In what could be a sign of the times, the proxy solicitation firm MacKenzie Partners Inc. has opened up a branch in Century City to help those involved in corporate takeover battles, mergers and tender offers.
The mergers and acquisitions business is definitely hot.
Century City-based Houlihan Lokey Howard & Zukin reports that M & A; activity in 1996 reached $492.9 billion on 2,656 deals, far surpassing the former record of $360.5 billion, on 1,779 deals, set in 1995.
The new MacKenzie office will be headed by industry veteran John Kelly, once of D.F. King Inc. (a New York City-based proxy solicitattion firm).
So what do proxy solicitation firms actually do?
If you read the print at the bottom of those numerous tender offer “tombstone” ads printed in the Wall Street Journal and other major dailies, you will see references to these firms.
“In a tender offer, we will send materials to any shareholder who calls us, usually in response to the tombstone ad,” explains Kelly.
Too, MacKenzie works with lawyers and investment bankers to send materials to a list of shareholders in a targeted company. MacKenzie also helps in head-counting shareholders, and works on media and shareholder relations.
These days, with the emergence of mutual funds and other institutions, the individual shareholder is not usually too important, relates Kelly. “The institutional shareholder they are the important ones. And the arbs.”
The “arbs” are, of course, the arbitrageurs who buy large blocks of stock, on the guess that a takeover is imminent. Kelly says all of the “arbs are on my Rolodex.”
The trick, of course, is to line up 50.1 percent of the takeover target’s stock for MacKenzie’s clients.
The leveraged buyout and takeover boom of the 1980s was the salad days of the proxy solicitation firms, and back then two other outfits, D.F. King, and Georgesen & Co., had shops here. But they closed down in the early 1990s, leaving Los Angeles bereft of proxy firms.
However, strategic mergers and acquisitions have grown large in the late 1990s and so MacKenzie is moving into the local vacuum, said Kelly.
Supposedly, 1997 was to be a cooling off year, but right now the action is as heavy as ever.
One would be hard-pressed to name an industry that is not in a consolidation mode possibly meaning sustained merger activity through the year.
Retailing, aerospace, money management companies, distributors, used car dealerships, logistics, veternarians, even automobile engine re-building are some of the industries or trades going through “roll-ups” different companies being rolled-up into one.
Speaking of consolidations, Beverly Hills-based Hilton Hotels Inc. has retained MacKenzie Partners for its pursuit of ITT Corp.
Hilton hires Moelis
Speaking of Hilton, investment banker Ken Moelis, managing director of Donaldson, Lufkin & Jenrette LLP in Century City, has been hired as the point man on the deal for the hospitality giant.
DLJ is pre-eminent in lodging and gaming, and Moelis has worked on lots of hotel deals in the past, including a recapitalization of Holiday Inn, and Merv Griffin’s ill-fated buyout of Resorts International Inc.
In the LBO era, the recapitalization of Holiday Inn was a deal that made wonderful sense for shareholders: Instead of simply selling the lodging chain for a nice price to a leveraged buyout, Moelis had Holiday Inn take on enormous debt, and then paid shareholders a huge dividend roughly equal to the company’s elevated stock price.
He then gave existing stockholders lower-value shares, known as “stub equity” in the new heavily leveraged Holiday Inn.
When the chain survived and paid down the debt, the stub equity became much more valuable, and the shareholders made a second killing.
It was one of the few LBO deals in which management really represented shareholders’ short- and long-term interests, and no one has ever come up with a compelling logical argument why more Holiday Inn-style deals weren’t done.
Anyway, Moelis wasn’t talking much to the press last week, but we are told that he has colleague Mark Diem and several others on “Team Hilton.”
Prudent in Sante Fe
Mark Hulbert, writing in a recent issue of Forbes, identified the Westside-based newsletter The Prudent Speculator as the No. 1 advisor in the past five years, with an annually compounded gain of 41.7 percent.
Al Frank, the newsletter’s author, actually moved to Santa Fe last year, but he still lives here much of the time to keep up with business and visit his children.
One rap on Frank: His newsletter performs “A+” in up markets, but gets an “F” in down markets, according to Hulbert.
Refreshingly blunt, Frank admits he got killed in 1987 and 1990, when the market sank. “But we are the No. 1 letter for the last five years,” he points out. He is optimistic for 1997. “I think the market is up 10 percent this year,” he says. “We should do fine.”
PaineWebber just released a report which noted that not only are there too many retailers, but shrinking demand. Today’s consumers are buying entertainment and recreation, not product.
For example, 15 years ago Americans spent 20 percent more on clothes than fun; today they dole out 30 percent more on recreation than apparel.
…Speaking of recreation, Westside-based Sports Club Inc., which operates Sports Club Los Angeles and other emporiums of sweat, is buying back shares. Maybe that will help the company’s stock get into shape.
…Century City-based Signature Resorts Inc., the nation’s largest operator of time-share resorts has filed papers to issue another $57 million in stock, and $100 million in convertible bonds. Time shares may sound like a 1970s idea (visions of condos with shag carpeting), but the company has a nice five-year track record of rising income and revenues. For the first nine months of 1996 (latest reported quarters), the company posted net of $10.1 million on revenues of $63.7 million. Net income is up 42 percent from like period last year.