the United States by embracing a rather Canadian restraint and prudence.

At the center of the efforts by the bank’s New York trading desk is a technology that actually slows down its customers’ orders so as to evade high frequency traders. And unlike nearly every other large bank in New York, it has elected not to open its own dark pool, where banks privately carry out customer trades away from the public exchanges. Recently, the firm has also been calling for regulatory changes in Washington.

While the big names like Credit Suisse and Goldman Sachs still trade many more shares of American stocks, the Canadian bank has become particularly popular with the largest, most sophisticated mutual funds and investors, according to a recent survey by the Tabb Group. Over all, it has risen to become the ninth largest broker for American stocks last year, up from the 18th largest in 2010, according to the brokerage and research firm Abel/Noser.

Its efforts to shake up American stock trading is, to some degree, an outg! rowth of a broader Canadian skepticism about the turbocharged American trading business. On Tuesday, the bank’s executives in Canada announced that it and several other investment firms would create a new exchange in Canada with the aim of having a trading platform that would be less hospitable to high-speed traders than the Toronto Stock Exchange.

Critics of modern markets say that recent innovations in trading have ended up creating conflicts of interests between banks with extensive trading operations and the customers who send them trades to execute. In some cases, the banks have an incentive to trade in exchanges that reward them with rebates, or in their own dark pool, rather than where they can get the best price for their customers.

Royal Bank of Canada says that its trading programs ignore the fees and rebates, and its customers say they notice the difference.

“They really go out of their way to try to find ways to support our business â€" sometimes actually to their own detrient,” said Robert McGrath, the head of trading at Schroders, which manages $360 billion and uses R.B.C. “That’s pretty unique in the industry.”

Some competitors say that the approach is more a marketing pitch than anything else. And given the complexity of the markets, it can be hard to get reliable statistics on whether the bank’s results are actually better for the client.

But Mr. McGrath said that according to his firm’s analysis Royal Bank of Canada spends more than other brokers to get his orders done, and gets better results.

There are downsides. The strategy makes the bank less money on each trade than other firms receive, but it aims to make up for that by winning client loyalty.

“Our philosophy is, and we sit around here all the time saying it: Doing the right thing is not always the most profitable thing,” said Robert Grubert, the head of trading at R.B.C. “As business people that’s not great, but it’s an investment in our client and the long te! rm.”

Canadian banks have generally been viewed more positively in recent years after they largely stayed away from the risky subprime mortgage market and sailed through the financial crisis. Canada’s six large banks were all recently ranked by Global Finance magazine as safer than any large American bank.

When it comes to stock trading, Canadian banks and regulators have taken a conspicuously cautious approach compared with their American counterparts. Canadian regulators last year put rules in place to limit both dark pools and high-frequency trading firms, which hit exchanges with tens of thousands of orders each second in order to take advantage of small discrepancies in stock prices.

Canadian banks, unlike American banks, have mostly hesitated to build their own high-speed trading desks. Although such trading accounts for about 42 percent of all stock trading in Canada, much of that is done by American firms.

In the United States, Royal Bank of Canada’s stock trading staff of about 30 sits together on a trading floor in the World Financial Center in Lower Manhattan. Its conference room is filled with pictures of soothing icebergs and idyllic Canadian prairies. There is a small team of employees whose only job is to study the structure of the complex stock markets and help explain it to clients.

The bank began its push to enter the big leagues of stock trading in America in 2009, just as the market’s computerized aspects went into overdrive. Before that, it was rarely a popular broker for investors looking to trade American stocks.

The man leading the effort, Brad Katsuyama, was educated in Waterloo, Ontario, and moved to New York after only a few years on R.B.C.’s trading desk in Toronto.

The operation that Mr. Katsuyama built certainly does not shun technology. In fact, it is made up largely of computer programmers who were hired from banks and high-speed trading firms. What the group aimed to do was look for ways in which the new market structure was put! ting inve! stors at a disadvantage.

One of the first things that Mr. Katsuyama’s team noticed, members said, was that his traders were having trouble getting their trades done at exchanges that were geographically closer. They discovered that in the time that it took for a trade from R.B.C. to travel through fiber optic cables from a slightly closer exchange to a slightly farther exchange, a high-speed trading firm could spot the trade, cancel its order on one exchange and raise the price on another in order to take advantage of the R.B.C. client.

The discovery led to the invention of the bank’s trading program, named Thor, which was approved last month for a patent. The program factors in the distance between exchanges and slows down signals to the closer location so that the orders reach all of the exchanges at exactly the same moment.

Dan Royal, the head of trading at the asset manager Janus Capital, said that he noticed that after Royal Bank of Canada started using Thor, he was able to buy moe stocks at the price he initially saw, rather than being forced to offer more for the same stock.

Royal Bank of Canada is generally among the best brokers in getting clients better prices, and has been improving each year, according to data from Abel/Noser.

On top of its technological innovations, the bank has recently become more of a public presence in the public debates about what the markets should look like, often standing as the lone bank in favor of a major market overhaul.

R.B.C. executives recently asked American regulators to introduce a new program that would ban exchanges from paying rebates to banks that send in customer orders. Most brokers like the rebates, and exchanges argue that the payments are necessary to stop all the trades from going into dark pools. But the bank and other financial experts have said that the rebates encourage brokers to go where they get the biggest payment, not where they get the best price for their customers.

Richard Steiner, who le! ads these! market structure efforts at Royal Bank of Canada, said, “You get to a point in the marketplace where unfortunately you need regulatory action to level the playing field.”

In the meantime, even admirers of the bank say that there is a limit to how many orders they will send to it. The bigger banks still see more orders â€" in part because of the dark pools they operate â€" and that makes them essential for investors who want to get their trades done immediately, even if it costs a bit more.

Mr. Katsuyama left Royal Bank of Canada’s offices last year to start a new exchange that caters to longer-term investors like mutual funds. Few of the remaining people on the 36-person electronic trading team are from Canada. But Mr. Grubert said a certain Canadian sobriety still pervades the company. When the news of Thor’s patent approval came through, there were just a few high fives.

“We don’t get crazy,” Mr. Grubert said. “That’s part of the culture.”

Men’s Wearhouse Details Differences With Founder

The clothing retailer said that George Zimmer was let go in part because he wanted to take the company private by selling it to an investment firm, while the board did not want to take on the debt, reports Stephanie Clifford for The New York Times. Read more »

The Complicated Endgame for Dell

What is going on with Dell? It’s not what you think as the options for Dell’s shareholders, other than a takeover by Michael Dell and Silver Lake, look increasingly limited.

The battle for Dell is now really all about what Carl Icahn is up to. Mr. Icahn and Southeastern Asset Management have been working hard to come up with an alternative to the Michael Dell/Silver Lake bid. Despite the hard work, nothing has panned out. It truly appears that it is all maneuvering to extract more money for shareholders from the current buyers.

In other words, it has become a giant game of chicken.

But the game is tilted against Dell’s shareholders. And to understand why, you need to examine how the endgame for the July 18 vote is shaping up.

This past week was proxy advisory week. Institutional Shareholder Services and Glass, Lewis are considering whether to recommend the deal to their clients. And so the parties were making presentations to I.S.S. to try to influence it.

