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Valuation thriller
August, 10th 2006
Three bullets fired point blank. A dead man left to rot in a junkyard. With that begins the prologue of Sanjay Sanghoee's thriller Merger from Manjul Books (www.manjulindia.com). The homicide was but "the final act of a saga of greed, corruption, and mayhem that began almost three months earlier, under the guise of a corporate merger," narrates the author before beginning part 1, `The Setup'. There, you'd meet Vikram `Vik' Suri, the CEO of TriNet Communications "a juggernaut in the world of media and telecommunications." Vik deconstructs a 30-page document, `a loaded gun'. Elsewhere is a teenager Corey Meeks, who is happy that "an anonymous corporation was paying him the big bucks to hack into computer systems and conduct electronic surveillance on their rivals." The scene shifts to Morgenthal Winters or MW `a white-shoe investment bank', which was among the top three M&A or mergers and acquisitions advisors. There, the corporate culture was one of respectful indifference, narrates Sanjay. "Everyone knew what they were doing, seldom exchanged advice with their peers, had professional respect for each other, and didn't give a damn about anyone personally. It was the perfect environment in which to execute high profile deals within tight deadlines." At MW, Steve Brandt is busy with Tom Carter, discussing Vik's plans to bid for Luxor Satellite. At $18 billion, it could be the biggest deal coming MW's way. "The standard investment banking fee for something like this was 0.3 per cent that meant a merger fee of more than $50 million," calculates Tom. And to add to the pace, MW has only ten days to do `due diligence, prepare the valuation, and deliver a fairness opinion.' The troop gets ready, but first a codename for the deal. "Picking codenames for a transaction was one of the few enjoyable parts of his job," writes Sanjay about Chris Back, the lowest banker on the team. "Most merger assignments in investment banking were referred to by codenames to minimise the chances of inadvertent leaks, especially by administrative staff." Picking codenames was "the one assignment where the analysts were actually encouraged to use their brains." Project Lens, suggests Chris, sticking to the rule of beginning with the first letter of the target's name, Luxor. Project Line finds acceptance and TriNet is named Triangle! "The first commandment at TriNet was never to question Vikram Suri. The second was never to question his deputy." Helen Mosbacher is the deputy you'd run into, and she is busy with the numbers from MW. "We want to do a cash-option merger, Steve," says Helen to MW's MD. "A cash-option merger was a form of tax-free reorganisation in which the shareholders of the target company were given the option to receive either equity or cash for the sale of their shares," explains Sanjay. Steve is surprised. He asks Helen, "Do you have that much cash?" Yes, she says. "Steve, we want to bid $7 billion," adds Vik, all the while on the call. To Steve, the number is `too low'. He says, frustrated, "I need to make sure I understand the $7 billion number." Vik responds, "Well, then make sure you do." Steve realises that Vik didn't intend to discuss TriNet's reasoning behind the valuation. "Secondly, it meant that it was the investment bank's job to find a justification for a $7 billion valuation. In other words, Steve and his team would need to modify the numbers so that a $7 billion result could be reached in the end." That's a lot of accounting, you'd appreciate. Yet, Steve feels queasy. For, he knew that this type of `reverse engineering' wasn't exactly ethical from the standpoint of the client's shareholders... Grab of a read that can add speed to the worksheet on your screen!
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