Russell Glass, founder of New York-based activist hedge fund RDG Capital, sparked a rally in shares of Atmel (ATML) Monday when he revealed that he wrote a letter to Atmel's chairman on May 15 expressing interest in acquiring all the shares of the company for $5.50, to be paid in cash and preferred stock. Glass has owned shares of the semiconductor maker through an affiliate since 2005.
Atmel's stock price rose sharply in reaction, closing up 7% at $4.74 Monday, despite the fact that the company responded that it wanted to remain public. In recent trading, Atmel was down 1.7% at $4.66.
A person familiar with RDG says that Glass, the former president of Icahn Associates, bought his shares at $2. The source, who requested anonymity, says Glass believes that Atmel is undervalued as a public company. As a result, Glass intends to take the company private and spin off or sell some of its parts, in particular, the real estate assets and the highly valuable micro-controller division, this source says.
Glass declined to comment. Robert Pursel, director of investor relations at Atmel, confirmed that his company declined RDG's offer, but had no further comment.
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In any event, Glass is not likely to give up so quickly and may be willing to renegotiate his price if management can demonstrate that $5.50 per share is inadequate, says the source.
"Notwithstanding the company's reply to its proposal, RDG remains interested in negotiating a potential acquisition of the company," he wrote in the tender-offer statement filed Monday with the
Securities and Exchange Commission
That kind of language is just what the market likes to hear.
Private Equity Firm to Buy Gartmore
Hellman & Friedman, the U.S. buyout firm, may buy U.K. asset manager Gartmore Investment Management as early as Tuesday, according to an executive at an investment bank familiar with the deal.
Nationwide Financial Services
, the Columbus, Ohio-based insurance company that owns Gartmore, put the company up for sale last fall. Nationwide bought Gartmore from Royal Bank of Scotland in 2000 for approximately 1 billion British pounds, or $1.6 billion at the time.
A London-based banker said that Nationwide was targeting a 600-million-pound price (about $1.1 billion) for the sale. The final price for a deal may even be lower, in the 500-million-pound vicinity, according to a
report. That's because the main appeal of Gartmore, a $43 billion powerhouse, is its $7.5 billion hedge fund franchise run by star trader Roger Guy, says a London-based investment banker. The deal for Gartmore may be priced less than previously expected because determining the valuation of a hedge fund business is subject to a great deal of uncertainty. Future revenue depends on the hedge fund performance and is, therefore, hard to predict, as hedge funds get paid an incentive fee, which is a percentage of their returns.
Negotiations have also been complicated because the buyer had to negotiate with the management team. It is believed that Hellman & Friedman was able to convince Guy to stay on board. A spokesman for Nationwide did not return a call. A spokeswoman for Hellman & Friedman declined to comment.
Following the lead of
, several large Wall Street banks may stop publishing stock-research reports. The idea is to disseminate stock ideas privately, on the phone and to clients only. It's more private and more confidential, but will it be a good thing for hedge fund managers?
The trend may be good for hedge funds that produce their own research in-house, as it would give them the opportunity to generate exclusive investment ideas that won't be publicized on the Street. "A lot of hedge funds are doing their research on their own," says Bob Sehrus, portfolio manager at Philadelphia-based hedge fund Attalus Capital. "They try to find a catalyst that someone else hasn't discovered yet. If research is not available on the Street, it gives them more of an edge."
If the hedge fund is a client of a Wall Street firm, the new trend is also a positive because managers get more restricted research. The fewer investors using the research, the less crowded the investment space will be and the more competitive the strategy or the stock idea may be.
The largest hedge funds in particular depend more on the Street research because they invest in more liquid and larger names, says a hedge fund investor who runs a family office. For those, having access to a more private type of information is definitely a plus.
Lehman Brothers surprised the Street when it announced earlier this month that it will phase out publishing research reports. The bank, at the time, said that analysts would only discuss stock ideas with their clients face to face or on the phone. "You may end up seeing it as a trend. Other banks may follow Lehman's lead," says Sandra Manzke, founder of Maxam Capital Management, a Darien, Conn.-based hedge fund.
Eliminating real or perceived conflicts of interest between research and investment banking is at the root of this new trend in equity research. "The whole industry has gone through such a questionable period," says Manzke. "Wall Street firms seeking to make their research more private are, in reality, trying to free themselves from conflicts of interest," she says. That's because some companies, displeased with a research report, may threaten to pull their investment-banking business. One way for a bank to eliminate this risk is to limit access to the research and stop publishing.
Since the adoption of new rules in 2002 and 2003, analysts have been subject to a higher degree of compliance, and regulators are on the lookout for conflicts of interests. Ten big Wall Street banks paid $1.4 billion in fines in 2003 as part of a settlement with the regulators.
In fact, Wall Street has been so riddled with conflicts that many hedge funds prefer to get their research from a number of independent companies that just do research on stocks and don't do investment banking, says Manzke.
Wall Street has a long way to go in order to regain credibility among its most sophisticated investors, especially when they are hedge funds that produce their own research. And with the Street concentrating its coverage on larger names, it may take a while before the average hedge fund, mostly interested in small- or mid-caps stocks, look to the Street again for research.
JPMorgan Beefs Up Prime
does not have a prime brokerage group, but it's getting there. The firm has poached Lehman Brothers prime brokerage expert Neil Sherman to develop relationships with hedge funds, according to sources familiar with the situation.
Sherman will report to John Simmons, head of JPMorgan's specialty finance and hedge funds, a group that comprise hedge funds and funds of funds and is housed in the Financial Institutions and Governments Group, led by Tim Main. A spokeswoman at JPMorgan declined to comment.
JPMorgan does not have a prime brokerage platform comparable to the prime brokerage franchises of
. Hiring Sherman is part of the firm's plan to develop a more fully formed prime brokerage platform, sources say.
At Lehman, Sherman was co-head of global prime brokerage sales and marketing. He will assume a similar role at JPMorgan. His position at JPMorgan is newly created. A spokesman at Lehman declined comment.