Issues & Opinions

Who knew? There’s a backlash against tithing, according to today’s WSJ.

Perhaps everyone but me knew, since I’m an irreligious fellow.

That last trait makes it predictable that I’d point out the obvious: that churches are a business, like any other. It is hard to argue otherwise, concerns about heavenly salvation and eternal damnation notwithstanding. Denominations, and the churches within them, compete with one another for congregants, and they do so with a variety of devices.

The Megachurch Effect

Resistance to tithing has been increasing steadily in recent years, as more churchgoers have questioned the way their churches spend money. Like other philanthropists today, religious givers want to see exactly how their donations are being used. In some cases, the growth of megachurches, some with expensive worship centers equipped with coffee bars and widescreen TVs, have turned people off of tithing. And those who object are finding like-minded souls on the Web in theological forums.

(emphasis mine)

Several things could explain churches’ splashing out on such non-eternity-related items as coffee bars or the long-term lease and $100 million renovation of the Houston Compaq Center (nee Summit), but the three most obvious are grandiosity, marketing, and both. A for-profit business might engage in the same sorts of activities, for the same reasons. And bully for both, the secular and the spiritual - it’s all part of the game of making certain your operations remain funded. Customer retention is an issue in both spheres:

Church leaders say tithing isn’t just a theological issue, but a financial one. Americans gave an estimated $97 billion to congregations in 2006, almost a third of the country’s $295 billion in charitable donations, according to Giving USA Foundation, a nonprofit educational organization in Glenview, Ill. But giving to religion is growing more slowly than other types of giving, says Patrick Rooney, director of research at the Center on Philanthropy at Indiana University. That’s partly because people are attending church less frequently, says Mr. Rooney, and are giving to a wider array of causes, including secular ones.

The difference is, that you’d seldom (never?) hear a businessman outside of religion making a comment like this:

That worries some church leaders. “If everyone gives 2% of their income because that’s what they feel like giving, you aren’t going to have money to pay the light bill and keep the doors open,” says Duane Rice, an official with Evangelical Friends International, a denomination that believes that tithing is required by the Bible.

Ignore, please, the nougatty richness of Mr. Rice’s appeal to biblical authority in claiming religion’s right to proportionate payments, and focus just on the plaintive cry that, well, it’s got to be 10%, because if not, well, they’ll not be able to keep the lights on.

He’s badly confused on cause and effect here. For-profit or not, the lights going off is God’s way of saying you didn’t make your customers happy, thus bringing in enough money, and not the other way around.

“From each according to his ability, to each according to his need”

Karl Marx would be so proud. Up to but not including the empire-building, self-importance, and rank perfidy sometimes seen in the clergy.

I could hardly care less how tricked-out any given religion cares to make itself. As long as they can get people to pay for the services offered, more power to them. Offering a service people value is how business is done. Whining when you find that they don’t value your service? Not very businesslike at all.

From Bloomberg, dated yesterday (first seen in this morning’s WSJ - Breakingviews column):

Nov. 5 (Bloomberg) — Gisele Bundchen wants to remain the world’s richest model and is insisting that she be paid in almost any currency but the U.S. dollar.

Or perhaps not - the story might be apocryphal, and even contains its own counterargument:

“Contracts starting now are more attractive in euros because we don’t know what will happen to the dollar,” Patricia Bundchen, the model’s twin sister and manager in Brazil, said in a telephone interview in September from Sao Paulo. She declined to discuss details of the arrangements last week.

No shock, that. The question is, how long it remains true.

“Gisele has contracts in dollars,” said Anne Nelson, Bundchen’s agent in New York at IMG Models, in an interview today. “When she works in Europe she gets paid in euros, when she works in the U.S. she gets paid in dollars, when she works in Brazil she gets paid in reais, and so on and so forth.”

Also self-evident. And it goes without saying that, in a world of fixed exchange rates (which, with few exceptions, doesn’t exist now and hasn’t for years), she could choose to simply do the math, and get her desired real pay rate at whatever nominal rate & currency she chose.

The fact that she or her IMG handler is reported to have decided to denominate pay in a currency other than dollars, presumably for future contracts, brings to mind the market mania of early this century, when people actually thought tech stocks would stay high forever.

Read the rest of the Bloomberg piece, by the way - it provides far more detail than did the Breakingviews column (due to format and space availability differences, I’m sure), and goes well beyond the only-moderately interesting fact of Gisele Bundchen’s purported payment preferences.

From the just-prior entry here, this was the closing line:

Let the race resume, because this melodrama has several acts yet to play, but it seems unlikely at this point that, regardless of moves in the prices of assets under their management, Messrs Cayne & Prince will repeat the mistaken actions of Mr. O’Neal.

