How are bankers compensated for takeover defense advisory in a hostile takeover? I know bankers are typically only paid when a deal closes, but isn't the point of a takeover defense to prevent a deal from closing? It would seem like the bankers incentives are not aligned with those of the company.
This was brought up in one of the MSFT/YHOO threads, but no one had a complete answer.
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It's tough to say. I'm sure that in specific cases like Microsoft and Yahoo, where there is an impending proxy battle, Yahoo will find advisors and probably work out a fee (the terms of which, I don't know). My group in banking didn't do defense pitches too often, and I only worked on a few. But on the ones that I remember, I specifically asked about how we would be compensated for it. The short answer was, we wouldn't be. And the defense pitch, helping them put the right provisions and poison pills in place, was just a guise to help us get in the door for the sellside advisor position (or any other mandate, for that matter) when it ever happened. Wily bankers.
Thanks GameTheory, that's kind of surprising. Definitely seems like a conflict of interest.
To be politically correct, you are "developing relationships" that will pay off in dividends later. But let's not think for a second that bankers are thinking about fees every minute of the day. Sometimes you just have to plant the seed first.
I do recall some of the 1980s banking books (Den of Thieves etc) mentioning that some firms paid a raid defense retainer fee to their bank of choice each year - is this still the case?
As an aside, to what extent is the responsibility for the technical aspects of a defense (e.g. implementation and design of a poison pill) that of bankers? Does the legal team have a lot of input?
http://www.techcrunch.com/2008/05/06/arrington-and-ross-sorkin-talk-abo…
On TechCrunch today w/ Arrington and NYTimes' Sorkin - they mention an "independence fee" that Yahoo might have paid Goldman.
I don't know the details of how such a fee would work (never worked on a takeover defense) but I would guess that the fee is substantially less than what they would get from a deal actually closing - though a lot more than what they might get from a Fairness Opinion, for example.
In terms of how involved bankers are with the poison pill and all - think mostly lawyers would handle that aspect. But bankers likely have some input.
It's also hard to say because there just haven't been that many hostile takeovers in recent years, far more common in the 1980s... so there probably aren't many people who are experts on this topic.
Interesting idea, that independence fee. I'll watch the video when I get home from work (forgot headphones today).
I guess it's good that the lawyers do a lot too - they get paid by the hour whether the deal closes or not, right?
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