The Morning Ledger: Caution Keeps Lid On Takeover Prices

While premiums are an important selling point to the target's shareholders, they rank low on the list of factors that buyers consider, Monga writes. "It's a big psychological factor for the company being acquired. It's an easy expression of value," said Sean Aggarwal, CFO of real-estate website

Trulia, which bought software company

Market Leader at a 21% premium. But, he added, "The premium is the crudest measure of all." Instead, to determine the value of the deal, Trulia's management focused on how the deal would improve cash flow, and examined how much revenue and profits the combined company would create.

Perrigo's pending $8.6 billion acquisition of Irish biotech company

Elan carried a 16% premium when it was announced at the end of July. That was lower than the average 18.4% premium paid in all health-care deals by U.S. buyers this year, and less than half the 35.9% average premium last year. Perrigo CFO Judy Brown said the company calculated the return on invested capital for the next three years when assessing the price it paid for Elan. She also said that Elan had been subject to a hostile takeover effort by Royalty Pharma, which pushed up the stock price and affected Perrigo's ultimate bid. "It's very challenging to just go in willy-nilly and pay an enormous premium," she said. "Whether you call it discipline or stinginess, we're always being careful."


More housing data this morning—the

S&P/Case-Shiller House Price Index for September is expected to edge higher. And the Conference Board's

consumer confidence index for November is seen climbing to 72.9 from 71.2 the previous month, according to the Calculated Risk blog. We also get quarterly earnings from

H-P and

Barnes & Noble.

Markets flash: Asia ended lower as the yen halted its slide against the dollar. European shares are higher in light trading and DJIA futures are down.


Backdating scandal carried steep legal costs. The legal fallout from the stock-option backdating scandal that surfaced in 2006 is over, and the price tag was high, Emily Chasan reports. A total of 181 lawsuits alleged that executives were overpaid through improperly timed stock-option awards at companies, including

UnitedHealth Group and

Broadcom. A settlement in the final suit, involving fiber-optics supplier Finisar, was approved last month. The settlements cost companies and their executives, auditors and advisers a combined $7.3 billion. The scandals also changed how stock options are granted, making them less popular as a form of compensation and pushing companies to become stricter about their procedures, according to Robin Ferracone, chief executive of compensation consultant Farient Advisors. “The process and paperwork behind this has gotten much more rigorous,” Ms. Ferracone said.

PCAOB grows wary of auditor consulting deals. Large audit firms are rapidly expanding their consulting businesses, stoking regulators’ fears about conflicts of interest, Emily Chasan reports. The Big 4 firms have reported a 33% jump in revenue from consulting over the past five years, according to Steven Harris, a board member at the PCAOB. By comparison, audit revenue at those firms rose just 6% over the same period. This marks a reversal for big auditors, as many had shied away from consulting business after the collapse of Enron. But auditors now say consulting work boosts their ability to attract top talent. Most consulting work is performed for companies they don’t audit. “Based on acquisition and other activities at the firms, it is likely that consulting revenue will continue its rise,” Mr. Harris said at the watchdog’s annual budgetary meeting.


Wal-Mart taps insider as new CEO.

Wal-Mart named Douglas McMillon as its next chief executive, handing the job to a long-serving insider who, at just 47 years old, will be the youngest CEO since Sam Walton to head the retailer, the WSJ reports. Wal-Mart is producing nearly half a trillion dollars in annual revenue, but it is struggling to spark much growth. Mr. McMillon's elevation is a strong signal that the retailer is unlikely to steer itself too far from its course as it adjusts to the new realities of retailing.

Bloomberg notes that U.S. corporations are switching CEOs at the fastest pace in five years as companies grapple with shifting customer tastes, competition from upstarts and restive shareholders. “CEOs today have to think about where smartphones and the Internet are going, which no one had to do before,” said Michael Useem, director of the Center for Leadership and Change Management at Wharton School of the University of Pennsylvania. “So you need leaders with the intellectual firepower to master new things who can also figure out how to grow huge global organizations.”

BlackBerry replaces CFO amid management shakeup.

BlackBerry said that three top executives, including its chief financial officer, are stepping down as new CEO John Chen embarks on his promised shakeup, Reuters reports. BlackBerry named James Yersh to replace Brian Bidulka as CFO. Mr. Yersh has worked with BlackBerry since 2008, serving as its senior vice president, controller and head of compliance. Mr. Bidulka will stay on through March 1 as special adviser to Chen. Chief Operating Officer Kristian Tear and Chief Marketing Officer Frank Boulben are also leaving. BlackBerry will dole out $6.8 million to the three executives on their way out the door, Moneybeat notes. Mr. Bidulka will receive the largest exit package—$3 million. That  includes two years' salary worth $1.2 million, plus stock options and retirement savings.