Unsurprisingly, it turns out that even without repeating the mistakes of Mr. O’Neal, it’s pretty easy for other members of the august group of executives listed above to be kicked to the curb.

Today’s WSJ, in an article too long and beefy to effectively excerpt without violating fair use, entitled “Bear CEO’s Handling Of Crisis Raises Issues“, you’ll find the anatomy of a palace coup. Omitting only malfeasance, fraud, and necrophilia, Mr. Cayne is “charged” (in the sense of the items having been discussed in a front page WSJ article) with a laundry list of complaints. Among them:

• Lack of attention to detail
• Excessive enjoyment of personal time
• Being filthy rich
• Enjoying golf and bridge
• Being a marijuana smoker

One of these charges is not like the others. And the article in which the complaints appears is made quite lopsided by the short, seemingly random inclusion of his alleged preference for the killer weed.

Sure, the article has lots of quotes from supportive staff members, relating that he’s always reachable when needed, totally engaged in the business, and so forth. But the overall picture gives the impression of a calculated character assassination.

Not that there’s anything wrong with that, mind you - perhaps he even deserves it. But this one is so heavy-handed, that my first thought on reading it was “Cui bono?“. I don’t know who might be among the “players” within Bear Stearns, but surely in a firm known for its sharp elbowed trading prowess, they must be found in every corner office, no? Honestly, though, this one makes the attempted embarrassment of Blackstone’s Stephen Schwarzman look like a grade-school taunt.

The connection, to the extent one exists, between Mr. Cayne’s current agonies and those of Mr. O’Neal might be the “alumni network”. Apropos nothing much, there’s this, from the WSJ story of Nov 1:

Late in June, as the outcry from investors in Bear’s hedge funds grew, Bear authorized an 11th-hour loan of up to $3.2 billion to the less-risky of the two beleaguered funds. The fund ultimately borrowed about half that amount from its parent company.

On July 12, chatting with visitors over lunch, Mr. Cayne seemed less interested in discussing the markets than in talking about a breakfast-cereal allergy and his stash of unlabeled Cuban cigars. On another occasion, he told a visitor he pays $140 apiece for the cigars, keeping them in a humidor under his desk.

Five days later managers of both funds informed investors their holdings were virtually worthless.

The next day, July 18, Mr. Cayne left for Nashville to play in the bridge tournament, accompanied by his wife, Patricia, who is a neuropsychologist and another avid bridge player. Mr. Cayne took part in a prestigious event called Spingold KO. He was in Nashville all or parts of 10 days, according to bridge and hotel records.

For most of that time, Warren Spector — then co-president of Bear and also a competitive bridge player — was in Nashville as well. Mr. Spector was in charge of asset management at Bear, along with all of its trading operations and its prime-brokerage unit, which handles trades for big clients such as hedge funds as well as lending them money.

…

Amid the turmoil, Mr. Cayne on Aug. 1 called in Mr. Spector, the co-president who had been with him at Nashville. Mr. Cayne was annoyed that Mr. Spector had been away from the office during the fund crisis, according to people familiar with his thinking. He told Mr. Spector he had lost Mr. Cayne’s confidence and should resign, these people say.

(ellipsis mine)

Just being a conspiracy-monger, I find myself wondering whether this is all just a comeuppance delivered on behalf of, or directly by, Warren Spector? Seems pretty obvious, I know, but his having taken the bullet several months ago on Bear’s behalf seemed odd at the time (since they were both at the same tournament), and seems odder now.

Perhaps, then, Cayne’s getting knifed by a guy who owes him a knifing. Perhaps it’s far broader than that.

But it might provide an object lesson: Make sure you’ve got competent friends and incompetent enemies. Corollary: Be sure not to convert a competent friend into an enemy.

And it’s not over yet. Tomorrow’s WSJ will contain a follow on, entitled “CEO of Crisis-Hit Bear Denies He Used Marijuana“, (a gratuitous pile-on, I think, given that the original article also contained his denial) including this:

In a note to clients, Punk, Ziegel & Co.’s Richard Bove said “the article clearly places the company in play” because Mr. Cayne would more likely sell Bear than retire “in disgrace.”

The original WSJ piece, above, reported that Bear (which is heavily owned by employees, with Mr Cayne being personally among the largest shareholders) has been able to spurn earlier merger approaches:

He [Mr. Cayne] has resisted overtures to sell Bear. In 2002, when Mr. Dimon, then head of Bank One Corp., raised the possibility of buying Bear, Mr. Cayne didn’t give the idea much consideration, according to people to whom he spoke. Mr. Cayne told members of Bear’s executive committee he would do a deal only for a significant stock price premium, a big personal payout and the use of a private jet, say people familiar with the conversation. The takeover idea ultimately faded away.