The proxy advsory service recommendations are always important, but here even more so because only a few big shareholders may sway the deal. That is because the deal must be approved by shareholders who are not part of the buyout group, the so-called public float.

Right now, Mr. Icahn’s funds have 10.28 percent of the public float and Southeastern has 4.83 percent. Perhaps in their camp is T. Rowe Price, Yacktman Asset Management and Pzena Investment Management. All three funds have also expressed their displeasure with the buyout. If all these parties vote no, then according to the public information the Icahn camp has 21.83 percent of the public float. Mr. Icahn and Southeastern will then need nearly 30 percent more to put them into a position to block the transaction.

The key here is whether these and other institutional shareholders are on Mr. Icahn’s side. But they may not even own these shares anymore.

These funds are institutional shareholders that are not in the business of taking bi! g risks, and they all own less than 5 percent of Dell, meaning they only publicly report their Dell holdings each quarter. T. Rowe Price, for example, was selling Dell shares last quarter and may be selling right now. We just don’t know what the institutional investors own right now. It may be that they decided this was all too risky and sold.

Even Southeastern is becoming skittish. Despite its protests that Dell is worth $24 a share, Southeastern just sold 71.7 million Dell shares to Mr. Icahn at $13.52 each, below the $13.65 that Mr. Dell and Silver Lake are offering. It’s a bit puzzling why Southeastern would do this in the middle of this contest and not wait until at least the proxy advisory service recommendations, but the bottom line is that Southeastern is not really a hedge fund in the business of taking risk. Southeastern most likely just preferred to lock in part of its losses and reduce its exposure. And by reducing its stake, Southeastern no longer owns more than 5 percent of Dell and t, too, can sell without having to disclose the information until the end of the quarter.

With the institutional shareholders uncertain, this leaves Mr. Icahn and perhaps other hedge funds. After all, Mr. Icahn was happy to buy Southeastern’s shares because the price was below Dell’s offer and he is, to put it politely, “risk-preferring.”

But again there is a puzzler here. If Mr. Icahn had simply bought shares in the market instead of spending a billion dollars or so to buy more of Southeastern’s shares, he would be much closer to his theoretical blocking position.

Perhaps Mr. Icahn firmly believes in his value case and is hoping the deal is rejected. In this case he just wants more shares from anyone. But I am puzzled again because Dell’s stock will almost certainly decline if shareholders reject the deal. Why not buy then? And so, maybe the simple fact is that Mr. Icahn is preparing for the endgame by pocketing some extra cash in case the deal goes through.

The c! ash is no! t certain, though, because the conventional wisdom is that the end game will be a close vote. But again, the dynamics work against shareholders opposed to the buyout. According to Capital IQ and based on public information from last quarter, institutional holders like mutual funds hold 57 percent of Dell while hedge funds hold only 6 percent. The figures may have changed, but this does not appear to be a situation similar to Clearwire where the hedge funds came in full force and were willing to fight for more money. Here, the game is devolving into Mr. Icahn as the lone holdout, and even he may be setting himself up to take the money at the end if the game of chicken doesn’t work.

Which leads us to what happens if the vote goes through. There is a lot of talk that this will be the mother of all appraisal actions, in which a court determines what the fair value is. The Dell case may become an example of how appraisal can be used as a remedy in these types of deals, but more likely it won’t.

Apraisal is a difficult course of action. In an appraisal proceeding in Delaware, a dissenting shareholder can get more or less than the value of its shares depending on the court’s determination. Shareholders also can’t bring appraisal as a class action, which means they have to pay out-of-pocket attorneys’ and related fees. It also takes years to pursue the action and collect any money awarded. Because of these barriers, appraisal rights are not often exercised, and when they are, it is usually only by the biggest shareholders.
Here, we have another clever idea in the Dell deal. Gary Lutin of the Shareholder Forum is organizing the Dell Valuation Trust to overcome the hurdles to appraisal. Shareholders will join together to hire lawyers, coordinate the process and share attorneys’ fees and other expenses.

Unfortunately, there are problems. First, the trust might be found to be selling a security that req! uires bot! h registration with the Securities and Exchange Commission and the filing of a registration statement before shareholders can participate in the trust. The Dell Trust may even be found by the S.E.C. to be an investment adviser requiring its own S.E.C. registration. Even assuming the trust can get past these issues, or that they do not apply, there is the problem that the trust is only charging a penny a share in administrative costs (with a minimum of $100 charged for shareholder). Lawyers are expensive and it is hard to see how they can pursue an appraisal action with this small sum. And Mr. Lutin reserves the right to not seek appraisal for the trust, something he may do once he realizes the costs involved.

The bigger issue is what will happen once shareholders exercise appraisal rights here. Two professors, Minor Myers and Charlie Korsmo, have written an excelent study of appraisal rights, “The Law and Economics of Merger Litigation: Do the Merits Matter in Shareholder Appraisal?” The authors examined 141 appraisal proceedings over six years. They found that on average 1 percent to 6 percent of public transactions each year have appraisal rights. On the whole, they found that 92 out of 141 of these proceedings settled and in those that went to trial the parties seeking appraisal were remarkably successful in obtaining additional money.

The professors’ findings reflect the conventional wisdom that appraisal is a struggle and expensive, but because it is uncommon, Delaware judges tend to reward this effort.

However, let’s face it, if appraisal became common, the Delaware judges may not look so kindly on it and instead would view it as just another form of shareholder litigation to be treated summarily. So I am skeptical that appraisal! is likel! y to be the new trend anytime soon. It was designed to be hard for a reason and to channel shareholders toward litigation.

In the Dell case in particular, the board went out of its way to adopt procedures to appeal to the Delaware courts. As I’ve noted this may have been a hollow exercise because they focused on only two bidders, but the Delaware courts are likely to give them great credit in any appraisal proceeding for this. It may be that there is a big appraisal case looming, but Dell doesn’t look like it.

Given the costs and uncertainty, this really just means that the likelihood of an appraisal proceeding, even with Mr. Icahn, may be lower than people think.

All this is contingent on the transaction going through. If it doesn’t, then we are left with the fear of an uncertain price and future for Dell, again something institutional investors abhor. I all means that there are serious forces here pushing this transaction forward. If those forces hold, this may not be quite the cliffhanger the conventional wisdom expects.

Clearwire Deal Is a Lesson in High-Stakes Bidding

The bidding for Clearwire shows that takeovers are sometimes just a poker game, albeit with billions in the pot. Depending upon how well the directors play and when they decide to fold or up the ante, shareholders can be up or down billions of dollars.

This game began with Sprint Nextel holding most of the cards. Sprint controls over 50 percent of Clearwire and in December, Sprint and Clearwire announced an agreement for Sprint to acquire the remainder for $2.97 a share. Sprint agreed to pay a 128 percent premium, but shareholder still protested that Sprint was underpaying. This is a common complaint in so-called going-private transactions, where the controlling shareholder can use its power to push through a cheap buyout.

But there is now a well-worn set of procedures aimed at preventing this, procedures that Clearwire’s board followed. A special committee of independent directors was set up to run the negotiations. Clearwire also conditioned the deal so that its shareholders other than the Sprint group had to approve it.