Qualcomm faces probe in China

Qualcomm says it’s being investigated by a Chinese government agency for possible violations of China’s anti-monopoly law, the WSJ reports. Qualcomm's announcement comes as China uses its antimonopoly law to push down prices. Experts say the efforts are part of a move to keep a lid on inflation, even as the new law helps give Beijing a greater say in the global marketplace.

Box CFO Dylan Smith talks expansion plans, IPO. Poker hustler, reality-television star, entrepreneur and chief financial officer are all terms that apply to Dylan Smith, CFO of

Box, a file-sharing and cloud-based storage service that he co-founded with high-school friend Aaron Levie. Box has attracted a lot of interest from investors recently, and Mr. Smith tells Financial Director that the company is using its war chest to “ramp up its international expansion” with France, Germany and Japan all being considered, while making acquisitions, such as of Crocadoc earlier this year, that support Box’s “core user experience.” Mr. Smith says Box’s “next big capital raise” will likely be its IPO, which is earmarked for some time next year.

The dirty secret of Black Friday ‘discounts.’ Retailers' Black Friday discounts may look generous, but most are illusory, writes the Journal’s Suzanne Kapner. Big retailers typically work backward with suppliers to set starting prices for their goods that, after the markdowns, will yield the profit margins they want. The number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012, and the average discount jumped to 36% from 25%. Over the same period, the gross margins of the same retailers were flat at 27.9%. The holidays barely made a dent, with margins dipping to 27.8% in the fourth quarter of 2012 from 28% in the third quarter. "A lot of the discount is already priced into the product. That's why you see much more stable margins," said Liz Dunn, an analyst with Macquarie Equities Research.


‘Golden leash’ payments fuel debate. A shareholder vote today in California for board members of a small local bank is emerging as a test case for one of the hottest topics in corporate governance,  the Journal’s David Benoit and Joann S. Lublin write. The issue: whether activist investors should be able to pay bonuses to their picks for board seats. After approving a new corporate bylaw that would bar investor-paid bonuses, three directors at Provident Financial Holdings are facing a call for them be voted out. Activists say the payments reward directors for helping increase shares' value, which benefits all company investors. Critics have dubbed the issue the "golden leash," referring to some activists' aim to offer bonus payments to board members they help install. And lawyers for companies have argued that such deals can compromise directors' independence by tying them to specific shareholders, when they have a duty to all stockholders.

EU attacks corporate tax avoidance. The EU unveiled twin measures aimed at curbing tax avoidance by global corporations as criticism has mounted over the tax practices of companies such as Apple and Google, the WSJ reports. The European Commission said it plans to close a loophole that allows some companies to pay little or no tax by routing profits abroad. The tactic involves a hybrid loan, which has characteristics of debt as well as equity so can be treated as a tax-deductible debt payment in one country, and a tax-exempt dividend in another. The commission said that if such a loan payment is tax deductible in the subsidiary's member state, it must be taxed where the parent is established. The commission also appointed former Portuguese Finance Minister Vitor Gaspar as chairman of a new task force that will investigate how best to tax digital companies whose low tax bills have been highly contentious in Europe.


CBS Outdoor, a New York-based billboard and outdoor-advertising company, named Donald Shassian executive vice president and chief financial officer, effective today. Mr. Shassian will oversee all financial operations as the company prepares for its separation from CBS Corp. and its conversion into a real estate investment trust. He was most recently executive vice president and CFO of Frontier Communications. Mr. Shassian replaces Ray Nowak, who will remain in the organization as U.S. CFO, focusing exclusively on finance and accounting for U.S.-based businesses.

iCAD, a Nashua, N.H.-based provider of image analysis for the early identification and treatment of cancer, said CFO Kevin Burns will take on the newly created position of chief operating officer. Mr. Burns joined iCAD in April 2011. Previously, he was CFO of Amicas Inc. until it was sold in 2010. Mr. Burns earned compensation last year valued at $498,862, according to the latest proxy.

Mandalay Digital Group named Jeffrey Klausner as CFO. Previously, he was managing director at Sherwood Partners, a consulting firm focused on restructuring venture-backed companies. Before that, he served as CFO for Razorgator, an online ticket broker.

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