Morning Agenda: EMC Takeover Depends on Dell Debt Deal

EMC TAKEOVER DEPENDS ON DELL DEBT DEAL | The 2013 leveraged buyout of Dell may be a gift that keeps on giving for deal makers,
Michael J. de la Merced reports in DealBook.

Dell now plans to acquire EMC in what would be the biggest technology takeover on record.
If it succeeds, it would take another step away from being a computer manufacturer.

Michael S. Dell has insisted that the company bearing his name is headed toward a future built on business services. It has already spent billions of dollars on building up its enterprise services division. EMC would bolster his efforts to create a system that blended computing, storage and network.

The deal would require a huge amount of debt financing at a time when credit markets have become less hospitable to mergers. Dell and the private equity firm Silver Lake are trying to secure a debt package that could come to more than $40 billion to fund the acquisition, The Wall Street Journal reports, citing people familiar with the deal.

The talks have become more urgent as the parties want to come to an agreement before credit tightens further.

The Wall Street Journal reports that Dell and Silver Lake have assembled a group of lenders that includes JPMorgan Chase, Bank of America and Credit Suisse to help them secure the debt. The banks would provide a bridge loan that could later be replaced by investment-grade bonds and syndicated loans.

To pay for the deal, Dell and Silver Lake may also need to come up with as much as $20 billion themselves. There is a possibility of them selling shares in EMC’s VMware unit to fund that.

This bid for EMC could be a peak in the mergers and acquisitions market,
Robert Cyran argues in Breakingviews. EMC’s size and the scale of the borrowing both present challenges to a deal.

Spinning off Vware to EMC shareholders could cut the size of the deal by half, but it is probably the most attractive asset. Even a spin-off of 30 percent of the $10 billion company would leave an ambitious deal.

Dell’s interest in EMC is in keeping with the tail end of a mergers and acquisitions cycle, when complex deals with nonobvious benefits swing into view, Mr. Cyran writes. “While Dell managed to overcome plenty of hurdles to go private, an attempt to make a merger with EMC work for everyone involved could be a step too far.”

STAGWELL GROUP TO BUY SKDKNICKERBOCKER | The private equity firm founded with a check from the former Microsoft chief Steven A. Ballmer has made its first purchase,
David Gelles reports in DealBook. The firm, the Stagwell Group, will buy SKDKnickerbocker, the public relations group known for its campaign work for prominent Democratic clients.

Mark Penn, the former advertising executive who runs Stagwell, said it would try to create a cohesive group of advertising, research, public relations and marketing companies. He said he also expected to acquire companies that specialize in digital design, Hollywood ventures, ad buying and financial communications.

Mr. Penn had served as chief strategy officer and an adviser to Mr. Ballmer during his tenure at Microsoft. Before that, he had worked in advertising and politics. He sold a market research company he founded to WPP, the world’s biggest advertising group. At WPP, he became chief executive of Burson Marsteller, the public relations firm. He also worked with Ed Koch, President Bill Clinton and Hillary Rodham Clinton.

SKDKnickerbocker is a familiar company for him. Mr. Penn collaborated with them on a television commercial featuring Bill Gates when antitrust regulators were pressing to break up Microsoft.

SKDKnickerbocker has in recent years started to put its campaign tactics to use for corporate clients, including AT&T, Pfizer, and Herbalife.

The SKDKnickerbocker partners have signed long-term contracts, ensuring that the core of the firm will stay together after the deal.

While Mr. Penn plans to encourage collaboration between companies in the Stagwell portfolio, he intends to leave the partners in charge of what they know.
“The big holdings companies are run primarily by accountants, instead of people who came out of the core disciplines,” he said. “Folks at this firm have been the communications director at the White House.”

He also said that despite being a private equity firm, he and Mr. Ballmer were looking to hold onto companies.

“We’re looking to buy, hold and grow,” he said. “We’re unlikely to be flipping assets.”

BOND KING SUES OVER DISMISSAL | William H. Gross, also known as the bond king, is suing the company he built into one of the largest asset managers in the world,
Nathaniel Popper reports in DealBook. The suit is a bold effort to repair the damage done to his reputation around the time he was fired and provides a colorful interpretation of the feud that led to his departure.

Mr. Gross is seeking “in no event less than $200 million” from Pimco for breach of covenant of good faith and fair dealing, and has promised to donate any money he might get to charity.

