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It’s takeover time, eh

Greenhill makes a deal; Bank of NY's brokerage LBO; Dana Telsey runs her own show; and more

Never let it be said that Bob Greenhill has difficulty making up his mind. Pulled out of a lunch meeting earlier this year to be introduced to potential Canadian partners, the 70-year-old founder of New York–based Greenhill & Co. spent about ten minutes talking to Bradley Crompton, who formerly ran Morgan Stanley’s Canadian office, and George Estey, onetime head of Goldman Sachs Canada, before he decided to buy the pair’s Toronto-based firm, Beaufort Partners.

Crompton and Estey, longtime friends, had just set up their boutique advisory firm last fall. They were in New York catching up with former colleagues, including Greenhill co-president Scott Bok, a veteran of Morgan Stanley’s M&A group.

After a short chat with the pair, Greenhill looked around the room, asked, “Why are we screwing around here?” and suggested the two Canadians lead his firm’s northern expansion. Less than two months later, the deal was done.

For Crompton, 50, and Estey, 49, combining forces with Greenhill & Co. means they will be able to retain their firm, which offers takeover advice, on an independent and conflict-free basis while obtaining better access to cross-border deal flow and additional resources for what was a six-person operation.

In a stock-based deal announced June 20, Beaufort picks up a stake in Greenhill & Co. that could be worth tens of millions of dollars if Beaufort hits performance benchmarks. Canadian takeovers are moving at a record pace, with transactions worth C$86.9 billion ($78.3 billion) announced in the past six months.

Crompton and Estey worked on many of Canada’s landmark transactions, focusing on resource, telecommunications and media deals, at their previous firms. At Beaufort Partners they teamed up with Morgan Stanley and London-based corporate finance firm Long Acre Partners to advise on the sale of Auto Trader magazine and other Canadian and European publications by Trader Media Group.

Although Greenhill & Co. is new to Canada, its founder has ties to the country. As head of investment banking at Morgan Stanley, Greenhill worked on one of North America’s first successful hostile acquisitions, advising nickel producer Inco on the takeover of battery maker ESB in the 1970s.

Greenhill & Co. is the second American dealer to open an M&A-focused Canadian office in recent months. In May, Lehman Brothers hired BMO Nesbitt Burns takeover expert Geoff Belsher to open shop in Toronto.

With his new office now up and running, Bob Greenhill says the deals are going to start flowing. “The merger and acquisition boom in Canada has three to five years to run,” he predicts. — Andrew Willis


BNY finds partners for brokerage biz

Equity trading isn’t exactly a growth business on Wall Street these days. Cost-conscious institutional clients are pressing commission rates downward while demanding cutting-edge technology. That’s making brokerage into a low-margin, high-volume endeavor and forcing firms to invest millions in an arms race to offer the best automated trading tools.

Among the players eager to win that race is Bank of New York. The 222-year-old bank’s BNY Securities unit has long offered brokerage and research services to big investors. During the past several months, however, bank officials sought to improve the division’s technology and began considering acquisitions. That presented a problem: Under federal regulations any goodwill generated on a bank’s balance sheet by acquiring another company at a premium must be funded with equity, not debt. That made any sizable acquisition excessively costly.

Instead of throwing in the towel, BNY and its adviser, boutique investment bank Evercore Partners, came up with the novel deal announced June 30:

BNY will create a new, separate company by merging its brokerage unit with Eze Castle Software, a provider of systems that investors use for organizing orders to buy and sell stocks. Chicago leveraged-buyout firm GTCR Golder Rauner also will take a minority stake in the new entity, to be called BNY ConvergEx Group. GTCR and BNY each will own 35.4 percent, with Eze Castle owning the remainder. BNY will use $441 million of the proceeds to buy back shares, according to BNY CFO Bruce Van Saun.

BNY hopes that the combination, which follows Investment Technology Group’s purchase last year of Eze Castle competitor Macgregor, will lure business from hedge funds. Eze Castle is the favored order-management system among that client group.

“By embedding the capabilities of the broker into the OMS, you get a natural home-court advantage,” says Joe Velli, chairman and CEO of BNY Securities, who will continue to hold the same position at BNY ConvergEx. “You really become the default broker for the institutions that are using that OMS.” — Justin Schack


Cuban backs a financial detective

Billionaire Internet entrepreneur Mark Cuban disparages the mainstream press for not backing hard-hitting investigative business journalism. So he’s doing it himself. The flamboyant 48-year-old owner of the Dallas Mavericks basketball team, who financed the documentary Enron: The Smartest Guys in the Room, is underwriting a Web site, Sharesleuth.com, that aims to uncover stock fraud and corporate malfeasance.

