Mind the Gap, Goldman | Financial Times

One thing to start: Elon Musk made the “split-second decision” to tweet that he had “funding secured” to take Tesla private in 2018 after seeing a story in the Financial Times, a lawyer for the billionaire told jurors in San Francisco on Wednesday.

And one scoop to start: Shein is in talks to raise up to $3bn in a move that would lead to the Chinese fast-fashion group accepting a vastly reduced valuation of $64bn, said people with knowledge of the negotiations.

In today’s newsletter:

• US banks feel the investment banking burn

• Why bigger deals aren’t always better

• The financiers who bought a French football team

Wall Street’s survival of the fittest

DD is unsure whether David Solomon draws inspiration for his music from his day job as chief of Goldman Sachs.

But the multi-hyphenate financier’s latest track Nothing I Won’t Do seems to evoke the ruthless push within the Wall Street bank to close the valuation gap separating it from rivals including Morgan Stanley. The effort culminated in more than 3,000 job cuts among other cost-saving measures.

That goal is still in progress, as the FT’s Joshua Franklin and Brooke Masters reported this week.

Profits plunged at both banks, which, along with fellow heavyweight JPMorgan Chase, are nursing a drop of more than 50 per cent in fees from M&A, new stock market listings and debt deals from record levels in 2021.

Morgan Stanley did, however, plough ahead in one department: wealth management. Record revenues in the area helped boost its fourth-quarter net earnings to $2.2bn, beating analysts’ estimates in a vindication of CEO James Gorman’s push into the sector.

Goldman’s $1.3bn in net earnings, meanwhile, fell short of forecasts. The bank remains heavily reliant on dealmaking and trading for its profits after abruptly ditching its plan to build a mass-market consumer banking brand last year.

The U-turn off Main Street to focus on the rich — Goldman’s second major restructuring since Solomon became chief in 2018 — is a tried and true strategy by Morgan Stanley’s Gorman. But Marc Nachmann, Goldman’s man to oversee the transition, still has work to do.

Elsewhere on Wall Street, Citigroup and Bank of America were also hit by a decline in investment banking. The results have served as a timely reminder that, while boom-and-bust investment banking may be great for the bankers in good times, investors will cherish boring businesses they can rely on.

No US lender quite backs up that sentiment like the California-based crypto-focused lender Silvergate. The bank suffered a $1bn loss in the fourth quarter of 2022, rocked by the collapse of crypto prices and implosion of exchange FTX, which it provided services to.

Many US banking bosses expressed optimism that the M&A climate will turn round in the next few quarters or so (excluding JPMorgan’s finance chief Jeremy Barnum, who cautioned things could still get worse.)

That should shed some light at the end of the tunnel for Goldman’s dealmaking machine.

If Silvergate’s mountain of legal and financial troubles tell us anything, though, it’s the danger of betting on an uncertain future.

Why bigger isn’t always better for dealmakers

For a media conglomerate to compare its recent M&A strategy to AT&T’s $100bn takeover of Time Warner is a monumental self-own.

But that’s what Disney did in a presentation to shareholders on Tuesday as it tried to fight off Nelson Peltz, the activist investor who blames the $71bn acquisition of 20th Century Fox from Rupert Murdoch in 2019 for Disney’s “balance sheet from hell”.

The multiple Disney paid for Fox is consistent with the AT&T/Time Warner deal, it argued.

Talk about setting the bar low.

Left unsaid was how AT&T/Time Warner went disastrously wrong. DisneyWar author James Stewart dubbed the deal: a “strategic miscalculation unrivalled in recent corporate history”.

Last year, AT&T ended up spinning off all of its WarnerMedia assets and handing control to Discovery.

The combined Warner Bros Discovery now trades at a market value of just over $30bn, meaning AT&T and its shareholders recovered about $62bn of their $85bn equity purchase price.

Disney has better deals in the books to argue why it doesn’t need Peltz to help reverse its falling stock, which has shed half its value.

Its $7.4bn deal to buy Pixar in 2006 and $4bn purchase of Marvel in 2009 were both masterstrokes that came with decades worth of intellectual property. Both are now also crucial to Disney’s streaming ambitions, complementing its perennial classics such as the Little Mermaid and Cinderella.

Disney has sought to paint its far pricier Fox acquisition with the same brush.

In its presentation, Disney argued Fox had been critical given the “secular change” in the media industry, something the activist investor seemed “oblivious to”.

“Would Trian have preferred that a competitor own [Fox]?” asked one slide.