The lawsuit presents Pimco as a den of intrigue riven by back stabbing and competing egos. The first sentence of it says that Mr. Gross was pushed out by a “cabal” of managing directors who were “driven by a lust for power, greed, and a desire to improve their own financial position.”

“Their improper, dishonest, and unethical behavior must now be exposed,” the opening paragraph concludes.

It also criticizes Mohamed El-Erian, who was once in line to succeed Mr. Gross and is now the chief economic adviser at Allianz, Pimco’s parent company, as well as Pimco’s group chief investment officer, Daniel J. Ivascyn.
Both men are accused of trying to take Pimco away from its traditional focus on bond funds and into riskier investment strategies that would earn it higher fees and bigger bonuses for top executives.

The suit said that Mr. Gross was entitled to 20 percent of the firm’s bonus pool and his overthrow was motivated by the wish of executives like Mr. Ivascyn to take home more of the money.

The suit’s bold claims and theatrical language could play into perceptions of Mr. Gross as an unpredictable and volatile character, something that was cited as part of the reason for his problems at Pimco.

The legal challenge comes just as Pimco appears to be recovering from the damage done by Mr. Gross’s departure.
Investors pulled over $100 billion from the enormous bond fund that Mr. Gross used to run, but those outflows have slowed and the fund’s returns have been relatively good.

Mr. Gross, by contrast, has attracted only around $1 billion to a new bond fund he created at the Janus Capital Group, the Denver company he joined immediately after leaving Pimco. The new Janus fund has significantly underperformed both its benchmark and the Pimco fund Mr. Gross used to lead.

ON THE AGENDA | Dennis P. Lockhart, President of the Federal Reserve Bank of Atlanta, will speak at the Society of American Business Editors and Writers conference in New York at 9 a.m. Charles Evans, President of the Federal Reserve Bank of Chicago, will speak at the CFA Society Milwaukee at midday. The Financial Services Committee will hold a hearing on the future of multilateral development banks at 10:30 a.m. Import and export prices for September will be released at 8:30 a.m.
David M. Rubenstein of The Carlyle Group is a guest on Bloomberg Television at 7 a.m.

HOW HILLARY CLINTON WOULD REGULATE WALL STREET | Hillary Clinton favors more intensive regulation of Wall Street, and bank executives and lobbyists will find little to like in her plan, Neil Irwin writes in The Upshot.

But her approach stops short of the wholesale breakup of too-big-to-fail banks favored by Bernie Sanders and Elizabeth Warren.

Mr. Irwin summarizes the key elements of her plan.

A new ‘risk fee’ on the largest financial firms. The fee would be payable to the United States Treasury and would be paid by large, potentially risky firms. The level is not decided by the size of the firm, but by the amount it relies upon volatile short-term funding to finance its operations. Goldman Sachs would have more to fear than Wells Fargo, as it is more complex and relies more on fast-moving capital markets for funding.

More power for regulators to break up financial firms.

Dodd-Frank requires that major banks prepare “living wills” that describe the legal details of how they would be unwound in the event of a failure. But Mrs. Clinton’s proposed legislation would grant regulators more power to determine that, for example, a bank that had multiple ethics scandals might just be too complex to manage and could endanger financial stability.

Regulate ‘shadow banking’ more intensively. The segments of the financial system that resemble banks in important ways, but are not regulated like them, include money market mutual funds, hedge funds and parts of the insurance industry.

Mrs. Clinton’s plans still seem vague but she calls for new international rules governing disclosure, margin and collateral requirements to try to make the failure of one global bank or insurer less likely to endanger the entire world economy.

| Contact amie.tsang@nytimes.com

DSV Group Agrees to Acquire UTi Worldwide in $1.35 Billion Deal | The transaction is expected to bolster DSV’s annual revenue by about 50 percent and give it a more balanced geographic footprint.
NYT »

Blackstone to Acquire BioMed Realty Trust for $8 Billion | Affiliates of a Blackstone real estate fund are to pay $23.75 a share for BioMed Realty, a 10 percent premium to its closing price on Wednesday.
NYT »

Anheuser-Busch InBev Says It’s ‘Surprised’ by SABMiller Rejection | The brewing giant is trying to keep up the pressure on its longtime rival in hopes of securing the largest beer merger in history before a looming deadline.
NYT »  | Deal Professor: Nudging a Huge Beer Deal Down a Long Road  | SABMiller Rejects Increased Bid From Anheuser-Busch

