DealLawyers.com Blog

This report updates my blog from Monday on this topic: Earlier this week, several news reports suggested that Goldman Sachs had sworn off financing hostile takeovers because of concern that its recent participation in some uninvited bids was hurting its relations with clients. A spokesman for the securities firm, however, is making the case that Goldman’s policy has not changed.

Here is how the spokesman, Lucas van Praag, was quoted by Bloomberg News.

“We have a longstanding policy that we will not invest as a principal in the takeover of a public company without a board recommendation,” Mr. van Praag said in an interview. “That policy remains unchanged.”

But Mr. van Praag’s statements also acknowledged that there a fine line between unsolicited bids — which Goldman will help finance — and hostile bids — which it says it will not.

He explained it this way to Dow Jones Newswires:

“Some boards have a view that any unsolicited approach constitutes hostility. We don’t want our franchise to be damaged because other people mischaracterize what we’re doing.”

Goldman in recent weeks participated in a spate of unsolicited offers for British companies. The offers weren’t hostile, because Goldman didn’t bypass the companies’ boards and directly solicit shareholders, van Praag said.

Given “heightened sensitivities in London,” however, Goldman Sachs’ chief executive, Henry Paulson, felt it worth restating Goldman’s philosophy on hostile deals. “We will act as an adviser and provide debt financing, but our longstanding policy is that we will not invest as a principal in the takeover of a public company without a recommendation of that company’s board,” Van Praag said.

Meanwhile, The Financial Times is giving some background to Goldman Sachs’ decision to drop out of the consortium bidding for British pub chain Mitchells & Butlers. The newspaper reports that the move was prompted by the chairman of Mitchells & Butlers after he told the investment bank its proposed offer was “hostile and inappropriate.”

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April 18, 2006 11:40 PM ET
Goldman exit triggered by ‘hostile’ comment
FINANCIAL TIMES
Goldman Sachs’ withdrawal from the consortium bidding for Mitchells & Butlers was triggered by the chairman of the UK pub chain after he told the investment bank its proposed offer was “hostile and inappropriate”.

According to people familiar with the matter, Roger Carr delivered his message to Goldman last week after the bank approached M&B with a £4.6bn debt-and-equity offer on behalf of a consortium in which it was one of the largest participants.

Since then Hank Paulson, Goldman’s chairman and chief executive, has told bankers that the bank’s principal investment funds should not be used in hostile situations.

The warning follows several setbacks in which Goldman was a participant in consortia that made unsolicited approaches to UK companies including ITV, Associated British Ports and BAA. Mr Paulson’s move highlights the need for Goldman to balance private equity investments with long-established corporate client relationships.

Mr Carr is also chairman of Centrica, the UK energy supplier, and deputy chairman of Cadbury Schweppes, the food and soft drink group. Goldman acts as corporate broker to both Centrica and Cadbury. Last year it advised Cadbury on the sale of its European beverages arm.

There had been concerns that even though none of the bids in which Goldman was recently involved in turned fully hostile, they were perceived as such.

Goldman insiders on Tuesday stressed the bank would not invest in hostile bids. “If a chairman of a company we have made an approach to says he is not interested then we go away,” said one executive. “We do not engage our equity in hostile public bids.” Nevertheless, Mr Paulson’s intervention signals concerns that Goldman’s involvement in recent bids for public companies was straining relationships with corporate clients.

The bank has been at the vanguard of pursuing private equity investments on its own account, many of which have been highly profitable. Last year Goldman raised a $8.5bn fund, making it one of the largest players in the private equity industry.

Goldman’s withdrawal has left R20, the private equity investment vehicle being used in the bid for M&B, looking for an adviser and a debt provider to fully finance a formal approach.

R20 said last week it intended to follow its informal approach with a formal offer. However, Mr Carr said that, in the interests of transparency and clarity, he would only consider a formal written offer – something the consortium is currently unable to provide.