Cuban’s handpicked editor, veteran business journalist Christopher Carey, expects to be busy. “There’s an endless amount of chicanery out there,” says the former St. Louis Post-Dispatch reporter, who was a finalist last year for a prestigious Loeb award for his series on global stock fraud. “We will have more material than we can handle.”

Carey, 45, says he’s making the jump to the Web from newspapering after 23 years because he wants to concentrate on investigative reporting. He’ll rely on securities filings and other public documents and on his network of more than 100 sources, who regularly tip him off to suspicious behavior in the marketplace, he says. Carey will be the site’s sole staffer but says he plans to hire freelance reporters.

The editor sees Sharesleuth as both a watchdog and a tipster for investors and regulators. “We can be the early warning system for many folks who need more than gossip,” he says. “We will substantiate everything we say.”

One person who apparently plans to take advantage of Sharesleuth’s reporting is Cuban. He stirred controversy last month by saying that he plans to trade stocks based on the site’s stories before they’re published.

Could that be a story for Carey? Not really, says the editor. “This isn’t about reporting on soft companies who’ve had a bad quarter. We’re reporting on clear-cut deception and fraud,” he explains. “Sharesleuth is not a trading operation. If there’s an ideal situation where Mark bets against, and profits from, a company we report on Sharesleuth, then it’s just poetic justice, if you ask me.” — Jeff MacIntyre


Beller’s back in the real world

Alan Beller figured he’d spend two years at most at the Securities and Exchange Commission. That was nearly five years and an awful lot of corporate scandals ago. The veteran Cleary Gottlieb Steen & Hamilton attorney agreed in November 2001 to become head of the agency’s division of corporation finance. Beller was excited about reforming securities offering rules, which hadn’t been meaningfully modified in decades despite big advances in technology that altered the underwriting process.

Then a succession of public companies — Enron and WorldCom among them — ran into accounting problems that triggered fraud investigations. Congress passed the Sarbanes-Oxley market reform legislation, and Beller’s division had to write a bevy of rules through which the new law would be implemented. “My first two years were spent largely being reactive,” he laments.

Once the postbubble dust settled, Beller finally tackled those offering regulations. The SEC has proposed allowing Internet delivery of proxy materials and permitting big, frequent issuers to more freely make public statements while their deals are pending. Now Beller, 56, is rejoining Cleary Gottlieb in New York.

“It was time to leave,” asserts Beller, who commuted each week to the SEC’s downtown Washington offices from his Brooklyn, New York, home. Beller says he’ll work on assignments ranging from securities filings to counseling corporate boards in crisis situations. “That’s where I love to spend time,” he says. “Helping move the firm to a higher level.” — Stephen Taub


Telsey runs the show

Dana Telsey learned the ins and outs of retailing as a teenager working the cash register of her parents’ book and magazine store on New York’s Madison Avenue. Now she runs her own shop. In May the former Bear, Stearns & Co. retail analyst set up independent research firm Telsey Advisory Group in a Fifth Avenue high-rise, one block from Grand Central Station.

Telsey, a 43-year-old Fordham MBA, began her career analyzing stocks for value investor Ron Baron and spent three years at C.J. Lawrence & Co. before joining Bear 12 years ago. There she became a star researcher of retailers ranging from French luxury goods purveyor LVMH, maker of Louis Vuitton handbags and Moët & Chandon champagne, to discount giant Wal-Mart Stores. For the past seven years, voters in this magazine’s All-America Research Team survey have chosen Telsey as the nation’s top specialty-store analyst.

Her new firm is starting out by covering 40 companies for equity portfolio managers, private equity funds and real estate investment firms. She has recruited ten analysts, including two of her former associates at Bear, Jim Hurley and Joe Feldman. The firm has no brokerage or trading operations. Clients either pay cash to subscribe to its research or have brokerages direct a portion of their trading commissions to TAG.

Research at big brokerage houses has changed drastically in the wake of postbubble regulatory reforms that have added layers of bureaucracy, and sapped budgets. Many veteran stock pickers have left the Street as a result. That transformation is part of the rationale for her move, says the energetic Telsey, who travels constantly to scope out stores as part of her research. But she also believes that, like Mom and Dad, she was destined to run her own shop.

“I love retail, and I wanted to do this better and faster,” Telsey explains. “To create an organization without layers of authority.” — P.P.


Read has big plans for CalPERS’s clout

The investment chiefs of public sector pension plans routinely move to better-paying jobs in the private sector. Russell Read is doing just the opposite: In June the 42-year-old deputy CIO of Deutsche Asset Management in New York quit to become CIO of the California Public Employees’ Retirement System. His compensation will be less than half what he made in a good year at Deutsche.