Still, Clearwire’s board was being criticized for making a mistake in its first step in the game â€" deciding to play and selling to its controlling shareholder. Once the dynamics of a sale to management or a big shareholder take hold, it is hard for shareholders to stop it no matter what the procedures. Witness the controversy surrounding the proposed buyout of Dell, where shareholders are being left with a choice of either selling or upsetting Dell’s founder and chief executive, Michael S. Dell.

Clearwire’s board, though, was faced with an even harder decision, since Sprint was offering $800 million in financing needed to keep Clearwire out of bankruptcy. So the board may have felt its options were limited. And an announced deal could arguably cause other bidders to emerge.

This is the thing about takeovers, there are always other players eyeing the bidding.

Sure enough, the dynamics of the game shifted in January, when Dish Network made a proposal to acquire the company for $3.30 a share.

This threw things into flux even though Clearwire’ special committee promptly rejected Dish’s bid. A growing number of Clearwire shareholders were hedge funds who were buying Sprint shares. Combined, they held positions large enough to vote down the Sprint deal, and they began a campaign to push the price up. The hedge funds might have been bluffing, but the threat was real.

While Clearwire’s board had succeeded in creating a force to push back on Sprint, it still actively opposed Dish’s bid. In a May letter to shareholders, Clearwire defended Sprint’s offer price. The directors asserted that the committee had “thoroughly evaluated” Clearwire’s prospects and that Sprint’s offer of $2.97 a share was fair. Clearwire also took a page from the Dell playbook to say that its stand-alone prospects were “highly uncertain.”

In hindsight, Clearwire’s board probably thought that it was pursuing the only deal on th! e table, ! one it had contractually agreed to support. But the Clearwire board was also doing something boards do too often in the sales process: lock into a transaction as the one and only possibility.

Still, the hedge funds stayed in the game.

In May, Sprint blinked and raised its offer to $3.40, topping Dish’s proposal. The Clearwire board promptly accepted the proposal. Sprint was being canny here, paying no more than it had to to try to sway the hedge funds and call their bluff.

But Sprint was also coming under its own pressure, as Dish had also bid for Sprint itself â€" trying to trump a competing deal in which SoftBank of Japan would pay $21.6 billion for control of the wireless operator. (Sprint shareholders approved the deal with SoftBank on Tuesday.)

It was at this point that you had to scratch your head, wondering what Dish as thinking. Sprint clearly needed Clearwire, but Dish may have just been looking to stir the pot toward a goal only it knew.

And did I mention that Dish’s chairman, Charlie Ergen, is a former professional gambler? He appeared to be doing something that a good poker player does, creating uncertainty to try to control the situation.

Clearwire’s shareholders continued to protest, and more players entered the game. The proxy advisory service Glass, Lewis & Company came out against the transaction while its rival, Institutional Shareholder Services, supported it. I.S.S. did so because it felt Clearwire’s options were limited and the price was within an appropriate range, but Glass Lewis disagreed. The service stated the offer was inadequate and alternatives hadn’t been fully explored.

It was now time for a final round of bidding. Dish made the next move and raised its offer to $4.40 a share in May. With that move, the Clearwire board now fully engaged with the sale process, acce! pting Dis! h’s offer and recommending against the Sprint deal.

Dish also raised the ante by stating that it was no longer interested in buying all of Sprint. While it might have been for business reasons, it also might have been a strategic move to affect the bidding for Clearwire.

Then last week, Sprint not only raised its bid to $5 a share, well above the price that Clearwire’s board was originally urging its shareholders to accept, but also locked up almost a majority of the outstanding shares. Seven funds holding 45 percent of the shares needed to approve the deal have now agreed to vote for the deal or otherwise sell to Sprint. This basically blocks out Dish and makes its pursuit of Clearwire hopeless.

There are lessons here.

When dealing with majority shareholders or even management, the game is initially to their advantage. Shareholders may not be getting a bad price, but it may not be the one they would have gotten without a majority shareholder. Perhaps the best remedy here is for oards to recognize this. If there is only one bidder and little leverage, they could simply choose not to sell, and find other options.

The Clearwire transaction also shows that not all shareholders are alike. Mutual funds tend to sell quickly and are more willing to leave money on the table. They are not in the business of taking on significant risk. But here, the hedge funds came into this deal full force, acquiring a blocking position that had real leverage. For all those who criticize hedge funds as short-term money, they also were willing to take risk to the benefit of all shareholders.

They did something important, putting pressure on the bidders to raise the price.

Finally, Clearwire’s clearest lesson is that the price an investment bank and a board are willing to call fair is quite different from what someone is willing to pay. Takeovers are really about how well you can play the bidders and the parties against each other and create leverage out of nothing.

And this ! is all do! ne when the real intentions of many parties are unknown. Because of this, just because a board says that a bid is not viable or there is only one bidder doesn’t mean it is the case. Sprint, and its backer SoftBank, are paying $4 billion more than Sprint originally bid, leaving one wondering if this wasn’t Dish’s goal in the first place.

So what happens next? The first round of the game is over, but the telecommunications deal-making will shift. Dish may now decide it was just happy to force Sprint to pay up. Remember T-Mobile, even after its merger with Metro PCS, remains the No. 4 wireless carrier and an oft-named target.

The game continues, and boards that don’t play it well are doomed to lose out, leaving their shareholders much poorer.

Clearwire Deal Is a Lesson in High-Stakes Bidding

The bidding for Clearwire shows that takeovers are sometimes just a poker game, albeit with billions in the pot. Depending upon how well the directors play and when they decide to fold or up the ante, shareholders can be up or down billions of dollars.

This game began with Sprint Nextel holding most of the cards. Sprint controls over 50 percent of Clearwire and in December, Sprint and Clearwire announced an agreement for Sprint to acquire the remainder for $2.97 a share. Sprint agreed to pay a 128 percent premium, but shareholder still protested that Sprint was underpaying. This is a common complaint in so-called going-private transactions, where the controlling shareholder can use its power to push through a cheap buyout.

But there is now a well-worn set of procedures aimed at preventing this, procedures that Clearwire’s board followed. A special committee of independent directors was set up to run the negotiations. Clearwire also conditioned the deal so that its shareholders other than the Sprint group had to approve it.

Still, Clearwire’s board was being criticized for making a mistake in its first step in the game â€" deciding to play and selling to its controlling shareholder. Once the dynamics of a sale to management or a big shareholder take hold, it is hard for shareholders to stop it no matter what the procedures. Witness the controversy surrounding the proposed buyout of Dell, where shareholders are being left with a choice of either selling or upsetting Dell’s founder and chief executive, Michael S. Dell.

Clearwire’s board, though, was faced with an even harder decision, since Sprint was offering $800 million in financing needed to keep Clearwire out of bankruptcy. So the board may have felt its options were limited. And an announced deal could arguably cause other bidders to emerge.

This is the thing about takeovers, there are always other players eyeing the bidding.

Sure enough, the dynamics of the game shifted in January, when Dish Network made a proposal to acquire the company for $3.30 a share.

This threw things into flux even though Clearwire’ special committee promptly rejected Dish’s bid. A growing number of Clearwire shareholders were hedge funds who were buying Sprint shares. Combined, they held positions large enough to vote down the Sprint deal, and they began a campaign to push the price up. The hedge funds might have been bluffing, but the threat was real.

