Shorts face big Mack attack- Sep. 17, 2008

The Morgan Stanley chief goes on the offensive after a solid earnings report fails to halt the stock’s collapse.

FORTUNE (New York) — For Morgan Stanley and Goldman Sachs, the two remaining standalone investment banks, the world has become an ugly place.

So ugly, in fact, that Morgan Stanley CEO John Mack sent out a firmwide note Wednesday afternoon blaming nefarious forces for the beating his company took in the stock and credit markets today. Morgan shares plunged to a 52-week low in heavy volume, in spite of a solid third-quarter earnings performance.

“After the strong earnings and $179 billion in liquidity we announced yesterday — which virtually every equity analyst highlighted in their notes this morning — there is no rational basis for the movements in our stock or credit default spreads,” Mack wrote.

He continued: “What’s happening out there? It’s very clear to me — we’re in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down.”

It’s really unfortunate that there is so much irrationality in the market, and for the life of me, I can’t figure out what the short-sellers are attempting to do. Oh sure, I know they’re trying to make money, and in the short-term, they are doing just that.

But if they keep forcing companies into bankruptcy or hasty mergers, and forcing the Fed and the Treasury to inject more cash into the system, something is going to break and break big. And then we’re all going to be fucked.

I work for Morgan Stanley, and I’m low enough on the totem pole that I really don’t know what’s going on at the top … but everything I’ve seen is telling me that Morgan Stanley has been doing it right.

We’ve got Financial Advisors who are panicking and moving all of their clients cash out of our SIPC/CAPCO-insured money market funds and into our Bank Deposit Program (an FDIC insured bank account), where the cash may actually have LESS protection than if it were left in the money market fund … all because one money market fund, in an isolated incident, broke the buck because of an obscenely high exposure to Lehman Brothers.

Hey, brokers! Man up and THINK before you freak out over things that don’t affect us. You’re not helping the situation at Morgan Stanley if you start panicking your clients. Your job is to calm them down, and think about what’s best for them in the long-run.

Keep this in mind (from the same article):

[T]he shellacking Morgan Stanley is suffering does appear overdone.

The firm has exposure to problematic mortgage-backed securities, but it also has institutional and private wealth businesses that are resilient income generators.

It did indeed take billions of write-downs, but it was never the player in toxic collateralized debt-obligations that Merrill and Citi were. Nor did it use its balance sheet to hold over $100 billion in sub-prime mortgages like UBS (UBS).

In other words, Morgan appears to have been significantly less stupid with its finances than most of its peers.

So why are you acting as though we’re on the verge of collapse? I can see we’re strong, why can’t you? Oh … yes … because you are salesmen, and panicked clients make lots of trading decisions, which pump up your commission revenue.

Is it worth it, if you kill the company in the process? Do you really think that you’ll be better off if Morgan Stanley is forced into a hasty merger with another company like Wachovia? Because even a strong company can be killed if they just keep getting hit irrationally from all sides. Do you really want Goldman Sachs, over whom Morgan Stanley actually performed better, to be the sole survivor in the independent investment bank sector?

Think. Calm down. Relax. Calm your clients. And make WISE decisions for the long-term.

Goldman tried to recruit me a couple of months ago. I turned them down flat. Morgan Stanley is my company, and it’s where I plan to stay.

InBev to buy Anheuser-Busch for $52B - CNN.com

ST. LOUIS, Missouri (AP) — Belgian brewer InBev has announced it will buy its U.S. rival Anheuser-Busch for $52 billion to create the world’s largest brewer.

The deal would create the world’s largest brewer and put the U.S. beer-maker in the hands of Belgian-based InBev.

The acquisition means control over America’s largest brewer, the No. 2 worldwide, moves overseas. Based in St. Louis, Missouri, Anheuser-Busch has more than 48 percent of American market share with brands that include Bud Light.

InBev confirmed the details of the purchase of Anheuser-Busch early Monday. It first bid for Anheuser-Busch on June 11.

InBev is the world’s second largest beer maker, with brands that include Stella Artois and Becks.

The deal must be approved by shareholders and European and US antitrust regulators. The merger will produce the fourth-largest consumer product company worldwide.

Anheuser-Busch Cos. Inc. did not return messages seeking comment Sunday evening.

The Wall Street Journal said the deal was for $70 a share, a $5 increase over the offer Anheuser-Busch rejected in June.

What did I tell you back in May and in June regarding the proposed InBev acquisition of Anheuser-Busch? I knew that one way or another this deal would happen.

As it turns out, the Busch family’s posturing when they rejected the original offer, and more so through the commercials that have been airing on TV the past few weeks have been more about getting InBev to sweeten the offer … and it worked.

So here’s hoping that everything goes smoothly from here on out, and that some of those fantastic international (especially Belgian) brands that InBev controls get some better distribution in the United States once the deal is completed.

Update (more stories on the InBev / Anheuser-Busch deal):

• Anheuser-Busch accepts $52 billion InBev offer - MarketWatch
• Anheuser to Be Sold for $52 Billion - NYTimes.com

Anheuser Girds for Fight With InBev - WSJ.com

U.S. Brewer Is Expected to Reject Belgian Company’s Offer, Promise Its Own Plan to Boost Shareholder Value

Anheuser-Busch Cos. is prepared to reject InBev NV’s unsolicited $46.35 billion acquisition offer as early as this week, setting the stage for a hostile takeover battle for America’s largest brewer, according to people familiar with the matter.

Anheuser is expected to argue that InBev’s offer undervalues the maker of Budweiser beer and soon present its own strategic plan. That plan, which is likely to include the sale of noncore assets such as Anheuser’s theme parks, is designed to boost the company’s share price, these people said.

Ultimately, the move isn’t likely to deter InBev, which has put together a carefully crafted battle plan, according to people familiar with the matter. InBev, of Leuven, Belgium, is prepared to take its offer directly to Anheuser shareholders via a tender offer that Anheuser has few defenses to stop, these people said. InBev has yet to decide whether to pursue such a course, however. Many investors have expressed support for the bid, which represents a roughly 30% premium to where Anheuser shares traded before the offer.

Anheuser declined to comment.

Personally, I think this is a good deal for Anheuser-Busch’s shareholders … if I owned shares of NYSE:BUD, I would definitely be voting to approve a merger; not to reject it.

As for the proposed tender offer … participate for the short-term 30% premium? Or continue to hold the shares long-term through the merger?

In the short- and medium-term after the merger is completed, share prices tend to fall more than rise due to the costs of integration, not only of products and systems, but of people … and the fact is that many mergers do end up failing.

So if I were a shareholder, I would vote for the merger, take the tender offer, wait for the share price to fall, and then start buying back in as (and if) the businesses come together. InBev has been incredibly successful internationally; it would be a good thing for the American beer drinker for them to come in and help turn around Anheuser-Busch.

Now go read the Disclosure Policy.

I have a lot of pride in the company that I work for, even though I sometimes get really frustrated by my job.

And of course, being the obsessive sort that I am, I have to learn everything I can about the history of my firm … which means that even though I lived it (well, as much as any low-level employee can), I had to pick up a copy of Patricia Beard’s Blue Blood & Mutiny: The Fight for the Soul of Morgan Stanley, which details the 2005 ouster of Phil Purcell as Chairman and CEO, and John Mack’s triumphant return to the company he helped create by co-orchestrating the merger between Morgan Stanley (of which he was president at the time) and Purcell’s Dean Witter Discover.

But to understand any of this, it’s best to get a deeper knowledge of the culture of the firm by reading Ron Chernow’s The House of Morgan and Jean Strouse’s Morgan: American Financier.