A $43bn deal implodes | Financial Times

One scoop to start: Liberty Global, the US group chaired by “cable cowboy” John Malone, has bought a nearly 5 per cent stake in Vodafone, as it bets that forthcoming deals and restructuring will revive the UK telecoms group.

And one invitation: From lavish spending to light regulation, English football is beginning to resemble the European Super League.

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In today’s newsletter:

FIS’s $43bn break-up

When FIS bought its rival Worldpay for $43bn in 2019, the US fintech company promised the steep price would be worth it in the end. The mega-deal, priced at a rich 24-times ebitda, was expected to help FIS generate $15bn in revenue and up to $4.5bn in free cash flow annually within three years.

But the combination is being unwound after just four years. FIS is spinning off Worldpay, having failed to integrate the two companies successfully.

The financial fallout from this split is particularly nasty: shares in FIS have fallen 45 per cent since the deal was announced. It is also recording a $17.6bn non-cash write down.

DD can see why FIS, formally known as Fidelity National Information Services, might have felt the pressure to make a deal.

Earlier that year, its competitor Fiserv purchased First Data in a $39bn deal, amid a wave of consolidation in the fragmented digital payments industry. The combination gave Fiserv, historically a payments processor, an edge in payments technology because First Data had scooped up mobile payments start-up Clover in 2013.

FIS, a Florida-grown business that develops the technology that powers retail banking systems among others, saw Worldpay as a way to catch up. But signs of an overpay were evident from the start.

Worldpay, which was carved out of Royal Bank of Scotland during the financial crisis, had been scooped up by US-based Vantiv for $10.4bn in 2017, after which the US company took its name. Just over a year later, the business fetched multiples of that price when FIS acquired it.

Despite the cost, FIS failed to register as a critical threat. A new league of disruptive payments start-ups such as Square and Affirm grew at far faster rates, though both companies have struggled amid misfired deals and a brutal tech sell-off that would hit all fintechs.

The decision to spin-off Worldpay and cut bait has been a long time coming. Activist investors including DE Shaw and Jana Partners had been pressuring FIS to review its business strategy, including considering undoing the 2019 deal, since last year.

Caving to the pressure has done little to inspire hopes of a turnround, however. FIS’s share price fell nearly 13 per cent on Monday following the announcement, which came alongside weak fourth-quarter financial results.

There is one lucky group that walked away from the deal richer, however. FIS’s advisers at Centerview Partners and Goldman Sachs, as well as Worldpay’s at Credit Suisse, are estimated to have made a collective $93mn in fees on the transaction before financing fees, according to Dealogic data. Lawyers at Willkie, Farr & Gallagher and Skadden have also cashed in.

The spin-off is a big win for activist investors, who are angling for other simplification efforts as falling markets rein in the ambition of tech giants.

DD imagines that Salesforce, which is now under attack by some of the most formidable activists on Wall Street due in part to its CEO Marc Benioff’s acquisition binge, is watching the situation carefully.

The City consultancy that got dumped by EY

When the UK’s Legal Services Act passed in 2010, Matthew Hudson was among the first to cash in on the reshaped landscape.

Dubbed the “Tesco law” by critics who said it made legal services as accessible as buying a can of beans from the supermarket, the new rules allowed law firms to diversify their offerings as well as list on the stock market.

More than a decade later, the City veteran has fashioned his firm MJ Hudson into a one-stop shop for asset managers, offering everything from investment advice to M&A and corporate law advice.

But the firm is starting to look like less of a success story now that the beans have been spilt about its severed relationship with auditor EY. The Big Four firm has tendered its resignation to the London-listed consultancy less than 18 months after its appointment, MJ Hudson said on Monday, saying it had “lost trust” in the group’s management.

Alarm bells first rang in October, when MJ Hudson revealed it was set to miss its profit guidance for the financial year ended June 2022 after talks with EY over issues including revenue recognition on a major contract.

In December, it revealed that it had suspended chief financial officer Peter Connell and also had its shares suspended from trading as it revealed it had found “additional issues . . . the full impact of which is unclear”.

Connell had already stepped down as a director at the end of October, while two non-executive directors, including audit committee chair Andreas Tautscher, resigned from the board a week after the trading suspension.

The firm, whose clients include Abrdn and St James’s Place, as well as local councils and banks including Lloyds, is now scrambling to regain its footing.

The group, which last month appointed KPMG alum Julie Patterson as a member of its board to boost its regulatory experience, said on Monday that it was still trying to get “the necessary clarity” to complete its accounts for the financial year ended June 2022 and is beginning the search for a new auditor.