While Clearwire’s board had succeeded in creating a force to push back on Sprint, it still actively opposed Dish’s bid. In a May letter to shareholders, Clearwire defended Sprint’s offer price. The directors asserted that the committee had “thoroughly evaluated” Clearwire’s prospects and that Sprint’s offer of $2.97 a share was fair. Clearwire also took a page from the Dell playbook to say that its stand-alone prospects were “highly uncertain.”

In hindsight, Clearwire’s board probably thought that it was pursuing the only deal on th! e table, ! one it had contractually agreed to support. But the Clearwire board was also doing something boards do too often in the sales process: lock into a transaction as the one and only possibility.

Still, the hedge funds stayed in the game.

In May, Sprint blinked and raised its offer to $3.40, topping Dish’s proposal. The Clearwire board promptly accepted the proposal. Sprint was being canny here, paying no more than it had to to try to sway the hedge funds and call their bluff.

But Sprint was also coming under its own pressure, as Dish had also bid for Sprint itself â€" trying to trump a competing deal in which SoftBank of Japan would pay $21.6 billion for control of the wireless operator. (Sprint shareholders approved the deal with SoftBank on Tuesday.)

It was at this point that you had to scratch your head, wondering what Dish as thinking. Sprint clearly needed Clearwire, but Dish may have just been looking to stir the pot toward a goal only it knew.

And did I mention that Dish’s chairman, Charlie Ergen, is a former professional gambler? He appeared to be doing something that a good poker player does, creating uncertainty to try to control the situation.

Clearwire’s shareholders continued to protest, and more players entered the game. The proxy advisory service Glass, Lewis & Company came out against the transaction while its rival, Institutional Shareholder Services, supported it. I.S.S. did so because it felt Clearwire’s options were limited and the price was within an appropriate range, but Glass Lewis disagreed. The service stated the offer was inadequate and alternatives hadn’t been fully explored.

It was now time for a final round of bidding. Dish made the next move and raised its offer to $4.40 a share in May. With that move, the Clearwire board now fully engaged with the sale process, acce! pting Dis! h’s offer and recommending against the Sprint deal.

Dish also raised the ante by stating that it was no longer interested in buying all of Sprint. While it might have been for business reasons, it also might have been a strategic move to affect the bidding for Clearwire.

Then last week, Sprint not only raised its bid to $5 a share, well above the price that Clearwire’s board was originally urging its shareholders to accept, but also locked up almost a majority of the outstanding shares. Seven funds holding 45 percent of the shares needed to approve the deal have now agreed to vote for the deal or otherwise sell to Sprint. This basically blocks out Dish and makes its pursuit of Clearwire hopeless.

There are lessons here.

When dealing with majority shareholders or even management, the game is initially to their advantage. Shareholders may not be getting a bad price, but it may not be the one they would have gotten without a majority shareholder. Perhaps the best remedy here is for oards to recognize this. If there is only one bidder and little leverage, they could simply choose not to sell, and find other options.

The Clearwire transaction also shows that not all shareholders are alike. Mutual funds tend to sell quickly and are more willing to leave money on the table. They are not in the business of taking on significant risk. But here, the hedge funds came into this deal full force, acquiring a blocking position that had real leverage. For all those who criticize hedge funds as short-term money, they also were willing to take risk to the benefit of all shareholders.

They did something important, putting pressure on the bidders to raise the price.

Finally, Clearwire’s clearest lesson is that the price an investment bank and a board are willing to call fair is quite different from what someone is willing to pay. Takeovers are really about how well you can play the bidders and the parties against each other and create leverage out of nothing.

And this ! is all do! ne when the real intentions of many parties are unknown. Because of this, just because a board says that a bid is not viable or there is only one bidder doesn’t mean it is the case. Sprint, and its backer SoftBank, are paying $4 billion more than Sprint originally bid, leaving one wondering if this wasn’t Dish’s goal in the first place.

So what happens next? The first round of the game is over, but the telecommunications deal-making will shift. Dish may now decide it was just happy to force Sprint to pay up. Remember T-Mobile, even after its merger with Metro PCS, remains the No. 4 wireless carrier and an oft-named target.

The game continues, and boards that don’t play it well are doomed to lose out, leaving their shareholders much poorer.

Glenview Seeks to Replace Board of Hospital Group

An investor in Health Management Associates, the for-profit hospital system, proposed on Tuesday to replace the company’s board with a new slate of candidates.

Glenview Capital Management, a hedge fund that owns a 14.6 percent stake in H.M.A., argued in a letter to fellow shareholders that the current board had failed to deliver adequate returns. The hedge fund called on shareholders to support eight new nominees for the board.

“For over a decade, despite the best efforts of well-intentioned individuals at the company, H.M.A. has fallen short,” Glenview, which was founded by Lawrence M. Robbins, said in the letter. “Culturally, we believe that an overemphasis on aggregate growth at the expense of per-share value creation and optimal return on capital has led to a substandard strategic and financial approach.”

Shares of H.M.A. opened higher at the start of trading on Tuesday but later fell. Around midday, the stock was down almost 1 percent, to $15.36 a share.

MaryAnn Hodg, a spokeswoman for H.M.A., said the company was preparing a statement.

The announcement by Glenview helps clarify the intentions of the hedge fund, which disclosed in May that it had increased its stake in the hospital group. It also increases pressure on the board. After the May filing, the company adopted a so-called poison pill takeover defense.

Glenview has said it has no interest in acquiring the company. But speculation about a possible takeover has persisted, especially after H.M.A. announced in May that its chief executive, Gary D. Newsome, would retire at the end of July to lead a religious mission in South America.

Earlier this month, Glenview asked the board to remove or change the poison pill to allow investors to amass a stake above 15 percent.

The hospital company said it had hired Morgan Stanley and Weil, Gotshal & Manges to consider “strategic alt! ernatives and opportunities.”

In the letter on Tuesday, Glenview weighed in on the question of whether it would be better to sell the company or to change management and remain independent.

“Our answer may surprise you: we don’t know,” the letter said.

“We have suggested that the company conduct a rigorous and unbiased process to explore all avenues of shareholder value creation including improved capital allocation as well as an evaluation of a sale to potential strategic acquirers,” the hedge fund continued.

Glenview said in the letter that all of its eight nominees had experience in the health care business and that a majority had worked in C-suite roles. The hedge fund proposed that a team from Alvarez & Marsal, a professional services firm, serve as interim management under the new board.

The current directors, Glenview said, appear “insular and stale.” The firm provided further information about its campaign on aWeb site.

H.M.A., which is based in Naples, Fla., has struggled recently with falling inpatient admissions to its hospitals. The company was also the subject of a critical report by CBS’s “60 Minutes” that ran last year.

Glenview, for its part, has stakes in several publicly traded for-profit hospital systems. Mr. Robbins talked up hospital stocks at an investor conference a year ago.

Consortium in Canada Plans Rival Exchange to Curb Rapid Trading

OTTAWA â€" A group led by the Royal Bank of Canada on Tuesday announced plans to set up a rival to the Toronto Stock Exchange, with the aim of circumventing the rapid trading systems that have come to heavily influence the markets.

