DealLawyers.com Blog

April 18, 2006

Goldman Backs Off Hostile Bids

The NY Times’ DealBook has this interesting story: Goldman Sachs‘ C.E.O. has reportedly ordered an end — with some exceptions — to the firm’s financing of hostile takeovers, a move that suggests the investment bank is not immune to the kinds of conflicts of interest that have snagged its peers.

The Financial Times reported on Tuesday that Henry Paulson told Goldman executives that funding unsolicited takeovers “threatened the bank’s standing with corporate clients, which he said was more important than profits from any single deal.”

Reuters, confirming the general gist of the story, reported that Mr. Paulson had “asked bankers in the firm to consider carefully its actions when it is putting its money behind unsolicited or hostile transactions.”

Goldman has taken a role in several large, unsolicited bids of late, including a proposal to buy British airport operator BAA. Though that approach was portrayed as a “white knight” effort to fend off hostile suitor Ferrovial, BAA did not welcome the move. Goldman Sachs also backed bids for United Kingdom-based television network ITV and Associated British Ports.

One potential danger of participating in these kind of deals is that Goldman may seem to be competing, as a bidder, with the same clients it advises on mergers and acquisitions.

But there could be other reasons to dial back such activities, according to Breakingviews. For one thing, these kinds of private equity-backed “bear hugs” often fail because, ironically, the players are afraid to go fully hostile. For another, Goldman might end up offending its private equity co-investors — also important clients — if it drops out of the running while they want to press on.