So, of course, another plausible explanation for an airline toilet being dumped on his head, aside from the possibility of revenge from a former associate, is that this is all a bit of inside baseball, and that one way or another, Bear’s going to be owned by someone else.

Ignoring the unsavory undertones of such a public defenestration, this story seems likely to get more interesting before it gets boring.

Addendum - Might as well throw this one in too, to keep the circle (Cayne/O’Neal/Prince) complete. In addition to continued rumblings about Prince’s stewardship of the post-Sandy Weill Citigroup, WSJ’s Deal Blog reports other strange things potentially afoot at the Circle K.

Addendum - (11/2/2007 3:24PM) This just in:

NEWS ALERT from The Wall Street Journal

Nov. 2, 2007

Citigroup board members are expected to gather for an emergency meeting this weekend, two people familiar with the matter said. The meeting comes amid worries of potential writedowns and pressure on CEO Charles Prince.

Addendum - (11/4/2007 5:15PM) No story link yet, just an alert from WSJ:

NEWS ALERT from The Wall Street Journal

November 4, 2007

Citigroup CEO Charles Prince resigned at a board meeting Sunday, as the bank faces big new losses from distressed mortgage assets. Board member Robert Rubin, the influential chairman of the company’s executive committee, will be named Citigroup chairman, while Sir Win Bischoff, chairman of Citi Europe, will become interim CEO.

I’m sure the story will be up shortly, and of course this event is no surprise. What will surprise me, however, is if the chattering classes avoid the usual hand-wringing and shirt-rending over his “exit package”.

Like Merrill Lynch, Citigroup has no reported severance agreements in place for its exiting CEO. Stan O’Neal walked away with about $160 million, and Prince is reportedly set to leave with about $40 million. In the first case, the storyline was that O’Neal got a massive golden handshake. A fairer reading might indicate that he just received what he’d earned and owned. This would also be the case for Prince at $40 million - to all appearances so far, he’s got an earned and owned stake of $40 million.

Even operating under the presumption that they were both constructively fired for cause, there’s no case to be made for depriving either of what they already own. I look forward, perhaps futilely, to press coverage that recognizes this, if in fact it also ends up being true in Mr. Prince’s case.

This just in (1:07PM CST)

NEWS ALERT
from The Wall Street Journal

Oct. 28, 2007

Merrill Lynch CEO Stan O’Neal has decided to leave the firm in the wake of $8.4 billion in write-downs and an unauthorized overture to Wachovia, a person familiar with the matter says. An announcement on his departure could come today or Monday morning, this person said.

FORE MORE INFORMATION, see:
http://online.wsj.com/article/SB119359304744274091.html?mod=djemalert

And the sub-prime mess gets its first big scalp.

Yesterdays Saturday WSJ included a piece of Breakingviews commentary entitled “O’Neal Leads Race for Exit”, with the provocative subtitle “Merrill Chief Speeds Past Citi’s Prince, Bear’s Cayne On Endangered CEO List”.

Mr. O’Neal has, to all appearances, done a fine job at Merrill, recent events excluded. He’s also been amply rewarded.

Is he being turfed (let’s not pretend to believe he made this decision himself) because of the mortgage-based losses? Not directly, it seems. In no particular order:

• Over the years (see WSJ article first linked), he’s had “issues” with competition for control, and has left numerous enemies alive to snipe at him from elsewhere
• He spoke with Wachovia about a merger, absent board approval - major faux pas, even if he “owned” the board
• He announced expectations of a $5 billion write down several weeks ago, but reported an actual $8.4 billion write down

The first of these makes for good gossip fodder amongst the denizens of the Street, I’m sure, and one can surely find unrequited antipathy for the CEO of any large firm, if one looks hard enough. Unless the jilted former executives have tight ties to current board members, however, they’re unlikely to have directly affected the calculus on this one.

The second of these is quite unseemly - he’s reported to have no severance arrangement in his employment agreement, but would do well ($200 million+) in the event of a change of control. If he assumed his position had become otherwise untenable, that Merrill was in deep, deep trouble, or both, the approach to Wachovia would be understandable, if still strategically and logically dubious. Appearance of a money grab is bad, emulating Britain’s Northern Rock by being seen to need help in the worst way is even worse. Either of these would be a firing offense to any competent board of directors.

Of the last item, the best thing to say might be “If you don’t know, don’t say. And if you don’t know, don’t say you don’t know, either”. Wall Street firms, particularly those with trillion dollar balance sheets, and double-particularly those run by former CFOs (the post from which Mr. O’Neal made his bones) are supposed to know what their balance sheets look like at all times. The income statement? Yeah, that’s important, but the balance sheet, and the value of items therein, isn’t supposed to be subject to nearly as much interpretation as is the income statement.