“[We] acquired great content franchises that are important to building out our [streaming] platform,” a person close to Disney told the FT.

But the fine print of Disney’s proxy statement also seemed to acknowledge that the deal’s returns have yet to meaningfully materialise.

When Disney rejected Peltz’s request for a board seat, it considered Iger’s record of “transformative acquisitions”, but also believed the benefits of the Fox deal “had been delayed by the [coronavirus] pandemic impact”, according to the statement.

Insiders unanimously agree on one thing: Selling Fox was a masterstroke for Murdoch, now aged 91. He sold at precisely the right moment and paved the way for him to hand an estimated $2bn windfall to each of his six children.

“Murdoch proved once again to be one of the savviest media tycoons in history. He parted with his treasured asset at the peak,” said a dealmaker who has worked with him in the past but not on Fox. “He pocketed a killing and the rest is history.”

A mid-table French football team seems an unlikely gelling agent for Wall Street titans.

But the recent takeover of Olympique Lyonnais has produced a boardroom stacked with big-name players from the world of finance, the FT’s Josh Noble reports.

The deal, which valued the club at €800mn, went through on December 19 following a series of delays. John Textor, a businessman with a background in technology, led the acquisition by Eagle Football Holdings. Private equity firm Ares Management provided most of the financing.

Eagle Football also owns Belgian tier-two side RWD Molenbeek, Brazil’s Botafogos, and about 40 per cent of the English Premier League club Crystal Palace.

Before the Lyon deal, Textor was Eagle Football’s sole director. Now it has eight, including a few notable names.

York Capital founder Jamie Dinan has joined the board, along with Alexander Knaster, the Moscow-born, Harvard-educated former boss of sanctions-hit lender Alfa-Bank who went on to found the buyout group Pamplona Capital Management.

The duo took an equity stake in Eagle as part of the Lyon transaction through Iconic Sports, an investment vehicle they operate along with former Goldman Sachs executive Edward Eisler. The cash injection helped get the deal over the line, and paves the way for a possible merger of Eagle Football with Iconic Sports’ New York-listed blank cheque company.

Two representatives from Ares have also joined the board, along with Jean-Pierre Conte of Genstar Capital, Gordon Rubenstein of Raine Ventures and Lyon’s president Jean-Michel Aulas.

That Lyon, a team currently sitting ninth in the poorest of Europe’s big five leagues, can attract such a roster is a sign of how much appetite for football there is right now among US investors. The challenge now is getting the club back to its winning ways.

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Job moves

• Morgan Stanley has appointed 199 new managing directors.

• Microsoft will dismiss 10,000 employees by the end of March.

• Dechert has hired private equity lawyer Nick Marchica as a partner based in New York. He joins from Allen & Overy.

• Jeremy Balkin, JPMorgan’s global head of innovation and corporate development for payments, is leaving the bank to pursue a new fintech venture.

• Rob Rooney, the former head of Morgan Stanley‘s Europe operations, has been named CEO of fintech firm HyperJar, per Financial News.

• Linklaters infrastructure co-heads Jessamy Gallagher and Stuart Rowson are joining US rival Paul Hastings’ M&A practice, based in London.

Smart reads

The new Wall Street Middle Eastern investors have long had a reputation for snapping up trophy assets such as football teams and department stores. They’re now taking a more tactical approach to chart geopolitical dominance, Bloomberg writes.

Billionaire brawl One of Latin America’s bitterest corporate fights is heading for the courts after 14 months of hostile bids and mudslinging. At stake are $20bn of assets, the future of Colombia’s stock market and the probity of its government, the FT reports.

And one smart listen: Tesla’s share price has been hit by lower demand for electric vehicles and — if you ask some investors — its founder Elon Musk’s chaotic Twitter takeover. The FT’s Richard Waters lays out the carmaker’s bumpy road ahead on Behind the Money.

News round-up

Buyout firm EQT became ‘a lot more paranoid’ as dealmaking tumbled (FT)

Semafor explores options to buy out Sam Bankman-Fried’s interest (FT)

Peter Thiel’s fund wound down 8-year bitcoin bet before market crash (FT)

Bruno Crastes battles on at H2O following investment ban (FT)

Boies Schiller improves bonuses to build back City base (FT)

Deutsche Bank prices ‘panda bond’ to raise Rmb1bn (FT)

Macau ‘junket king’ Alvin Chau sentenced to 18 years in prison (FT)

Republicans target proxy advisers ISS and Glass Lewis in ESG backlash (FT)

Interview: Norway fund chief warns at Davos of ‘very, very low’ returns for stocks (FT)