Sunday, June 15, 2008

Secret Life of a Deal

Highlights from an interesting article in New York Times by ANDREW ROSS SORKIN -

"An enormous cast of characters from Wall Street worked for months — some behind the backs of their own clients — to pursue a deal. The list of big names may surprise you: Henry R. Kravis of Kohlberg Kravis Roberts, Peter A. Weinberg of Perella Weinberg (formerly of Goldman Sachs), Martin Lipton of Wachtell, Lipton, Rosen & Katz and yes, the man of the moment, James Dimon of JPMorgan Chase. As Dow Chemical tells the story — at this point, its version is the more credible — the plot started in the fall of 2006. The plan was to overthrow Dow Chemical’s chief executive, Andrew N. Liveris, and replace him with Mr. Reinhard and Mr. Kreinberg after the buyout. In the space of several months, the plotters lined up financing from the Sultanate of Oman. JPMorgan, which long considered Dow Chemical a client, seems to be in a terrible spot in this story. Perhaps the bank was duped — as it now claims. But it sure doesn’t seem that way from the now-disclosed documents. They show that the bank eagerly pursued the deal even though at least some of its top bankers knew full well that Dow Chemical’s board was not on board. JPMorgan executives met with Mr. Kreinberg and Mr. Reinhard in secret at a hotel, the Compleat Angler, 40 miles outside London. A JPMorgan e-mail message said the participants had “hired entire hotel for confidentiality.” It was only after that meeting that Mr. Winters determined that “‘management’ is not on board but rather a potentially rogue element." And still JPMorgan continued to work on the transaction, and “pitched the transaction to K.K.R. on March 13 and to TPG on March 14.” It was only once news reports about a possible deal emerged — and Dow contacted JPMorgan — that it stopped working on the deal. That is also when everything unraveled."

The Indian Context
Interestingly, Reliance Industries tried to do a Joint Venture with Dow. Both sides were believed to be discussing a possible $20-billion JV in which Reliance could take 59% stake. Dow’s basic chemicals and plastics businesses were expected to be spun off into a separate company in which Reliance which already uses Dow technology at its petrochemicals facilities was to pick up stake. The joint venture was expected to set up manufacturing and R & D facilities in low cost locations with Dow handling the customer front. It made sense for Reliance as it
wanted to be able to team up with buyers who will guarantee offtake of polymers that it produces. But the PE bid for Dow was expected to ruin Reliance's plans and analysts were worried. May be that's why its said that the best-laid plans of mice and men often go awry. All in all, an uncertain world.