Back in Q2 2009, while Goldman had a “convicted buy” on Merck, Wellington suddenly cut its Schering-Plough positions in half — sending gyrations through both Schering’s and Merck’s stock prices.
I cannot help but notice that both firms are now being asked about trading in unnamed companies — in this ongoing SEC investigation. We’ll report more — as we learn more, but Bloomberg is reporting that Wellington has been asked to turn over documents. If just an informal request, it would be highly unlikely that Wellington would be a target in this matter.
In fairness, though, it is not yet clear whether it was simply an informal request, or a formal subpoena. It is clear that there was no “raid”, along the lines we saw yesterday, with fully-armed FBI agents arriving — at three hedge funds. Here’s the item:
. . . .Wellington Management Co., the Boston-based money manager that oversees $598 billion, received a request for documents from federal investigators looking into insider trading on Wall Street, according to a person familiar with the firm.
Wellington said on an internal conference call yesterday that the firm is conducting a review of records, though it said it didn’t engage in illegal trading, according to the person, who asked not to be named because the firm is private. In a call today, Wellington officials disclosed the document request, without specifying what kind of information investigators are seeking, the person said. . . .
Here were my three thoughts, on Goldman’s diametrically-opposed views at the time (as compared to Wellington’s, apparently):
(1) Goldman Sachs (Ms. Jami Rubin’s current employer) rendered the first of two financial fairness opinions (contained in the June 25, 2009 definitive proxy-solicitation materials, filed with the SEC) that Merck’s bust-up of Schering-Plough, albeit styled as a proposed reverse merger with Schering-Plough, was “fair“, from a financial point of view, to Schering-Plough. That is, Merck was not getting a steal.
(2) Morgan Stanley (Ms. Rubin’s most recent prior employer, as late as mid-2008) rendered the second financial fairness opinion (contained in the June 25, 2009 definitive proxy-solicitation materials, filed with the SEC) that Merck’s bust-up of Schering-Plough, albeit styled as a proposed reverse merger with Schering-Plough, was also “fair“, from a financial point of view, to Schering-Plough. That is, Merck is not getting a steal.
(3) Both Goldman Sachs, and Morgan Stanley were leads — on Schering-Plough’s $3.8 billion of financings — one being the 6% Mandatory Convert, and the other being a series of euro, and dollar denominated debt traunches — in August and September of 2007. The Convert was pegged at a Schering-Plough common stock price of $27.50, at closing. Schering-Plough’s common had never approached that price since December of 2007 — almost two full years, back then. Clearly, if or when Merck’s shares were to rise, and the deal go through, by definition, Schering-Plough’s shares, in exchange, would rise, proportionately, as well.
Back in Q2 2009, both of Rubin’s firms — present and past — felt Schering-Plough was getting a fair price in the deal. But she hinged her “Buy” upgrade on cost-cutting by Merck, post bust-up. Fascinating.
Then, the argument goes, when New Merck wasn’t showing large-enough cost savings from the bust-up, in the first few quarters post-transaction, Goldman gutted its rating — two full notches, in one fell swoop — to Neutral. Slick. Still, I do believe she complied with her Reg AC duties, there.
As to Wellington, though — it is reasonably likely that the firm was simply unwinding its merger arbitrage play. . . the question is, when did it put the arbitrage structure in place? We’ll know before too terribly long.