R.B.C., Canada’s largest financial institution, found itself on the outside last year after a consortium that included most of Canada’s other major banks acquired the TMX Group, the parent company of the Toronto exchange and the dominant force in Canadian equity trading

In an effort to distinguish itself from the long-established exchange, the consortium has developed software systems it says will curb or eliminate the ability of computerized, high frequency trading, which hit exchanges with tens of thousands of orders each second in order to take advantage of small discrepancies in stock prices.

The new company will be called Aequitas Innovations and its partnes include Barclays.

“It’s not more of the same,” Jos Schmidt the chief executive of Aequitas said in an interview. “More of the same would not be adding any value.”

A study published by the Investment Industry Regulatory Agency of Canada last year found that 42 percent of Canadian trades appeared to involve high-frequency trading. Such trading has been a cause of study and concern in many countries, including the United States, and Europe and Germany developing rules and legislation to regulate the practice

Supporters of high-frequency trading say that it creates efficient markets by narrowing the gaps between bid and ask prices and increases liquidity. But regulators and other investors are concerned that the systems increase volatility and ! instability, shut out small retail investors, force brokerage houses into a costly technology arms race and create several potential avenues of abuse and manipulation.

To curb high-frequency trades, Aequitas will introduce new rules and use software it has developed to, among other things, block specific kinds of small orders many high frequency traders use to determine the intentions of major funds.

Mr. Schmidt said that Aequitas has applied for patents on its software and that it hopes to sell it to exchanges in other countries.

Eric Kirzner, a professor of finance at the University of Toronto’s Rotman School of Management, said that while competition would be welcomed in Canada, he was less certain about how practical it would be to rein in high-frequency trading.

After much study he said he remained uncertain about what restrictions should be employed.

“This begs the question about whether they will be able to distinguish between acceptable kinds of high frequency tradig and those that are predatory,” he said. “It seems to be a very tall order but there are good technology people out there.”

The new exchange plans to offer a different fee structure than the Toronto exchange which should lower costs for many investors and introduce a junior market for companies that are too small to launch initial public offerings.

In addition to Barclays, the consortium’s partners include PSP Public Markets, the pension fund manager for Canada’s public service and military; CI Investments, a money management firm; the Canadian branch of New York based ITG; and IGM Financial, a major Canadian mutual fund manager. The group will apply for regulatory approval later this year.

Sprint Shareholders Approve Sale to SoftBank

Shareholders of Sprint Nextel voted on Tuesday to approve the sale of a majority stake to SoftBank of Japan for $21.6 billion, ending months of drama about the fate of the company.

About 98 percent of the votes cast at Tuesday’s meeting, held in Sprint’s hometown, Overland Park, Kan., approved the transaction. That represents about 80 percent of the company’s outstanding stock, it said in a statement.

“Today is a historic day for our company, and I want to thank our shareholders for approving this transformative merger agreement,” Daniel Hesse, Sprint’s chief executive, said in a statement on Tuesday. “The transaction with SoftBank should enhance Sprint’s long-tem value and competitive position by creating a company with greater financial flexibility.”

The deal still requires the approval of the Federal Communications Commission.

A SoftBank representative said in a statement: “We are pleased to have the overwhelming support of Sprint shareholders. We look forward to receiving F.C.C. approval and promptly completing the transaction so that we can begin implementing our plans to deploy an advanced Sprint network that supports innovative devices and service packages tailored to the rapidly expanding mobile needs of U.S. consumers.”

Through the complex deal, SoftBank will gain a 78 percent stake in Sprint and a foothold in the American cellphone market. In return, Sprint is gaining a deep-pocketed backer committed to financing a turnaround and helping it take on its bigger rivals, ! Verizon Wireless and AT&T.

The approval of the deal came after an unexpected challenge to SoftBank by Dish Network, which offered a rival takeover bid for Sprint in April and mounted a fierce campaign to derail SoftBank’s offer.

SoftBank countered two weeks ago by sweetening its offer and locking up the support of Sprint’s second-biggest shareholder, the hedge fund Paulson & Company.

Sprint is still seeking to buy full control of Clearwire, whose wireless spectrum holdings will go toward building out its own high-speed data network. Earlier this month, Sprint sweetened its bid for the 50 percent of Clearwire that it doe not own in an attempt to defeat a rival offer by Dish.

Sprint Shareholders Approve Sale to SoftBank

Shareholders of Sprint Nextel voted on Tuesday to approve the sale of a majority stake to SoftBank of Japan for $21.6 billion, ending months of drama about the fate of the company.

About 98 percent of the votes cast at Tuesday’s meeting, held in Sprint’s hometown, Overland Park, Kan., approved the transaction. That represents about 80 percent of the company’s outstanding stock, it said in a statement.

“Today is a historic day for our company, and I want to thank our shareholders for approving this transformative merger agreement,” Daniel Hesse, Sprint’s chief executive, said in a statement on Tuesday. “The transaction with SoftBank should enhance Sprint’s long-tem value and competitive position by creating a company with greater financial flexibility.”

The deal still requires the approval of the Federal Communications Commission.

A SoftBank representative said in a statement: “We are pleased to have the overwhelming support of Sprint shareholders. We look forward to receiving F.C.C. approval and promptly completing the transaction so that we can begin implementing our plans to deploy an advanced Sprint network that supports innovative devices and service packages tailored to the rapidly expanding mobile needs of U.S. consumers.”

Through the complex deal, SoftBank will gain a 78 percent stake in Sprint and a foothold in the American cellphone market. In return, Sprint is gaining a deep-pocketed backer committed to financing a turnaround and helping it take on its bigger rivals, ! Verizon Wireless and AT&T.

The approval of the deal came after an unexpected challenge to SoftBank by Dish Network, which offered a rival takeover bid for Sprint in April and mounted a fierce campaign to derail SoftBank’s offer.

SoftBank countered two weeks ago by sweetening its offer and locking up the support of Sprint’s second-biggest shareholder, the hedge fund Paulson & Company.

Sprint is still seeking to buy full control of Clearwire, whose wireless spectrum holdings will go toward building out its own high-speed data network. Earlier this month, Sprint sweetened its bid for the 50 percent of Clearwire that it doe not own in an attempt to defeat a rival offer by Dish.

Private Equity Finding Exits Easier Than Buyouts

Private equity is finding the egress a lot easier than the entrance.

Blackstone Group’s sale of Vanguard Health Systems to rival hospital chain Tenet Healthcare for more than $1.7 billion is just the latest example of a successful cash-out. The leveraged buyout firm led by Stephen A. Schwarzman more than doubled its money on the deal. Finding suitable investments - and companies that will accept private equity cash - is harder.

Private equity firms have long contended that successful sales are what counts. On that measure, things are going well. Leon Black said earlier this year that valuations were so favorable that Apollo is selling everything “not nailed down.” Big deals done at the height of the L.B.O. boom are finding buyers. Warburg Pincus nearly hit a triple when it sold Bausch and Lomb for $8.7 billion last month. Even deals that once looked like dogs, such as the $8.5 billion buyout of Home Depot Supply in 2007, are now in the money.

Vanguard’s sale is typical. In 2004 Blackstone injected just under $500 million of equity to acquire a majority stake in the hospital chain. The sponsor recouped essentially its entire investment via dividends. The sale announced on Monday mints another $650 million for Blackstone.