Formula One Closes in on a Sale | The sale of Formula One is nearing completion as a US-Qatari consortium closes in on a deal valuing the motor racing company at $8.5 billion, The Financial Times reports, citing two people close to the negotiations.
THE FINANCIAL TIMES

Telecom Italia Said to Work With Deutsche Bank on Tower Sale | Telecom Italia hired Deutsche Bank to sell its $1.8 billion stake in Inwit, the mobile-phone tower division that had an initial public offering this year, Bloomberg News reports, citing people familiar with the matter.
BLOOMBERG NEWS

Ladbrokes Gets $2.1 Billion in Financing to Fund Coral Deal | The bookmaker Ladbrokes said it had signed a 1.35 billion pound, or about $2.07 billion, facility with banks to fund its proposed merger with Gala Coral.
REUTERS

Wells Fargo Said to Be Under Investigation Over Student Loans | The Consumer Financial Protection Bureau is investigating Wells Fargo over its student loan servicing practices, The Wall Street Journal reports, citing people familiar with the matter.
THE WALL STREET JOURNAL

Deutsche Bank Is Tip of Iceberg for Cutbacks at European Banks | Restructuring “remains top of the agenda” for Europe’s banks, analysts at Morgan Stanley wrote in a note this week.
THE WALL STREET JOURNAL

Carlyle in Art Financing Venture | The private equity giant has teamed up with Banque Pictet to offer loans to collectors using their art as collateral.
NYT »

TA Associates to Buy Russell Investments for $1.15 Billion | The private equity firm will acquire the asset management business from the London Stock Exchange Group, which bought the company for its index business last year.
NYT »

Golden Gate Reports Stake in Ascena Retail | The private equity firm Golden Gate Capital disclosed a 9 percent stake in Ascena Retail Group and said it is in early stages of discussions on ways to create value for shareholders.
THE WALL STREET JOURNAL

Elliott Management Acquires Stakes in Polycom and Mitel | The $27 billion hedge fund recommended that the two providers of voice and video communications equipment merge, as part of a wave of consolidation in the telecom equipment sector.
NYT »

Valentino’s Owner Said to Explore I.P.O. | The Qatari investment firm Mayhoola for Investments, which owns Valentino Fashion Group, is working on a potential initial public offering, which may seek a valuation of as much as $2.26 billion, Bloomberg News reports, citing people with knowledge of the matter.
BLOOMBERG NEWS

Ferrari Said to Push for $12.4 Billion Valuation in I.P.O. | Based on talks with possible investors, Ferrari could be valued as much as $12.4 billion when Fiat Chrysler sells a 10 percent stake in it on the New York Stock Exchange, Bloomberg News reports, citing people with knowledge of the matter.
BLOOMBERG NEWS

IMAX China Makes It Big With Hong Kong Listing | Shares of IMAX China surged 10 percent as investors bought into the prospects for booming box-office receipts on the Chinese mainland, the world’s second-largest market for movies after the United States.
THE WALL STREET JOURNAL

Uber Rejects Proposal That Would Legalize Its Service in Brazil’s Largest City | The mayor of São Paulo, Brazil, signed a bill banning ride-hailing services but offered a proposal that would let such services continue legally. Uber is having none of it.
Bits Blog »

Uber Data Breach Investigation Said to Focus on Lyft Executive | After a major data breach, Uber is focusing its legal efforts on learning more about an Internet address that it has persuaded a court could lead to identifying the hacker. The address can be traced to the chief of technology at a rival, Lyft, Reuters reports, citing sources familiar with the matter.
REUTERS

Silicon Valley Investors Look North | As Canadian software startuups have begun to flourish, venture firms from the United States are looking north. Canadian venture capital has doubled in five years, to $2.4 billion.
BLOOMBERG NEWS

Regulators Investigating 2nd VW Computer Program on Emissions | Volkswagen and regulators declined to say whether the software in diesel cars, newly disclosed during congressional testimony, was intended to defeat emissions control tests.
NYT »  | VW’s U.S. Chief Knew of ‘Defeat Device’ in 2014  | Graphic: How Volkswagen Got Away With Diesel Deception 6:25 PM