“I’m not doing this for the paycheck,” deadpans Read, who is moving to Davis, California, which is just a few minutes from CalPERS’s Sacramento headquarters, with his wife and three children.

The veteran money manager was drawn to CalPERS — with its $205 billion in assets — by the opportunity to hold sway over an organization that is at the forefront of corporate governance activism and public pension investment strategy.

“I believe that I can develop and transform an extraordinarily important organization in a way that has disproportionate benefits to our investors and to the capital markets,” Read says. “Without that belief, I wouldn’t take the position.”

Among his grand plans: using CalPERS’s clout to imaginatively address the developing world’s growing need for energy and raw materials. “Our ability to use our scale to make certain projects happen can mean that certain technologies may be able to take an economic foothold,” says Read. — Steven Brull


Investment banker Roth gives money management a try

Keefe, Bruyette & Woods has long been known for advising, financing and researching financial services firms. Now the New York investment banking boutique is applying its industry know-how to grow a different business: investing.

Last month KBW assigned insurance investment banking chief Peter Roth to run its seven-year-old KBW Asset Management unit. Roth’s brief: Build the division into a leading manager of investments in financial services firms, which account for 21 percent of the capitalization of the Standard & Poor’s 500 index.

Although Roth, a 46-year-old graduate of both the University of Pennsylvania and its Wharton School of Business, has no experience managing money, he has an idea or two about how to make $194 million-in-assets KBW Asset Management into a bigger player. For a start, he is counting on KBW’s reputation for expertise in financial services to impress prospective investment clients.

“The opportunity to grow is rather significant,” says Roth, a native of East Hills, New York, on the north shore of Long Island. “The firm’s footprint in financial services hasn’t been leveraged to any extent within the asset management business.”

KBW seems to have its market timing down. It announced last month that it plans to go public later this year. IPO investors should find the relatively steady revenue stream from asset management fees a welcome counterbalance to the more volatile earnings generated by the firm’s underwriting, advisory and brokerage businesses.

KBW had called off an earlier IPO, in 1999, when then-CEO James McDermott was indicted for insider trading. (In 2001, McDermott pled guilty. He was convicted and sentenced to the five months of time he had already served in prison.) Then 67 of KBW’s employees were killed in the September 11, 2001, terrorist attack on the World Trade Center, which then housed KBW’s headquarters. (The firm is now based in midtown Manhattan.)

Roth believes one key to growth will be investing in non-U.S. financial services firms, particularly in Europe, where the sector represents an even bigger chunk of the stock market than it does in the U.S.

Roth contends that the management skill and style he has developed in investment banking can be applied to asset management. “You have got to have the door open all the time,” he says. “You have to be ready to deal with problems as they come up. That’s what I’ve done for the past 15 to 16 years as an investment banker.” — Michael Shari


A hedge fund manager’s not-so-basic training

Ed Luzine counts ABB among the top holdings of his hedge fund for a reason that might put off other investors: The Swiss engineering giant does a lot of business in Middle East trouble spots. But then, Luzine knows the terrain, having spent more than a year in Afghanistan and Iraq as a U.S. Army officer.

The 41-year-old, who attended Syracuse University on an ROTC scholarship, has been an army reservist ever since, rising to major while pursuing a finance career. After stints as an investment banker with the old First Chicago and with Dresdner Bank, he founded New York–based Adirondack Capital Management in late 1999.

But he had to mothball that venture when the army called him to active duty one month after 9/11. A few months later Luzine was in Afghanistan assessing financing for reconstruction projects.

“For me it was unique because we would have to put together proposals for projects as small as $15,000,” he recalls. “And I used to make trades of $5 million.”

After a few months of stateside R&R, he found himself in early 2003 being packed off to perform a similar mission in Iraq. Luzine says that if ever he had been inclined to take a situation at face value before, his experience in Iraq taught him not to do so again. In Baghdad he witnessed Iraqis blowing up electrical transmission towers. But their aim was not to sabotage the power supply, he discovered: They simply wanted to scavenge the valuable copper.

Upon returning home in the fall of 2003, Luzine relaunched Adirondack, which today has about $5 million under management. The firm’s long-short Saratoga Strategic Fund was up 12 percent this year through May 14, beating the Standard & Poor 500 index’s 3.4 percent. Since October 2003 the fund has returned a cumulative 50.31 percent, versus the S&P’s 29.65 percent.

Luzine has taken to heart the overwhelming lesson of his time in the battle zone: The reality on the ground is often more complicated than it first appears.