If, as CEO, you violate the first maxim above, forecast a result, and get lucky, so be it. But if you do so and miss the number within weeks, you’ve also violated the second maxim, and have shown your lack of control of the business. Pretty obviously, in a business that relies on sound risk management, this too is a firing offense.

It also stands the chance of raising the curtain on one of Wall Street’s alleged dirty secrets - the fact that they pull valuations out of thin air. Two pieces at a favorite site of mine, Going Private, touch on this subject. The first “Liquid Reflections“, discusses in some detail the innards of the CDO market. The second, an earlier piece entitled “Anatomy of a Meltdown?” describes an entirely plausible framework in which a debt market participant might easily misprice its holdings, while trying to outrun a presumed short-term disruption in the market. If Merrill’s forecasting innumeracy happens to be related to having had a “fluid” model for pricing its holdings, Mr. O’Neal won’t be the last to leave, and any new CEO (Fink/Thain/whomever) will have to be seen to be dealing aggressively with the fact that asset valuations seem to be whatever traders want them to be at any given time.

Should that happen, it has implications far outside Merrill’s walls.

Oh, and that Breakingviews commentary’s closing line?

But if he does go, it might throw attention back on the race for second place.

Let the race resume, because this melodrama has several acts yet to play, but it seems unlikely at this point that, regardless of moves in the prices of assets under their management, Messrs Cayne & Prince will repeat the mistaken actions of Mr. O’Neal.

But it doesn’t. From a WSJ email, dispatched this evening to my inbox, this story:

NEWS ALERT
from The Wall Street Journal

Sept. 17, 2007

William Lerach is set to plead guilty to one count of conspiracy in the criminal case involving the noted securities lawyer’s former firm, now called Milberg Weiss LLP. The plea agreement, which calls for a one to two year prison term, could be announced as soon as Tuesday.

I’m all for protecting the common man, the common investor, and I’m nothing if not both of those things. However, while Milberg Weiss (…Bershad Hynes & Lerach) LLP has always claimed that their seldom-seemly, and often seedy, pursuit of class action lawsuits, against any company whose stock price took a noteworthy downturn, was for the public good, I’ve never been able to agree.

Not in my stance as a champion of the unfettered right of public companies to run roughshod over their investors, either. Because I have no such stance. Instead, my dim view of him and all who practice his kind of law is justified by standard tactics he and his partners (current and former) have used in pursuit of specious claims. Think “greenmail”, ala Carl Icahn and Boone Pickens in the 1980s - make life tough enough for someone, even someone who’s got no basis for having to defend their actions, and they’ll pay you to go away.

As referred to in an Los Angeles Business Journal article of Sep 3, 2007, Lerach is an “economic terrorist”, and I don’t think that’s too tough a characterization of him. As the article says:

Lerach, of course, did not invent but did perfect the securities class action lawsuit. In that scheme, most any company that sustained a stock drop, even if it had nothing to do with anything of consequence, often found itself the recipient of allegations of fraud in a Lerach-engineered lawsuit. Likewise, companies that announced most anything negative could get the same kind of lawsuit – often within hours of the announcement.

Lerach then pounded the company, using the discovery process to find some little scrap somewhere in some underling’s file drawer that “proved” the company knew that bad news could develop.

In other words, this guy, and all lawyers like him, specialized in swooping in any time there was even a flimsy pretext for doing so. I mean, there’s no way a stock could drop without malfeasance and lying on the part of management, right?

Well, no - that’s wrong. But Lerach, et al, after having put their lawsuit’s stake in the ground, would then embark on forced discovery at their target companies, essentially fishing around for a reason to justify their lawsuit.

And one doesn’t have to be a big-business apologist to find that sort of thing to be outside the bounds of fair and reasonable play.

Over the years, I’ve been the recipient of at least 50 securities class action solicitations. I received one just the other day, “In re CARDINAL HEALTH, INC. SECURITIES LITIGATION“. And while I almost never take the time to participate in these paper chases, I’ve always paid particular attention to any such action which has either “Lerach Coughlin Stoia Geller Rudman & Robbins LLP” or any of the many versions of “Milberg Weiss +/-Bershad +/-Hynes +/-Lerach LLP” listed as the attorneys looking out for my “best interests”.

Because they don’t, they haven’t, and investors are simply a raw material for them and their business process. And I throw their solicitations away as soon as possible, to avoid stinking the house up.

His former partner Bershad has already pled, and if the news report is correct, Lerach’s getting ready to do the same. It’s not the Christian thing to say, but I’m not much of a Christian anyway, so I’ll hope that Milberg, Weiss, and all the rest be following them to the pokey soon after.

