Robertson Stephens Is Closed Down By FleetBoston as Buyout Talks Die
By SUSANNE CRAIG and JOHN HECHINGER
Staff Reporters of THE WALL STREET JOURNAL
On June 20, just hours after the management-led team at Robertson Stephens reached an agreement in principle to buy the struggling investment-banking firm from parent FleetBoston Financial Corp., John Conlin left a mass voice mail for the staff.
"An agreement is in place," Robertson's chief executive officer said, said people who heard the message. "But I've been down this road before and I want to caution you that until the deal is done, there is no deal."
Late Thursday night, after weeks of frustrating negotiations between the two parties, Mr. Conlin's words rang true as the talks to salvage the most important deal in Robertson's 33-year history fell apart, and FleetBoston said it would shut down the boutique investment bank.
In the end, the tentative arrangement fell apart as the two sides continued to bicker over numerous, often small issues that the Robertson management team felt added too many costs, making it financially unattractive for them to do a deal, said people familiar with the matter.
The decision by FleetBoston to shut down the San Francisco firm leaves 900 people out of work and closes the door on one of the country's most storied brokerage houses. At its peak Robertson took some of the country's best-known technology firms public, including Sun Microsystems Inc. and E*Trade Group Inc. It was one of four investment boutiques in the so-called HARM group that dominated tech underwriting: Hambrecht & Quist Inc., Alex. Brown & Sons Inc., Robertson and Montgomery Securities Inc. While banks have gobbled up all these firms, Robertson managed more than any other to hang on to its own identity.
And on Friday afternoon, as Mr. Conlin stood on the firm's San Francisco trading floor for the last time and tearfully told employees of the bank's decision to shutter Robertson, he placed the blame squarely at FleetBoston's feet. "Fleet entered into this process without discussing it with us and we have been playing catch up every since," he told employees, said people at the gathering. "This is not a company that had to be shut down." A Robertson spokeswoman didn't return calls requesting comment.
In a statement, FleetBoston Chief Financial Officer Eugene McQuade said only that the two parties "were unable to structure an agreement" and the bank decided that shutting down was now "in the best interests of our shareholders." A spokesman declined to elaborate.
The dramatic ending caps more than three years of often bitter relations between Robertson, one of the greatest beneficiaries, and in turn victims, of the technology boom, and FleetBoston, the No. 7 U.S. bank. FleetBoston, like many big banks, took a flier on a technology-driven investment bank by getting into high-risk businesses that appeared to be growing faster than banking but has since been burned. Amid last year's tech meltdown, Robertson's revenue plunged 71% and it lost $61 million, compared with the prior year's $216 million profit. In April, acknowledging it could become a takeover target if it doesn't turn around its results, FleetBoston announced it would refocus on its core commercial and retail banking operations. By putting its Robertson Stephens unit up for sale, Fleet hoped to signal its serious shift in direction.
The bank was under pressure to make a decision about whether to pull the plug on Robertson before it reports second-quarter earnings Monday. The bank said it would book a gain of about $300 million in the quarter from the sale of its student-loan servicing business, which will help offset its loss on the shutting of Robertson. Gerard Cassidy, an analyst at RBC Capital Markets, said he expected the bank to take a pretax write-down of more than $600 million related to Robertson Stephens.
Scott Black, president of Delphi Management, a Boston money manager that owns 222,000 FleetBoston shares, said FleetBoston would have little hope of profiting by holding onto Robertson and hoping for a rebound in technology, especially when larger players dominate underwriting "If this is just pouring good money after bad, it's the right thing to do," Mr. Black said of the bank's decision.
Although there was initial talk that a foreign or smaller domestic buyer might snap up Robertson, no serious bids materialized. This left FleetBoston on a solo track negotiating with a management team at Robertson, led by Mr. Colin, President Todd Carter and former CEO Mike McCaffrey, a group with which FleetBoston shares a rather stormy history.
Fleet assumed control of Robertson when it acquired neighboring BankBoston in 1999. A year earlier, BankBoston, then led by FleetBoston's current Chief Executive, Charles K. Gifford, bought Robertson Stephens in 1998 for $400 million plus a bonus pool of $400 million to be paid over four years. Many investors said the price was too rich, but bank executives argue that figure amounted to about $550 million, when adjusting for taxes and payments over time.
While culture clashes often ensue when commercial banks merge with securities firms, for a short time it looked as if the relationship between Robertson and FleetBoston would succeed.
Robertson's revenue jumped 66% in 2000 to $1.6 billion, turbo-charging FleetBoston's growth. Profit more than doubled, to $218 million. And, on a personal level, many at Robertson at first felt hopeful about FleetBoston and its then-CEO, Terrence Murray, a fellow deal maker who built FleetBoston into a powerhouse through dozens of acquisitions. In an early meeting, Mr. Murray delighted Robertson partners when he referred to clients by their ticker symbols, sounding more like a hot-shot securities analyst than a button-down banker.
The honeymoon was short-lived. In early 2001 FleetBoston asked for and received the resignations of both Robertson's CEO and chief financial officer following a high-profile pay flap where FleetBoston accused senior Robertson management of paying themselves more than $70 million than had been agreed upon.
This episode set the tone for the rocky sale talks that followed a year later, said people familiar with the matter. FleetBoston, said people familiar with the matter, didn't even discuss its plans with Robertson to sell the unit until the night before it was announced in April, a move that these people say enraged certain executives at the boutique.
After failed talks with a handful of firms to sell Robertson, FleetBoston entered into exclusive discussions with the management-led team. Robertson offered FleetBoston about $100 million in exchange for the 77% of the firm it owns (employees own the remainder). This wouldn't be cash, however; rather, Robertson staff would give up $100 million in compensation they were owed. While some employees took issue with how the equity would be distributed, in particular the amount of equity that would go to senior managers such as Mr. Conlin and Mr. Carter, these discussions took a backseat to the negotiations with FleetBoston.
FleetBoston, said one person involved in the talks, continued to find new expenses that added to the deal's price tag, for instance how much it would cost to reassign Robertson's information-technology contracts.
A big sticking point, said another person close to the negotiations: How much liability each side would take on related to regulatory investigations into how initial public offerings at Robertson and elsewhere were sold during the Internet boom.
A person familiar with the matter said FleetBoston concluded that a sale to management or a shutdown would cost the company about the same amount. The company didn't want to shoulder too many additional costs in a sale or investors would conclude it hadn't made a clean break with Robertson -- part of its recent shift to a lower-risk strategy.
"It really is the end of an era," says Sandy Robertson, who along with Paul Stephens founded the firm.
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Write to Susanne Craig at susanne.craig@wsj.com and John Hechinger at john.hechinger@wsj.com |