Buying new companies is a different story. Some $62 billion worth of deals greater than $1 billion have been announced this year, according to Thomson Reuters. That’s slightly more than all of last year. Yet the two biggest - a $27 billion purchase of Heinz and $18 billion purchase of Dell - are atypical. The former was more Warren E. Buffett than private equity, and the latter is largely a mogul buying back his company.

Ignore these two, and there have been only five transactions amounting to $16 billion. The industry has $187 billion of dry powder to do deals, according to Preqin. At typical leverage ratios, that could amount to over $700 billion of deals. At this year’s rate, it would take decades to put that money to work.

Part of the explanation lies in a mistrust of current valuations. But a hardening of boardroom attitudes since the L.B.O. boom figures, too. The industry is seen by some as being too sharp-elbowed to be a desirable buyer. These may be halcyon days to sell, but the industry may need to buff its reputation if it wants to replenish its inventory.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Private Equity Finding Exits Easier Than Buyouts

Private equity is finding the egress a lot easier than the entrance.

Blackstone Group’s sale of Vanguard Health Systems to rival hospital chain Tenet Healthcare for more than $1.7 billion is just the latest example of a successful cash-out. The leveraged buyout firm led by Stephen A. Schwarzman more than doubled its money on the deal. Finding suitable investments - and companies that will accept private equity cash - is harder.

Private equity firms have long contended that successful sales are what counts. On that measure, things are going well. Leon Black said earlier this year that valuations were so favorable that Apollo is selling everything “not nailed down.” Big deals done at the height of the L.B.O. boom are finding buyers. Warburg Pincus nearly hit a triple when it sold Bausch and Lomb for $8.7 billion last month. Even deals that once looked like dogs, such as the $8.5 billion buyout of Home Depot Supply in 2007, are now in the money.

Vanguard’s sale is typical. In 2004 Blackstone injected just under $500 million of equity to acquire a majority stake in the hospital chain. The sponsor recouped essentially its entire investment via dividends. The sale announced on Monday mints another $650 million for Blackstone.

Buying new companies is a different story. Some $62 billion worth of deals greater than $1 billion have been announced this year, according to Thomson Reuters. That’s slightly more than all of last year. Yet the two biggest - a $27 billion purchase of Heinz and $18 billion purchase of Dell - are atypical. The former was more Warren E. Buffett than private equity, and the latter is largely a mogul buying back his company.

Ignore these two, and there have been only five transactions amounting to $16 billion. The industry has $187 billion of dry powder to do deals, according to Preqin. At typical leverage ratios, that could amount to over $700 billion of deals. At this year’s rate, it would take decades to put that money to work.

Part of the explanation lies in a mistrust of current valuations. But a hardening of boardroom attitudes since the L.B.O. boom figures, too. The industry is seen by some as being too sharp-elbowed to be a desirable buyer. These may be halcyon days to sell, but the industry may need to buff its reputation if it wants to replenish its inventory.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Dole Food Names Special Committee

Dole Food has organized a special committee of directors to review the $12-a-share buyout offer made by its chief executive, David H. Murdock.

China’s Market Stress: Pay Attention to the Politics

The Shanghai Composite stock index is once again in a bear market, having dropped 20 percent since its recent peak. The index plunged 5.3 percent Monday and at one point Tuesday had fallen another 5.8 percent, though it rebounded to close down only 0.19 percent.

The proximate cause of the drop is the stress in the Chinese interbank market that began last week. The index’s weakness was probably exacerbated Tuesday morning by an article in the official People’s Daily (Chinese) declaring that the stock market regulator and central bank were not “wet nurses” and should not bail out the market.

Interbank rates jumped to double digits last week on liquidity fears, the People’s Bank of China made no public statements or shows of support for the market, rumors of defaults swirled and ome foreign commentators even suggested that China’s financial system was on the verge of a Lehman Brothers-like crash. (It was not.)

While significantly higher than they were two weeks ago, those interbank rates have now dropped well below double digits.

On Monday, the People’s Bank of China publicly issued a statement saying liquidity is at a “reasonable level” while telling commercial banks to strengthen their liquidity management and channel financing to the real, productive sectors of the economy. The central bank had actually circulated this statement to banks on June 17 but only made it public Monday. At a briefing in Shanghai on Tuesday, a central bank official said the interbank rates were now at “reasonable levels” and the seasonal factors that led to the spike would s! oon pass..

So is the credit shortage nearly over and the party about to resume? Don’t bet on it.

China has a debt problem and 2013 credit growth through May, as measured by M2, was 15.8 percent, well above the government’s stated target of 13 percent. If the government is serious about reining in credit growth then achieving the 2013 gross domestic product growth target of 7.5 percent is unlikely. Some investment banks have started to figure this out and are cutting 2013 G.D.P. growth forecasts, again.

The actions by the People’s Bank of China, or lack thereof, in the interbank market last week appear to have been a warning to the banks to get their affairs in order, as well as a real time stress test intended to uncover faults in the system.

That cold turkey approach is risky. There are so many interconnected financial products that the regulators may find it ipossible to predict which troubled instrument may explode into a bigger problem. And conventional wisdom is that Beijing will not allow any significant trust or wealth management products to default, nor will it allow any banks to fail, given the potential impact on social stability, leading bankers to still expect a lifeline.

CHINA LOOKS TO HAVE A CLASSIC MORAL HAZARD PROBLEM. Unless the government either allows defaults and failures, or arrests some bankers, how can it force the banks to improve their risk and liquidity management and really start channeling financing to more productive parts of the economy?

Actually, China arrested a few bankers this year as part of an investigation into shady practices in the interbank market. The crackdown has been led by Wang Qishan, a financial markets expert who is now the Party’s anti-corrupti! on czar. Caixin magazine reported in early May that:

The central bank is mulling broad changes to the interbank bond market in the wake of scandals that have led to the arrest of several executives working for large financial institutions.”

It is possible that those arrests are unrelated to last week’s interbank market stress. We should, however, consider the possibility that these moves, along with a State Council announcement on June 19 of a package of financial reform proposals, are part of a larger plan to lay the groundwork for the painful and desperately needed reform proposals reportedly up for approval at the Third Plenum of the 18th Party Congress that is expected to meet in October.

As Iwrote in the China Insider column of May 28, it is sometimes hard to understand Chinese economics without paying attention to the politics:

President Xi inherited many challenges, including but not limited to: a troubled economy; a growing debt mess; widespread corruption in the party and society in general; and a huge environmental crisis. Combine those challenges with what looks to be a very significant economic reform agenda that will affect many powerful interests across society and it may be that the logical response from the party is to batten down the ideological hatches, rectify the party, strengthen control over the military, and increase oversight of the media (especially the Internet) and educational institutions before undertaking those jarring economic changes.

The president continues to take steps to tighten control. Last week he ! officially kicked off the Mass Line Education campaign. The campaign is set to last a year and is intended in part to purge the party of formalism, bureaucratism, hedonism and extravagance. It appears that he has also decided he needs to purge the economy of its excesses.