Back on May 21, 2007, I saw an article that I almost, almost thought worthy enough of derision that it justified a post. For reasons that now escape me, I decided otherwise at the time. However, as sometimes occurs, it’s again become current, so I’ll revisit.

This, from the Austin American Statesman:

A panic attack move into private equity?
By Robert Elder | Monday, May 21, 2007, 02:07 PM

Writing in the May 18 issue of Grant’s Interest Rate Observer, Dallas investor and state of Texas pension official Frederick “Shad” Rowe tees off on the leaders of the Teacher Retirement System of Texas pension fund.

Rowe examines the Texas teacher fund’s recently announced plans to move massive amounts of its holdings into private equity and out of publicly traded stocks. The strategy strikes him as the investment equivalent of a panic attack.

(Rowe notes that the Texas Pension Review board, which he chairs, has no authority over TRS investment strategy and that he’s writing as a private citizen.)

Rowe writes that the teacher fund is trying to juice returns by moving into so-called alternative investments (hedge funds, buyout firms, hard assets such as timber, toll roads) a little late in the game. Maybe even just in time for the private equity bubble to pop and the very stocks the teacher fund is selling to rise in value.

Please ignore for a moment the fact that private equity and hedge funds are not the same thing - Rowe’s core point, I think, was that high return comes with high risk. Big shock, that. But it appeared, in May, not to have occurred to the managers of TRS. I don’t know whether TRS had gotten around to the absurd reallocation plans they announced at the time, increasing allotment to alternative investments from 3% to 35%. But Mr Rowe had the opportunity to weigh in again on the subject in a story from today’s WSJ:

Pension Managers Rethink
Their Love of Hedge Funds
By CRAIG KARMIN
August 27, 2007; Page C1

Many public pension funds in recent years have become eager to invest in hedge funds. Now, some are getting cold feet.

Pension-fund managers from Louisiana to Ohio are saying they may slow their push into these funds after the recent losses suffered at big hedge funds — including ones run by Goldman Sachs Group Inc. and AQR Capital Management — have reinforced some of the risks.

Indeed, one critic suggests that pensions would be foolish to keep pursuing hedge funds. “It’s like planning a vacation to an exotic land, and finding out that there’s an outbreak of bubonic plague,” says Frederick Rowe, chairman of the Texas Pension Review Board, which provides oversight of Texas public pension funds.

I’m not certain which is more admirable - consistency, correctness, or the fact he avoided doing an overt Icky Shuffle and rubbing their nose in it. But in any event, Mr Rowe was stating the obvious back in May, all the while not claiming there was anything inherently wrong with hedge funds or their doppelgangers in the alternative investment universe, just that the TRS was clearly not thinking things through in their sudden mania for the flavor of the month.

Good for him, and, I guess, good for the teachers covered by the TRS. I have no dog in the race, but I hope the managers of the TRS paid attention back in May, for the sake of their beneficiaries.

And so, it looks to be a done deal.

News Corp. Is Poised to Win Dow Jones
Murdoch Prevails
As Bancrofts Agree
To $5 Billion Buyout

Paying Fees Cinches Deal

By SARAH ELLISON and MATTHEW KARNITSCHNIG
August 1, 2007

A century of Bancroft-family ownership at Dow Jones & Co. is over.

Rupert Murdoch’s News Corp. sealed a $5 billion agreement to purchase the publisher of The Wall Street Journal after three months of drama in the controlling family and public debate about journalistic values.

All it took to nudge the matter across the finish line was agreement to allow the company to pay $30 million in fees for the Bancrofts’ advisors? Small beer, really, at least to Dow Jones & News Corp, though such a number would not be small to me, personally.

It was $30 million largely wasted, in retrospect, though the Bancrofts surely didn’t spend it knowing that it would be so. The deal approved today by both companies’ boards is functionally identical to the one initially offered.

And the $30 million didn’t buy guarantees of editorial independence or the continued absurdly high quality of the Wall Street Journal family of publications, either. My argument all along has been that Murdoch has no plans to tarnish the stellar reputation of the Journal, and I don’t expect to be proven wrong about that in the future. So the fee payment agreement really ends up being a sop to the Bancrofts, and apparently one final preference tendered to them that’s not available to the lowly holders of A shares. I doubt that the A holders will complain, and I’ve got no basis to do so, so good for the Bancrofts, happy trails, and all the rest.

And speaking of predictions, I, certainly not alone, have asserted all along that the outcome would likely be just this - Dow Jones selling to News Corp, at the original price. Big deal - predictions are cheap, and this one, particularly given the premium offered and the logic behind it, was the most obvious all along.

