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RAINMAKERS - Covering All the Bases

Robert Kindler of Morgan Stanley on navigating the treacherous web of activist shareholders and private equity.

Robert kindler had barely learned where the men's room was upon arriving at Morgan Stanley in July when he was handed a critical assignment: Lead the internal team evaluating the firm's Discover credit card business. After an intensive strategic review, Kindler, who came to the firm from JPMorgan Chase & Co. as vice chairman of investment banking, joined with co-president Robert Scully and urged Morgan Stanley's board to spin off the unit. Directors agreed, setting the transaction for the third quarter of 2007.

"It was a very easy transition for me," says Kindler, 53, a neighbor of Morgan Stanley CEO John Mack's in bucolic Westchester County, New York, and a longtime buddy of general counsel Gary Lynch from the days when Kindler was a partner at law firm Cravath, Swaine & Moore and Lynch ran enforcement at the Securities and Exchange Commission. Lynch was instrumental in recruiting Kindler after the banker confided that he felt he had accomplished all he could as a manager at JPMorgan -- he'd been global M&A chief since 2002 -- and wanted to spend more time with clients.

During six years at JPMorgan and two decades at Cravath, Kindler worked on a series of huge deals, including Comcast Corp.'s $48 billion purchase of AT&T Broadband in 2001, while amassing an enviable Rolodex of corporate CEOs. And he has been just as active since arriving at Morgan Stanley's Times Square headquarters. He advised wireless communications tower operator Crown Castle International on its October agreement to buy rival Global Signal for $5.8 billion, counseled Thomas H. Lee Partners and Bain Capital in their $18.6 billion agreement to take private radio giant Clear Channel Communications -- a deal struck in November after a bidding war -- and helped education services company Laureate Education negotiate a $3.8 billion buyout by CEO Douglas Becker and a group of private equity firms in January.

Much of Kindler's work as a corporate adviser centers on business evaluations that are similar to the one he made for his own firm regarding Discover. It's a lucrative, busy area. Public companies are under unprecedented pressure to maximize their share prices, chiefly from hedge funds and other activist investors that push for cost cuts, shifts in strategy, governance improvements, stock buybacks and other dramatic actions. At the same time, private equity firms are snapping up underperforming companies in leveraged buyouts.

Kindler estimates he spends up to half of his time advising boards of directors on shareholder activism, even when no activist is currently on the scene. The frequency of these engagements has accelerated. During a single two-week stretch in February, Kindler notes, he counseled three boards on the topic. (He declines to name the companies.) To fend off activists, he says, directors are being proactive about strategic alternatives. These include everything from spinning off underperforming units to floating debt and using the proceeds to buy back shares. Generally, he believes that many companies are underleveraged these days, considering investors' receptiveness to risky debt.

The piles of capital available for LBOs today, notes Kindler, have many companies debating whether to go private. In more and more cases, directors -- rather than top management and the private equity firms themselves -- are initiating these discussions. "I'd never seen that before, where boards are pushing that consideration," he says.

Kindler knows that eventually the credit cycle will turn, causing the pace of buyouts to slow. But for now the increased activity by private equity firms and shareholder activists is forcing corporations to sharpen their strategies and their capital structures -- even if that sparks more change than the big one he helped engineer for Morgan Stanley. Says Kindler, "People will look back on the era we're in right now and say that good came of this."