Even if Mr. Xi succeeds in pushing through ambitious economic reform package, as we should assume he will, growth in China is likely to be slower than consensus expectations. A long-time China bull, Arthur Kroeber, managing director of GaveKal Dragonomics, is now pessimistic about growth prospects through 2014, as he wrote in a note to clients last week:

The combination of tighter credit and structural reforms means that with the best of luck China could post G.D.P. growth in 2014 of a bit over 6 percent, its weakest showing in 15 years and well below most current forecasts. A policy mistake such as excessive monetary tightenin could easily push growth below the 6 percent mark. Banks and corporations appear finally to be getting the message that the new government, unlike its predecessor, will not support growth at some arbitrary level through investment stimulus. The dire performance of China’s stock markets in the past two weeks reflects this growing realization among domestic investors, although we suspect stocks have further to fall before weaker growth is fully discounted.

There are a lot of risks to reining in credit and pushing deeper economic reforms, and there are many special interests that will be affected. But Mr. Xi clearly sees that there are greater risks from inaction, and at the end of the day there is no bigger special interest than the party and its ability to maintain power.

New York Suit Against Greenberg Allowed to Proceed

A New York State appeals court ruled on Tuesday that a lawsuit by the attorney general against Maurice R. Greenberg, the former chief executive of the American International Group, can proceed.

The decision by the Court of Appeals will let the attorney general, Eric T. Schneiderman, move forward with an eight-year-old case first brought by Eliot L. Spitzer and then by Andrew M. Cuomo â€" and could eventually lead to an appearance by Mr. Greenberg on the stand.

The battle arises from accusations that Mr. Greenberg and a former chief financial officer of A.I.G., Howard Smith, allowed the insurer to commit accounting fraud that led to a $3.9 billion restatement in 2005. The case predates the firm’s $182 billion government bailout during the financial crisis of 2008.

Earlier this year, Mr. Schneiderman took the unusual step of dropping his right to contest the settlement of a separate class-action lawsuit, pushing instead with his effort to bar Mr. Greenberg from the securities industry ! and from serving as a director or officer of a publicly traded company.

Some have publicly questioned the wisdom of pursuing the lawsuit. Two former New York governors, Mario Cuomo and George Pataki, wrote an op-ed in The Wall Street Journal earlier this year that criticized Mr. Schneiderman’s efforts as “a dead-end case” that was not a worthwhile endeavor.

In its decision, the appeals court noted the long duration of the lawsuit, writing, “The course of the litigation has been long, and some issues have fallen by the wayside.” But the judges dismissed arguments by lawyers for Mr. Greenberg and Mr. Smith that other legal battles, including a lawsuit by the Securities nd Exchange Commission, fully covered all possible relief.

“There is no doubt room for argument about whether the lifetime bans that the attorney general proposes would be a justifiable exercise of a court’s discretion,” the judges wrote. “But that question, as well as the availability of any other equitable relief that the attorney general may seek, must be decided by the lower courts in the first instance.”

Damien LaVera, a spokesman for Mr. Schneiderman’s office, said in a statement: “Attorney General Schneiderman is committed to ensuring that anyone who commits fraud is held accountable for their actions no matter how wealthy they are or how many powerful friends they have. Today’s decision means we will have an opportunity to establish in court Hank Greenberg’s role in this fraud and hold him accountable.”

David Boies, a lawyer for Mr. Greenberg, said in a statement: “We are pleased that the attorney general’s claim for damages, which throughout the eight years of this litigation has been the focus of the case, has now been dismissed. We are disappointed that the Court of Appeals did not dismiss the attorney general’s recently raised claims for injunctive relief, but we are confident that the action will be dismissed by the lower courts because the state cannot demonstrate that it is entitled to injunctive or disgorgement remedies against Mr. Greenberg and Mr. Smith.”

Money Boo Boo

A financial double feature from "The Daily Show With Jon Stewart." John Oliver, the guest host, tackled credit rating agencies and Jason Jones provides some lessons for the "regulation-loving" Canadian bankers. Read more »

U.S. Poised to Sue Corzine Over MF Global

U.S. POISED TO SUE CORZINE OVER MF GLOBAL  |  Federal regulators are preparing to sue Jon S. Corzine over the collapse of MF Global and the brokerage firm’s misuse of customer money, DealBook’s Ben Protess reports. The Commodity Futures Trading Commission, the agency that regulated MF Global, plans to approve the lawsuit as soon as this week against Mr. Corzine, the former New Jersey governor who ran the firm until its bankruptcy in 2011, according to law enforcement officials with knowledge of the case. In a rare move, the agency has informed Mr. Corzine’s lawyers that it intends to file the civil case without offering him the opportunity to settle, setting up a potentially lengthy legal battle, Mr. Protess reports.

“Without directly linking Mr. Corzine to the dsappearance of more than $1 billion in customer money, the trading commission will probably blame the chief executive for failing to prevent the breach at a lower rung of the firm, the law enforcement officials said,” Mr. Protess writes. “If found liable, he could face millions of dollars in fines and possibly a ban from trading commodities, jeopardizing his future on Wall Street.” A spokesman for Mr. Corzine in a statement denounced the trading commission for planning to file what he called an “unprecedented and meritless civil enforcement action.”

Mr. Protess says: “A case would darken the cloud over the legacy of Mr. Corzine, 66, who as a onetime Democratic governor and senator from New Jersey and a former chief of Goldman Sachs has long been a confidant of leaders in Washington and on Wall Street. But it would also suggest that authorities have all but removed a greater threat: criminal charges.”

DID BERNANKE ! SAY TOO MUCH?  |  Ben S. Bernanke, the normally restrained Federal Reserve chairman, said far more during a news conference on Wednesday than he usually does, and he went further about the Fed’s policy plans than the central bank committee had said in its official statement. With markets now in a tailspin, some economists and others are asking whether Mr. Bernanke is being too chatty, Andrew Ross Sorkin writes in the DealBook column. Even a regional president of the Fed, James B. Bullard, publicly questioned the decision to let Mr. Bernanke expound on the committee’s thinking.

“It wasn’t that long ago that any Fed chairman hardly said a word,” Mr. Sorkin writes. “Ever since the financial crisis, with calls for more transparency, Mr. Bernanke has taken a different tack, holding news conferences and providing specific details and timelines for the Fedâ€s policies.”

A STAMPEDE FROM BONDS  |  Investors have been exiting their bond investments with unprecedented ferocity over the last two months and particularly over the last two weeks, Nathaniel Popper and Peter Eavis report in DealBook. “A bond sell-off has been anticipated for years, given the long run of popularity that corporate and government bonds have enjoyed. But most strategists expected that investors would slowly transfer out of bonds, allowing interest rates to slowly drift up.” Instead, ever since Mr. Bernanke’s remarks, waves of selling have convulsed the markets.

The pain has spilled over into stock markets, but the real pressure has been felt in the bigger and more closely watched bond market. Retail investors have sold a record $48 billion worth of shares in bond mutual f! unds so f! ar in June, according to the data company TrimTabs. Hedge funds and other big institutional investors have also been closing out positions or stepping back. “The feeling you are getting out there is that people are selling first and asking questions later,” said Hans Humes, chief executive of the hedge fund Greylock Capital.

ON THE AGENDA  |  Sprint shareholders vote on the $21.6 billion bid from SoftBank. Yahoo holds its annual meeting at 11 a.m. The S.&P./Case-Schiller Index of home prices is out at 9 a.m. Data on new home sales in May is out at 10 a.m. Walgreen reports earnings before the market opens. Apollo Group reports earnings this evening.

