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Investment Banker Bucking Troubles in Merger Business

Investment Banker Bucking Troubles in Merger Business

Wall Street West by Benjamin Mark Cole

It’s a dark time for the mergers and acquisition business, with valuations down and lenders imitating loan sharks, given the vigor they demand to finance a deal.

Banks, when not too timid, ask for double-digit yields, and some of the mezzanine funds want 30 percent a year in effective interest plus warrants granting them additional equity. Add a recession to the mix, and the sun has virtually set on the deal world.

But the picture appears brighter at Greif & Co. Ten years ago Lloyd Greif left the old Sutro & Co. to start his own investment banking boutique. Along the way, the owl became the company mascot, and Greif took offices on the 65th floor of the Library Tower downtown. “Luckily, the owl sees at night,” Greif said. “This will be a record year for us.”

Why a boom business? To begin with, the Santa Monica native never got caught up in the dot-com mania. “Yeah, we had a business plan,” Greif joked last week. “I couldn’t understand the Internet. So I never got involved.”

Greif stuck to his knitting, which is pretty much established, middle-market companies looking to make strategic acquisitions or be sold. In June, Grief helped engineer the sale of Santa Fe Springs-based Winkler Forming Inc., a $50 million-in-sales maker of plastic food packaging, to Illinois-based giant Pactiv Inc., for $72.5 million. That deal followed on the heels of Greif-led merger between Head & Engquist Equipment LLC and ICM Equipment LLC, creating a $450 million-in-sales concern, now the largest domestic player in construction equipment rental and sales. (Terms weren’t disclosed.)

Between those two deals, Greif helped sell a majority equity interest in Boise-based MWI Veterinary Supply Co., a $250-million-in-sales enterprise, to New York-based private equity shop Bruckman, Rosser & Sherrill Co. Inc. “We had our own ‘three-peat’ in June,” Greif said.

Today, Greif has 17 on staff, and is hiring. He’s become one of the veterans of the local deal market, garnering referrals from the professionals he has worked with over the years. It helps, too, that local securities brokerages are eviscerating their investment banking staffs, leaving fewer competitors.

At the bottom of it all is the ability to survive the dark periods, Greif said. “So far this cycle has been gentle on us.”

Reformer

Les Greenberg, a Culver City attorney, is hardly a well-known business figure. But his group is lobbying the Securities and Exchange Commission for a major rule change in the world of corporate governance one that would make it radically easier for small shareholders to place dissident board candidates on company proxy forms sent to shareholders.

Greenberg gained attention in early 2001, when starting with the Yahoo! message board he organized a shareholder revolt at Luby’s Inc., the Texas-based cafeteria chain, and tried to win four seats on Luby’s 11-seat board. “That’s when we found out it costs $250,000 just to get your slate for the board of a publicly held company in front of shareholders,” he said. Luby’s, long a good value play, had sunk quickly in the late 1990s under a new chief executive.

Greenberg, 59, a semi-retired lawyer, did much of the legal work involved, and his group of renegade shareholders managed to hold down costs under six figures (not counting Greenberg’s unpaid hours). They lost garnering 25 percent of the vote but management was ultimately ousted by the board. During that fight, Greenberg formed the Committee of Concerned Shareholders (www.concernedshareholders.com).

Most dissident shareholders cannot afford such expensive tussles just to list candidates for board membership, let alone full-blown proxy battles. “It’s easier and makes economic sense to sell your stock. Management counts on that,” Greenberg said.

What Greenberg is angling for is an SEC rule change that would allow shareholders who have owned more than $5,000 worth of stock for two years to list board candidates on company proxies, along with 500-word statements, at company expense.

Under current SEC rules, management can use a company’s resources to wage a proxy war, while dissidents must use their own dough. “It’s an outrage. They (management) use shareholder money to fight the shareholders,” Greenberg said.

For Greenberg, this simple reform would outweigh all the complex rule changes being considered by the SEC and others, in the wake of the corporate governance scandals hosing down Wall Street. “Corporations do not need to be micro-managed by Washington, D.C.,” he said. “Company officials only need to know shareholders can elect their own slates.”

Short Takes

You think the radicals of the late 1960s harbored resentments against corporations? That was nothing compared with the scathing commentary now gushing from a usually conservative group bond investors. Piping hot this week is the widely quoted Bill Gross, chief investment officer for Pimco, the giant Newport Beach-based bond shop, with $275 billion under management. Gross posted on Pimco’s Web site his thoughts that corporate bond investing is a poor trade. “How else to describe an asset class where your upside is getting your money back and your downside is losing nearly the whole kit and caboodle?” he asked. “How else to describe an asset class where structural ‘agency risk’ allows management to increase shareholder value by reducing the worth of debt obligations levering and levering up to increase earnings per share while ignoring earnings per bond. And if they go too far, well those bondholders simply receive via bankruptcy court that now nearly worthless stock after the banks and lawyers have gotten their fill, that is. It’s a lousy business….”

Craig Silvers, longtime real estate analyst with now-defunct brokerage Sutro & Co., has started up his own shop, aptly named Bricks & Mortar Capital LLC, based in West Los Angeles. He is advising investors on real estate investment trusts, and is forming a fund (minimum investment of $250,000) to invest in REITs. In 2000 and 2001 REITs were up while general equities went down; this year REITs are flat while equities appear headed for third straight year of negative returns. Wary of mentioning stocks by name, Silvers said he liked REITs exposed to California’s housing market, industrial market, and ordinary grocery-store anchored outdoor shopping malls. “In general, I don’t like office REITs,” Silvers said. “There is always a developer who wants to put up a trophy office tower, thus depressing rents. Who ever heard of a trophy industrial building?”

Contributing columnist Benjamin Mark Cole can be reached at

sevencontinents@mindspring.com

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