Monday, April 09, 2007

In Tribune Deal, Potential Conflicts Ran Deep

That may seem plausible, but there may be an even more perverse explanation: Two of the investment banks advising Tribune — Merrill Lynch and Citigroup — also financed Mr. Zell’s bid.

In a happy coincidence, Merrill Lynch, which wrote a “fairness opinion” blessing the deal for Tribune, also just happened to represent Mr. Zell in his $39 billion sale of Equity Office Properties to the Blackstone Group this year.


The potential conflict in the Tribune sale stems from a practice known as “staple financing” — in which the adviser to the seller also offers financing to prospective buyers, putting the investment bank on both sides of the deal. This column has written about the issue before. I have called it “Wall Street’s version of vendor financing — or, potentially, conflict-ridden double dipping.” But within the last year, staple financing has become so commonplace that the obvious conflicts are regularly overlooked and may need to be re-examined.

Staple financing is called that because its paperwork is often stapled onto the deal’s term sheet to help a seller develop a robust auction by offering on-the-spot financing to all suitors. The practice is often seen as a way for sellers to prevent bidders from trying to tie up financing from other sources to hinder rival bids. It also helps keep auctions more confidential because bidders don’t have to bring in their own army of bankers to rifle through all the books and records.


But with so much financing available across Wall Street these days, it makes you wonder whether it is worth it for corporate boards to overlook all the potential conflicts to play the staple financing game.

Andrew Ross Sorkin; DealBook; The New York Times

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