“That forces you to do a lot more research to find out how things are going,” he says. “And that could present investment opportunities.” — Loren Fox


Internet gambling on the Dow

As general manager of Costa Rica–based online betting site Youwager.com, Freddy Harris spends much of his day setting odds and monitoring sports on a bank of 12 TVs. But on June 9, two days after CNN, Fox and other networks heralded the precipitous plunge of the Dow Jones industrial average below 11,000, the 63-year-old had an idea for a different kind of bet: Would the Dow, then at about 10,800, breach 10,000 by September 9? He and several other line makers, including an analyst at Brill Securities in New York, eventually settled on odds of 5-to-1. As of late June, 135 people had bet a total of $14,000 that it would.

“This is the kind of thing people argue about in a locker room or bar,” says Harris, who moved from his native New York 12 years ago to co-found the firm beyond the reach of the law in the U.S., where Internet gaming is generally frowned upon. “It’s the old story: We want you to be able to put your money where your mouth is. If you’re wrong, tough luck.”

Youwager.com brings in more than $500 million a year in revenues, the vast majority from bettors in the U.S. In addition to a sports book, the outfit offers an online casino with 15 games, including poker and pachinko.

The Dow bet is the site’s first foray into financial indicators. But it’s currently running two other economic propositions: whether Microsoft Corp. or Yahoo! will announce plans to acquire EBay by September 1, and whether Iran will curtail oil exports to Western nations by November 11. An affirmative outcome on either bet pays 3-to-1. Harris reckons that his closely held firm ranks among the top ten in Internet gaming, an industry that analysts expect will grow from nearly $12 billion in revenues last year to some $22 billion by 2010.

Although Harris and his pals know little about financial markets, professional gamblers — er, traders — don’t see the odds too differently. In early July at the Chicago Board of Trade, about one in four of the September-dated futures contracts to sell the Dow were struck below an index value of 10,000. This indicates that a significant minority of traders believe the benchmark will sink beneath that level before the contracts expire on September 6. —S.B.


Fawcett makes waves

Growing up in Manchester, Massachusetts, just north of Boston, Amelia Fawcett learned to sail the New England coast at a young age. As a girl she read Francis Chichester’s 1961 account of winning the first transatlantic solo sailing race, Alone Across the Atlantic, and thought it would be “a really cool thing” to follow in his wake, so to speak. Now, on the eve of her 50th birthday, Fawcett, the London-based vice chairman of Morgan Stanley International, is finally living her dream.

After 18 months of preparation, Fawcett and a crew of four — including her brother Sean, an experienced ocean racer, as skipper — set sail from her hometown last month aboard her 47-foot sloop, the Pendragon. She celebrated the June 25 departure by tossing her BlackBerry and mobile phone overboard, but Fawcett and crew are still staying in touch, using a satellite link to update their blog on www.makewaves4breakthrough.com. She expects to land in Falmouth, England, in late July, two months ahead of her actual birthday.

“I wanted to do something more than just have a party,” says Fawcett, who is probably the most powerful female banker in the City of London. “I thought, ‘Why don’t I do something I always wanted to do?’”

The trip is more than just a personal adventure. Fawcett is using the journey to raise money for research into treatments for breast cancer; the disease took the life of her college roommate and affected members of her family. Money raised will go to the U.K. group Breakthrough Breast Cancer. — Tom Buerkle


Amato’s new role at Lehman

Few businesses are more important to Lehman Brothers than its investment management unit, which has grown from just $9 billion to $188 billion in assets in barely two years, thanks in large part to its $2.6 billion acquisition in 2003 of Neuberger BermanNow Lehman is shoring up the unit’s executive ranks.

Joe Amato, a 12-year Lehman veteran and the firm’s chief recruiting officer is moving to become co-head of asset management along with former Neuberger CEO Jeff Lane. They will report to George Walker, a cousin of President George W. Bush and former alternative investments chief at Goldman Sachs who will become global head of investment management next month. (Walker’s division includes traditional asset management, which Amato, 44, and Lane will oversee, plus private equity and high-net-worth brokerage.)

Amato’s move follows two others. Former investment management chief Ted Janulis became head of Lehman’s mortgage-capital division in April. Bob Matza, who ran the traditional asset management business, decamped in January for GoldenTree Asset Management.

A former bond analyst, Amato in 1995 became head of stock research and has since helped resurrect the firm’s equity division. He believes his years helping clients select investments will serve him well in his new role. “This is a world that excites me, having been on the other side of the Street for my entire career,” he says. “There are differences from buy side to sell side, but in both cases it’s all about enhancing investment performance.” —J.S.