It has also enlisted accounting advisory group Alvarez & Marsal to advise on a possible sale of one or more of its business lines.

The tables have swiftly turned since its 2019 IPO, when the firm was riding high on boom in private equity and ESG investing, as well as demand for tighter asset management regulation following the implosion of Neil Woodford’s equity income fund.

“Regulation increasing means people need our services more,” Hudson told the FT at the time.

The firm must now prove that it has been taking its own advice.

Bonus season hit differently for lawyers this year

What a difference a year makes. At the start of 2022 lawyers at elite law firms in London and New York were feeling flush with big bonuses, after a blistering spate of mergers and acquisitions during the pandemic created a fierce war for talent.

Cut to today and bonuses for associates joining top firms have dried up as the sector suffers a decline in dealmaking, according to some of the sector’s biggest recruiters.

Bonuses hit a peak during 2021, when Kirkland & Ellis was handing out so-called “golden handcuff” deals worth up to $250,000 to some mid-level lawyers with job offers elsewhere. Another firm was offering sign-on bonuses of up to $100,000, said Michelle Fivel, a partner at recruiter Major, Lindsey & Africa.

At the time, top corporate law firms in both the US and the UK had gone on hiring sprees, fuelled by a record-breaking spate of M&A. Headhunter Chris Clark told the FT that one UK firm had paid $250,000 to a star associate who was considering leaving for a US rival in 2021, while the top US firms in London were paying sign-on bonuses ranging from $20,000 up to $120,000.

Even those not on special deals at US law firms benefited from a spate of “special” bonuses doled out by Big Law to thank associates for their hard work during the pandemic.

The pendulum is swinging in the opposite direction now. Higher interest rates and rising inflation have cooled the deals markets, and dismissals are hitting US law firms and the tech sector too. Silicon Valley outfit Cooley, Stroock & Stroock & Lavan, Goodwin Procter, Davis Wright Tremaine and Shearman & Sterling have all made job cuts.

DD readers need no reminder of the rampant dismissals on Wall Street, some of which should have happened sooner, as Goldman Sachs boss David Solomon told a private gathering of the bank’s executives, the FT revealed over the weekend.

The shift is in many ways a return to more normal conditions, following an unusually intense period of hiring during the pandemic. Time to take the champagne off ice, for now. . .

Job moves

• Meta’s chief business officer Marne Levine is leaving the company later this year. Global business group vice-president Nicola Mendelsohn and Instagram chief operating officer Justin Osofsky will absorb her responsibilities overseeing ad sales and business partnerships.

• Goldman Sachs Asset Management’s co-president of alternatives Mike Koester is retiring at the end of April after 25 years at the firm.

• Separately Peeyush Nahar, the former Uber executive recruited last year to lead Goldman’s consumer banking push, is leaving to take on an advisory role, per Bloomberg.

• Tesla has hired Brandon Ehrhart, the former general counsel of Dish Network, as its new top lawyer. Deputy legal chief Dinna Eskin has been filling the role since David Searle departed the top legal job last year.

• Morgan Stanley’s Asia-Pacific co-head of equity capital markets Magnus Andersson is retiring after more than 15 years at the firm, according to Bloomberg. His co-head Cathy Zhang will continue to lead the team.

• Chevron’s board is considering waiving its mandatory retirement age for CEO Mike Wirth, the Wall Street Journal reports.

Smart reads

The limits of capitalism Salesforce boss Marc Benioff has long maintained that you can run a successful tech behemoth and still do good for the world. Activist pressure to boost performance is testing that theory, the New York Times writes.

Follow the money Aviation tycoon Patrick Hansen fought against new EU anti-money-laundering rules and won. An investigation by the Organized Crime and Corruption Reporting Project revealed his ties to wealthy Russian business figures that he may have been trying to keep under wraps.

ION under siege Italian bond mogul Andrea Pignataro has long avoided the spotlight. A Russian cyber attack has placed him at the centre of a derivatives firestorm, Bloomberg reports.

News round-up

Wirecard’s Markus Braun voices ‘deepest regret’ but denies knowledge of fraud (FT)

Chanel owners among French families backing Rothschild delisting (FT)

Teddy Sagi launches £1.25bn takeover bid for Kape Technologies (FT)

Activist investor ValueAct takes stake in Spotify (FT)

Citi nears sale of Mexican bank Banamex despite state interference (FT)

Deutsche forex mis-selling probe finds staff acted in ‘bad faith’ for years (FT)

US regulator orders halt to minting Binance-branded stablecoin (FT)