One tragedy to start: The search is still under way for Mike Lynch, one of the UK’s best-known tech entrepreneurs, and five other individuals after a luxury yacht sank off the coast of Sicily. Jonathan Bloomer, chair of Morgan Stanley International, and Christopher Morvillo, an attorney at Clifford Chance, are also missing.
In today’s newsletter:
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SEC charges Carl Icahn over personal loans
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The high-drama inside H2O Asset Management
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Japan’s popular convenience chain faces takeover bid
Carl Icahn settles SEC charges over margin loans
Carl Icahn, the activist investor known for his no-holds-barred investment tactics, has had a tough year. But at least one of his problems has come to a close.
The billionaire and Icahn Enterprises settled with the US Securities and Exchange Commission on Monday over charges that he hadn’t properly disclosed billions of dollars’ worth of personal margin loans taken out against shares in his company.
The agency alleged that since at least the end of 2018, Icahn had pledged more than half of his company’s outstanding shares as collateral for his personal loans. He failed to disclose those pledges until February 2022, along with other information required by regulators.
He and Icahn Enterprises paid a combined meagre $2mn to settle the charges.
By the end of 2022, Icahn’s personal margin debt had swelled. He had $5bn in outstanding margin loans and at least 11 lenders were involved in the deals over the few years prior, the SEC said in its findings.
All this was at least in part brought on by a short-seller attack by Hindenburg Research in May 2023, which said the company was overvalued and engaged in “Ponzi-like economic structures”.
Nathan Anderson’s hedge fund also warned that Icahn’s loans could be vulnerable to margin calls, which would force him to sell or pledge more of the shares.
Since then, Icahn has bought himself some time.
Last summer, he restructured a multibillion-dollar personal margin debt into a three-year term loan with five banks: Bank of America, Bank of Montreal, Deutsche Bank, Morgan Stanley and M&T Bank.
But the clock starts ticking in just a few weeks, when he has to start making $87.5mn of quarterly principal payments on the debt — before eventually paying out about $2.5bn in final principal.
“Hindenburg’s modus operandi, which is to publish scurrilous and unsupported allegations, did damage to IEP and its investors,” Icahn said in a statement.
He added: “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”
Superyachts, falsified documents and H2O
Secret superyacht trips to the Caribbean and Mediterranean; falsified documents and fabricated records; and discussions about buying tens of thousands of dollars’ worth of vintage wine to celebrate the opening of a new luxury lingerie store.
While these may sound like snippets from a cheap thriller some DD reader might have purchased from the airport bookshop on the way to their summer holiday, they’re actually details from the FT’s latest deep dive into the H2O Asset Management scandal.
H2O recently agreed to pay €250mn to investors to avoid a fine from the UK’s Financial Conduct Authority, following a five-year investigation first sparked by FT reporting on the asset manager’s troubling ties to notorious financier Lars Windhorst.
It has now emerged that during the course of that regulatory probe, certain H2O employees retrospectively created due diligence documents and even fabricated minutes of meetings that had never taken place, in an apparent bid to cover up their lax oversight of a series of risky and illiquid investments.
At the same time, H2O tried to hide from the regulator that its senior managers had for years been wined and dined by Windhorst, who had lavished the firm’s top brass with trips around the world on his private jet and superyacht.
While H2O has said that it has since overhauled its “risk management and compliance teams, governance and internal procedures”, the details uncovered by the FCA and the FT paint a stark picture of the lengths H2O went to in order to conceal its risky dealings from both the authorities and its investors.
The ‘late sleeper’ going after 7-Eleven
Canadian retailer Alimentation Couche-Tard, which owns the Circle K brand, is giving mega M&A another shot.
After failing to acquire French supermarket giant Carrefour for €16.2bn a few years ago, the Québécois company has now set its sights on a much larger target: the Japanese operator of 7-Eleven, the world’s biggest convenience store chain.
This “friendly” approach — as described in the Canadian company’s brief press release confirming the move — is unlikely to be any easier than the attempt nearly four years ago.
In fact, the challenge to complete the deal is likely to be twice as hard — and the reason isn’t just the fact that 7-Eleven’s holding company is worth about $38bn.
Problem #1: Hostile deals — yes, on Team DD, this is what we call unsolicited bids — are tough to pull off. This M&A truism is especially relevant when dealing with Japanese companies that are considered national strategic assets. It’s somewhat similar to how the French government determined in 2021 that Carrefour couldn’t be sold because of food security concerns.
Problem #2: US antitrust regulators are likely to put up a fight. DD has been told they’ll pay particular attention to the impact on overall market power, pricing and the job market.
Despite these challenges, Couche-Tard’s supporters are convinced that things are different this time around.
Solution #1: Last year, the Japanese government introduced guidelines aimed at preventing management teams and boardrooms from dismissing unsolicited takeover proposals, which has since triggered a wave of hostile M&A.
Solution #2: There is hope that antitrust is going to be less of a concern regardless of who wins November’s presidential election.
Either way, Couche-Tard — whose name translates to “late sleeper” or “night owl” — will need to work around the clock to make this deal happen.
Job moves
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Paul Weiss has hired Kerri Durso as a partner for the firm’s finance group in New York. She was previously a partner with A&O Shearman.
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Baker McKenzie has hired Colleen Lee as a partner to help advise on M&A and other situations in the firm’s Palo Alto, California, office. She previously worked for Skadden.
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Estée Lauder’s chief executive Fabrizio Freda has announced he will retire after nearly 15 years at the company. He will continue to oversee operations until a successor is appointed, with plans to step down at the end of next June.
Smart reads
Musk fears Elon Musk has thrown himself into politically fraught situations recently, the FT writes. But is he just “an angry man screaming into a hurricane”?
Last straw First & Peoples Bank in Kentucky has survived floods, an oil spill and a smallpox outbreak. The bank’s partnership with a fintech could be its undoing, the FT writes.
Financial fraud Criminals impersonating JPMorgan’s fraud department stole more than $1mn from an octogenarian in upstate New York, Bloomberg reveals. It’s just one case amid an epidemic of financial fraud across the US.
News round-up
Start-up failures rise 60% as founders face hangover from boom years (FT)
AMD signs $4.9bn deal to challenge Nvidia’s AI infrastructure lead (FT)
7-Eleven billionaire heirs would see big payday from shock offer (Bloomberg)
Beijing restricts trading data as foreign investors flee Chinese stocks (FT)
Goldman Sachs conviction highlights quandary in policing staff behaviour (FT)
SEC accused of ‘censorship’ over politically sensitive audit paper (FT)
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