Consequence free prediction? True, in my case, which makes such predictions even cheaper. Have a look:

At any point from May 9 thru May 31, and quite notably as recently as yesterday, there was serious money to be made buying the stock on the presumption of a deal being completed.

Did I? No.

Do I wish I had? No.

Why? Because if the Bancrofts had somehow mustered the votes to block the deal, this stock would have been back in the 30s in a heartbeat, and that was a risk not sufficiently offset for me by the $9 or $10/share the market was leaving on the table.

Even though the very fact that the results of rejection would be a $1.5 billion haircut in martket value pretty much guaranteed that the deal had to be done. On the flip side, it could cause some minor pain to be among those short 3.8 million shares of DJ as of the report three weeks ago, I’m thinking.

John Mackey, CEO of Whole Foods Market, has some ’splainin to do. From the San Jose Mercury News, this was the headline:

Whole Deception: CEO of Whole Foods used fake name to hype stock on Yahoo message board

Along with some analysis and outraged opinionating (with which I take no issue), the Merc’s Vindu Goel points to a free WSJ link, so I will too:

Whole Foods Is Hot,
Wild Oats a Dud —
So Said ‘Rahodeb’

Then Again, Yahoo Poster
Was a Whole Foods Staffer,
The CEO to Be Precise

By DAVID KESMODEL and JOHN R. WILKE
July 12, 2007; Page A1

In January 2005, someone using the name “Rahodeb” went online to a Yahoo stock-market forum and posted this opinion: No company would want to buy Wild Oats Markets Inc., a natural-foods grocer, at its price then of about $8 a share.

This all comes to light as a direct result of the Federal Trade Commission’s attempts to derail, on antitrust grounds, the proposed purchase of Wild Oats Markets by Whole Foods. Much ink has been spilled supporting either the company or the FTC, and the arguments tend to revolve around the definition of the relevant market in which the two should be measured for dominance.

I have no opinion on the matter, and don’t frankly care if they get a deal done, remain independent and separate, or both declare Chapter 7 tomorrow.

I do find interesting, however, the fact that the CEO of a non-trivial public company thinks, or thought, that posting anonymously on Yahoo boards was legal, proper, or even marginally sane.

Internet sockpuppets are a disgusting phenomenon, even when financial markets aren’t their targets. Pretense to have support for a stock, a company, or an opinion, lacking an actual instance of support, is offensive. It’s made worse, in the case of Whole Foods, by the fact that for much of the period in which Mackey was sockpuppeting the stock, it had no need of any support, having been a steady gainer up until the end of 2005.

Mr. Mackey declined to be interviewed. But he soon posted on the company Web site, saying that the FTC was quoting Rahodeb “to embarrass both me and Whole Foods.” He also said: “I posted on Yahoo! under a pseudonym because I had fun doing it. Many people post on bulletin boards using pseudonyms.” He said that “I never intended any of those postings to be identified with me.”

Mr. Mackey’s post continued: “The views articulated by rahodeb sometimes represent what I actually believed and sometimes they didn’t. Sometimes I simply played ‘devil’s advocate’ for the sheer fun of arguing. Anyone who knows me realizes that I frequently do this in person, too.”

Let’s see - he’s been the CEO since he founded the company, and was the CEO for the two months that I owned the stock after its IPO, late last century. (I was jammed into the IPO by my broker, because that’s the way things were done in the early 1990s - I didn’t like the stock, don’t particularly like the company, and have minimal tolerance for sanctimonious vegans in any event).

Sometime in the last 27 years, it should have been made clear to him, perhaps by either his general counsel or his yogi, that CEOs of public companies get their “sheer fun” by playing Pebble Beach or Augusta National, or by throwing themselves into philanthropic ventures, or by any number of other things that are both legal and not likely to bring the humiliation associated with letting the public markets know, definitively, that you’re a nincompoop.

Here are just a few examples of other actions he could have taken, all potentially embarrassing to some degree, but which would have been less embarrassing than what he’s done:

• Have his phone number identified on Deborah Palfrey’s call logs
• Have a voicemail rant against his daughter made public
• Throw a lavish birthday party for his wife
• Post on a Yahoo message board under his real name

None of the above would necessarily indicate good temperament, and three of them could exhibit potential for moral or ethical lapses, but none of them is an explicit indication of stupidity.

For about eight years until last August, the company confirms, Mr. Mackey posted numerous messages on Yahoo Finance stock forums as Rahodeb. It’s an anagram of Deborah, Mr. Mackey’s wife’s name. Rahodeb cheered Whole Foods’ financial results, trumpeted his gains on the stock and bashed Wild Oats. Rahodeb even defended Mr. Mackey’s haircut when another user poked fun at a photo in the annual report. “I like Mackey’s haircut,” Rahodeb said. “I think he looks cute!”

