€300 Million Later: Deutsche Bank's Invoice On The Remains Of The Jefferson Smurfit Group
In January, Zero Hedge wrote about the bankruptcy of paperboard and packaging company Smurfit Stone Container Corp. As this occurred at the peak of the post Lehman crunch it was not very surprising. However, what is somewhat surprising is our recent encounter with a case study of the Jefferson Smurfit Group LBO by Morgan Stanley, in which Madison Dearborn acquired JSG for €2.3 billion, and subsequently spun off SSCC to the public. What caught our attention was the fees and expenses that the advisors charged MDP to facilitate a deal which ultimately cashed out the investor group by spinning off the eventual toxic assets of SSCC to a hapless public: Deutsche Bank and Merrill Lynch pocketed a whopping €248.5 million (yes, that's Euros). And for what: presumably for M&A fees, Loan fees, HY Bridge and Bond Fees and FX/Hedging Revenues. What they missed to point out is the primary reason for MD's generosity: extracting all the relevant assets out of a formerly stable and growing operation, spinning off all the shitty ones (eventually attempting to arrange restructuring fees and/or DIP financing on the remaining SSCC husk), leveraging the company with a massive debt load.
Not only that but a few short years later, DB again made a boatload by IPOing the JSG successor Smurfit Kappa to some other set of hapless investors: with an IPO price of €16.50, and currently trading about 70% lower, one wonders how in a span of 10 years, DB has made almost half a billion dollars while the underlying assets have deteriorated so much that the American business has had to file for Chapter 11, while the remainder is stuck picking up the pieces at a deplorable return to shareholders.
But that's investment banking for you: providing major value (to someone), while enhancing efficiency (and bankruptcy probabilities). And in the meantime, the PE backers have extracted hundreds of millions on their underlying stake. Who are the losers? Why stupid institutional money (pension and mutual funds) and retail of course. In the meantime, politicians hammer the immense value that the Wall Street advisory/underwriting/going private complex provides. If they say it often enough, we may just believe them.