Join        Login             Stock Quote

At KBW, One Last Disgrace

 December 03, 2012 03:00 PM

(By Thomas K. Brown) I can't say I was disappointed last week when I read that KBW, the financial services investment banking boutique whose business model essentially consists of whoring its research in return for banking business, had agreed to sell itself for a price not much above its all-time low. Serves 'em right. For years, KBW has been a disgrace: in my opinion, the firm would essentially do whatever it took—initiate nominal coverage on a given company, raise its rating, you name it—to get in on a deal. Providing investment advice to help clients make money seemed to always come in last, last, last on KBW's list of priorities.

And sure enough, the firm is going out with its hallmark classlessness. This is from its just-released S-4 filing related to the Stifel/KBW merger.

[Related -Tackling China's Debt Problem: Can Debt-Equity Conversions Help?]

Stifel on Oct. 25th told KBW it was prepared to provide a cash and stock offer to an aggregate consideration per share equal to $17.29, with a separate retention pool of $40 million.  Senior management on both sides had several telephone calls to discuss the deal from Oct. 26th to Oct. 28th.  KBW indicated that the proposed terms were unacceptable and broke off conversations at one point.  Stifel eventually restarted the discussions by increasing its proposal, and the two sides agreed to continue the talks at a revised consideration per share equal to $10 in cash and $7.50 in stock, as well as a retention pool of $57 million. [Emph. added.] 

[Related -Will Job Growth Kill The Bear-Market Signal For Stocks?]

Let that sink in a little. By dint of its hard-headed negotiating, KBW's board was able to get Stifel to raise its offer by $20.8 million. But of that, only $3.8 million will go to shareholders, while the rest—the $17 million boost in the retention pool—will go to KBW employees. Of course! I believe the company has been screwing its commission-paying customers for years, so it's only natural that the firm's management is going out with a bang by apparently screwing its shareholders, too.

I'm having trouble coming up with quite as stark an example of self-dealing by the management of a public company. Under what fiduciary laws of the universe, for example, should KBW's board even care about the size of Stifel's retention pool at all? Employee retention is Stifel's problem, not KBW's. The first, last and only concern KBW's board should have had in negotiating was maximizing value for KBW shareholders. This the board manifestly did not do. Actually, it did the opposite. The board agreed to a deal that included an extra $57 million in cash that Stifel was willing to part with that was funneled away from shareholders, to employees. This is outrageous! The SEC needs to give this deal a long, hard look. 

KBW has seven Board members consisting of three internal and four outsiders:  Dan Healy, Kip Condron, Jim Schmidt, and Mike Zimmerman.  I know the first three; they are stand-up guys. But in my opinion, these individuals failed at their fiduciary responsibility. I'm appalled. But in truth, I can't say I'm surprised. 



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Automating Ourselves To Unemployment
More Articles on: Finance

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.