What Mackey actually did? Yeah, it’s an indication of stupidity, arrogance, and, as seen above, no small amount of immaturity. Arrogance, the markets can handle. Stupidity and immaturity? Less so. We like to at least believe our corporate titans are smarter than their average counter-person.

The WSJ piece is from the issue to be delivered later this morning, so the market hasn’t yet reacted to his grave mistake. It doesn’t take Fellini to hazard a guess that by this time next week, he’s going to be the ex-CEO of Whole Foods Markets, and the FTC is likely to be no longer needed to watchdog the alleged consumer interest in keeping Wild Oats out of Whole Foods’ clutches.

This looks like a business-mortal error on Mackey’s part. But it should provide good theater, for at least a short time.

Or so it would appear - the consortium whose apparent (to me, anyway, and perhaps to me alone) grotesque overbid for Sallie Mae made news back in April may have found a pretense for reasoned re-examination.

Why? As reported at CNNMoney, “Sallie Mae says planned buyout may fail“.

Jul. 11, 2007 (AFX International Focus) –

WASHINGTON (AP) - The planned $25 billion buyout of SLM Corp. could be in jeopardy as the investors that agreed to buy the nation’s largest student lender, commonly known as Sallie Mae, say congressional legislation could kill the deal.

Sallie Mae disputes that. The takeover deal, one of the largest private buyouts ever, is led by private-equity firm J.C. Flowers & Co. At issue are the two sides’ interpretation of their acquisition agreement, signed in April, under which significant negative developments can nullify the deal.

On entry into this absurd offer to buy the company, the buying group was already aware of the coming significant reduction in federal subsidies for student loans, and surely had to also be aware of the firestorm that arrived just after their offer became public, the investigation by New York’s AG Andrew Cuomo, and the fact that other states were starting to pile on.

Subsequent events, nominally triggered by Blackstone’s IPO (or not - see addendum below), have shone bright lights on private equity, threatening (though not guaranteeing) meaningful changes in taxation for the dealmakers. Given the enormous competition for PE deals in the past year, the PE firms have reportedly been forced to reduce expectations for IRR on deals, down from the mid-30s to the mid-teens. Such is the curse (for PE) and the benefit (for sellers) of an imbalance between supply and demand for buyouts. With margin expectations squeezed, and with financing costs and covenants sure to keep getting tougher, the marginal deals are easy candidates for a skeptical review.

I have no way of knowing, of course, but this looks like an excellent excuse for a case of buyer’s remorse to set in, and best that it does so before having actually written the checks.

Sallie Mae said Wednesday it had been informed by the investors’ group, which also includes Bank of America Corp. and JPMorgan Chase & Co., that the investors believe that legislative proposals pending in Congress ‘could result in a failure of the conditions to the closing of the merger to be satisfied.’
Reston, Va.-based Sallie Mae said it ’strongly disagrees with this assertion, intends to proceed toward the closing of the merger transaction as rapidly as possible, and will take all steps to protect shareholders’ interests.’

If the deal were to fall through, the acquisition agreement provides for a $900 million breakup fee payable by either side under certain conditions.

(both excerpts edited to remove reams of tickers; emphasis mine)

Of course, Sallie Mae would dispute the potential deal-killing effect of the mooted evaporation of 25% or more of the buyers’ profit, due to a change in the tax regime. What else would they be expected to say?

The market took the threat seriously, however, shaving more than 14% off the price of SLM before the normal close of trading:

I’ll leave it to the imagination of the reader to guess what time the announcement occurred.

While the stock recovered several lost dollars in the aftermarket session, market actors seem clearly to think there’s something to the concern of the putative buyers.

And, given a reasonable, if not dispositive, assumption that the take-private offer was stupid-high, unjustified by any rational thought process, and likely to have succeeded at a much lower premium, the $900 million breakup fee might be the cheapest lesson the buyers ever learned, should they choose to pay the tuition.

If all it takes to get into that class is to say, “Hey, wait a minute - how many potentially life-threatening deal points are we willing to concede here? And on an unrelated matter, what’s Congress up to these days?”, then so much the better.

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Addendum - Good grief. Now that I’ve already written the story, based primarily on a Marketwatch headline that wasn’t specific about which Congressional action had gotten the buyers’ chests all bowed out, I see the full story at WSJ, and I find that the largest part of the issue is the reductions in federal subsidies.

The CNNMoney story, likewise, focused on the subsidy cuts, but because I tend not to take AP stories nearly as seriously as I do those in the WSJ, I presumed, incorrectly, that it had to be more than just subsidy cuts, because those were widely public before the deal was announced, and even mentioned in my April story on the matter.