HIGH-END RETAIL DEALS IN THE WORKS  |  High-end fashion still has appeal for Wall Street, Michael J. de la Merced and Peter Lattman write in DealBook. The private equity owners of Neiman Marcus, the owner of Bergdorf Goodman in Manhattan, on Monday filed for an initial public offering. And the owner of Lord & Taylor is exploring a potential bid for Saks Inc., the 90-year-old department store chain, according to someone briefed on the matter. “Interest in both companies highlights how the market for Chanel dresses and Louis Vuitton handbags has stayed strong, despite the financial crisis. Revenue at the two retailers hovers just below 2008 levels.”

Mergers & Acquisitions »

Investors Raise Buyout Offer for Club Med  |  The largest shareholders of Club Med have increased their offer to buy the French resort operator in a bid! that val! ues the company at around $740 million, as they prepare for a big push into China.
DealBook »

Men’s Wearhouse Founder Ponders a Comeback  |  George Zimmer, who was ousted from the company he founded and then quit the board on Monday, is speaking with legal advisers about possible options, Reuters reports. “Industry bankers and lawyers said these options could involve teaming up with private equity firms to launch a buyout bid or trying to wage a proxy battle with the help of shareholder activists or institutional investors.”
REUTERS

Ichn and Southeastern Press Case for Scrapping Dell Buyout  |  In a presentation for fellow investors, Carl C. Icahn and the money manager Southeastern Asset Management argued that Dell remained worth much more than the $13.65 a share that Michael S. Dell and his partner are offering.
DealBook »

Cost Savings Make Vodafone Deal Palatable  |  Still, Vodafone has work to do to overcome a reputation for being lumbering and for overpaying in mega-deals, Quentin Webb of Reuters Breakingviews writes.
REUTERS BREAKINGVIEWS

Warner Bros. Puts TV and Mo! vie Units! Under One Executive  | 
NEW YORK TIMES

INVESTMENT BANKING »

Inside the Bailout of Anglo Irish Bank  |  The Irish Independent describes a recorded phone conversation in 2008 between two executives of Anglo Irish Bank discussing the lender’s upcoming government bailout. The senior manager, John Bowe, is heard “laughing and joking” and using a vulgarity to explain how he determined the amount of money needed in the bailout, the newspaper says.
INEPENDENT

When Brevity Is the Soul of Wall Street Research  |  The gloom over Wall Street in recent days has prompted lots of commentary from analysts trying to make sense of the markets. But for one analyst, a single word did the trick.
DealBook »

Credit Warnings Offer a Glimpse Into China’s Banks  |  “China’s hidden banking system is coming out of the shadows as the government seeks to rein in the excessive lending that it fears could spin out of control,” The New York Times writes.
NEW YORK ! TIMES

Amid Weakening Demand, Banks Prepare to Sell Bonds  |  Bloomberg News reports: “Wall Street firms spent the past six months increasing commercial mortgage origination as investors bought the most debt in six years. That’s now backfiring as banks prepare to market $7.5 billion of loans earmarked to be sold as bonds before credit markets took a dive this month.”
BLOOMBERG NEWS

PRIVATE EQUITY »

Seibu Pushes Aside Cerberus’s Call for New Directors  |  The American private equity firm Cerberus, a major shareholder in Seibu, had soughtto shake up the Japanese company’s leadership in an effort to increase value.
DealBook »

K.K.R. to Buy PRA, a Clinical Testing Company, for $1.3 Billion  |  Kohlberg Kravis Roberts has agreed to buy PRA International, a provider of clinical laboratory testing services for drug makers, from another private equity firm, Genstar Capital. Terms weren’t disclosed, but a person briefed on the matter said that the purchase price was about $1.3 billion.
DealBook »

HEDGE FUNDS »

Stormy Markets Soak a Bridgewater Fund  |  The $70 billion “all weather” fund of Bridgewater Associates “is down roughly 6 percent through this month and down 8 percent for the year, said two people familiar with the fund’s performance,” Reuters reports.
REUTERS

Glenview Offers Investors a Higher Fee  |  Glenview Capital Management announced a new option for investors in which it would lower its management fee in exchange for a higher incentive fee, Absolute Return reports.
ABSOLUTE RETURN

Former Hedge Fund Partner Opens London Art Gallery  |  Kashya Hildebrand, a former partner at Moore Capital Management, who is married to Philipp Hildebrand, the former president of the Swiss National Bank, is moving her art gallery to London from Zurich, Bloomberg News reports.
REUTERS

I.P.O./OFFERINGS »

EP Energy Said to Consider an I.P.O.  |  EP Energy, an oil and gas company that was bought last year by private equity investors including Apollo Global Management, “is working with investment banks to prepare for an initial public offering as soon as this year, three people f! amiliar w! ith the matter said on Monday,” Reuters reports.
REUTERS

The Challenges Ahead for Gogo  |  Shares of Gogo, a provider of in-flight Internet service, have fallen since the company’s I.P.O. last week. “The immediate problem for Gogo is that most travelers don’t pay for Wi-Fi access when they fly,” Bloomberg Businessweek reports.
BLOOMBERG BUSINESSWEEK

VENTURE CAPITAL »

Demand Media Buys E-Commerce Site  |  Demand Media said it acquired Society6, an online marketplace with about 300,000 members, for $94 million in cash, in a foray into e-commerce.
REUTERS

LEGAL/REGULATORY »

Recent Ex-Senators Find Soft Landings on Corporate Boards  |  Departing senators are finding that the life of an ex-lawmaker can be lucrative. In recent months, several have found spots in corporate boardroom, even if they have no direct business experience in the industries wooing them.
DealBook »

!

Rajaratnam Conviction Upheld by Appeals Court  |  The appeals court rejected arguments that federal prosecutors had used deceptive methods to obtain permission from a judge to tap a former hedge fund manager’s cellphone.
DealBook »

More Use of Wiretaps Is Likely to Come in Trading Cases  |  An appeals court decision in the Raj Rajaratnam insider trading case means that prosecutors will have a strong impetus to employ wiretaps in other white-collar crime investigations, Peter J. Henning writes in the White ollar Watch column.
DealBook »

A Task Force for Looking Into Libor  |  Bloomberg News reports: “Mark Carney, the next Bank of England governor, said global regulators will set up a task force with banks in a bid to repair or replace tarnished benchmarks in the wake of Libor and other rate-rigging scandals.”
BLOOMBERG NEWS

Mass Layoffs at a Top-Flight Law Firm  | ! The surprising move by Weil, Gotshal & Manges, one of the country’s most prestigious and profitable law firms, underscores the financial difficulties facing the legal profession.
DealBook »

Making Misconduct a Crime  |  A proposal in Britain to allow the prosecution of bank executives when they engage in reckless misconduct raises the question of whether the United States should consider a similar measure, Peter J. Henning writes in the White Collar Watch column.
DealBook »

The Bankers That Aren’t Too Big to Jail  |  Attorney General Eric H. Holder Jr. et off a heated debate earlier this year when he suggested that some financial institutions may be too big to prosecute. But it’s a different story when the banks are small. To illustrate the point, American Banker has a slideshow of bankers from small firms that have been brought to justice.
AMERICAN BANKER