Given the credence I place on the Journal, and the fact that its story, linked above, contains nothing related to private equity taxation as a causative in this current unpleasantness, I’ve got two things to add:

• If it’s not one of the causes, it should be, for Flowers’ sake
• Also, if the prime driver here is the subsidy cuts, that $900 million breakup fee is going to quickly go from hypothetical and conditional to cast in concrete - it’s a lame, lame excuse.

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Addendum - July 12 Whew! I still jumped the gun, but retrospectively, I can retract my partial retraction, just above. In an article this morning, entitled “Under Fire, is Private Equity Trying to Duck Out?”, the Journal included the potentially constricted debt markets and the new taxation proposals as additional rationale for the quibbling. Flowers et al, then, seem still to be within sniffing distance of a chance to make an arguably bad deal less bad.

From an email alert, which provided easily 30 seconds’ headstart before everyone in the financial world also reported it:

NEWS ALERT from The Wall Street Journal

June 21, 2007

General Electric and Financial Times publisher Pearson said they have decided not to pursue a combination of CNBC, the Financial Times and Dow Jones. A possible bid by GE and Pearson was seen as a challenge to News Corp.’s $5 billion bid for Dow Jones, publisher of The Wall Street Journal. GE and Pearson said they continue to discuss cooperation agreements with GE between CNBC and the Financial Times Group.

For more information, see:
http://wsj.com/article/0,,SB118244257856443515,00.html?mod=djemalert

Somewhat inexplicably, the Dealbreaker Murdoch Meter remains at only 90%

Addendum - As referenced in yesterday’s post, Brad Greenspan, the “founder” of MySpace, tossed an offer over the transom, and it seems I’m hardly the only one to have ascribed grudge-based intent to his effort. In that Valleywag article just linked, they provided a further link for Greenspan’s letter to the Dow Jones Board. (included in the extended entry, since I expect the website on which it appears to disappear one day soon. I’d prefer to include a link to Edgar, but the letter’s not on file there)

After reading it, I had a flashback to October, 2001, and a hilariously nut-encrusted SEC filing from a company called TOKS. You can read the full filing at the Edgar site, but to save you the trouble of scrolling past all the boilerplate, I’ve included just a taste, below. Am I wrong to equate that to Greenspan’s “offer”? I think not, but what would you expect me to think?

                                         Filed by Toks Inc. Pursuant to Rule 425
                                            under the Securities Act of 1933 and
                                            deemed filed pursuant to Rule 14a-12
                                            under the Securities Exchange Act of
                                                                            1934

                                     Subject Company: AT&T WIRELESS SERVICES INC
                                     Commission File No. 333-67068

                                     Date: October 8, 2001

Toks  Announces  Proposal to Combine With  General  Motors  Corporation,  Hughes
Electronics  Corporation,  General  Electric  Company,  AT&T  Corporation,  AT&T
Wireless Services,  Inc., AOL Time Warner and Marriott International for a rough
estimate  of over $2  Trillion  or more in stock.  Including  assumption  of all
outstanding debts. There will be amendment of full value that will be calculated
by professional  accountants.  This is just an initial proposal. This is not the
whole  picture of. At the same time Toks Inc. will stick to its original plan to
issue its Class A Common Stock in heavy premium to the  shareholders of targeted
entities.

Combination  Would  Establish  Only Toks Inc. as the "Parent" of General  Motors
Corporation,  Hughes  Electronics  Corporation,  General Electric Company,  AT&T
Corporation,  AT&T  Wireless  Services,  Inc.,  AOL Tiime  Warner  and  Marriott
International,  Inc. as "Wholly" owned  subsidiaries.  This will compliment each
subsidiary under one "roof."

Synergies  Could Create Up To Additional  over $300 Billion in annual  revenues,
even after  liquidation  of assets or spinoffs  recommended  by  regulators  and
initiated  by  the  Company.  Also  a  business  plan  will  include  aggressive
expansions of Toks Inc. into other industry  sectors and its  subsidiaries.  The
potential to make Toks Inc. the largest U.S public entity. Or the largest public
entity in the world.  Expansion will cover all corners of the globe. Our Company
listing will cover different  exchanges around the globe to gain access to their
capital markets. This will include developing countries as well.
...
There's a fine line between "ambition" and "desperation." Toks Inc. is an
"ambition" entity not a "desperate"  entity.  Meaning the Company  doesn't
have to fight to convince a shareholder to tender his or her shares. The
Company will take its securities to others if those we first seek rejected our
offer.  The Company is not interested in wasting  resources to seek proxy
votes.  The resources can be better spent to issue securities to those that want
them.

{entire filing, sic, ellipsis mine}
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