2003 Deals of the Year: Return of the bubbly

For much of the past three years, with stocks mired in the worst bear market since the Great Depression, big-ticket equity underwritings and headline-making mergers were as scarce as happy investors. True, bond markets, which, of course, thrive during tough times, enjoyed robust activity, providing vital life support for certain Wall Street firms. But the few noteworthy nonbond deals were, well, depressing: multibillion-dollar bankruptcies, corporate reorganizations and regulatory settlements.

Now -- finally -- it may be time to take the wraps off those Montecristos and chill the Dom Pérignon.

In 2003 stocks rose for the first time in this infant century, and by midyear the rally had reawakened the long-dormant equity underwriting and M&A markets as investors grew confident enough to buy new stock issues again. Corporate executives, emboldened by a recovering economy and renewed vigor in their own share prices sought out acquisitions to grow their companies. Merger volume grew by 13 percent, to $530 billion in announced transactions, according to Dealogic.

Equity underwriting last year still suffered a 9 percent decline from 2002's level, but it surged in the second half. More than half of 2003's paltry $18.3 billion of IPO activity was crowded into the fourth quarter, portending a busy 2004 (though it will take a herculean effort to top 2000's $107.8 billion in IPO volume). On June 12, FormFactor, a maker of semiconductor components, breathed life into IPOs with a $96.6 million offering. Sold at $14, the company's shares closed the day up 26 percent and were up 41 percent at year-end. Investors are eagerly awaiting stock market debuts by the likes of Internet search engine Google.

Bankers are upbeat about M&A activity, as well. Huge, industry-altering deals appear to be coming back into fashion. In October, Bank of America Corp. spent $47 billion to acquire FleetBoston Financial Corp., creating the second-largest bank in the country. And General Electric Co. capped a yearlong shopping spree by acquiring Vivendi Universal Entertainment for $14 billion.

For all the encouraging signs, however, bankers and businesspeople spent much of last year just getting beleaguered companies back on their feet. Kmart Holding Corp. emerged from the largest bankruptcy ever of a U.S. retailer (at stake: $14.6 billion in assets) in May. Powerful hedge fund manager Edward Lampert of ESL Investments, which has a large minority stake in the discounter, helped whip it back into shape. Charter Communications gained a respite from creditors. Last fall the distressed cable company exchanged nearly $2 billion in bonds due in 2005 and 2006 for $1.6 billion of lower-coupon paper that won't come due until 2010.

Overall, though, the volume of bankruptcies and debt defaults eased last year from the horrendous levels of 2002, when five of the eight largest corporate bankruptcies in history took place, according to BankruptcyData.com, a Boston research firm.

In good times or bad, deals of dubious distinction abound. In September, Richard Grasso resigned in disgrace as New York Stock Exchange chairman after the shocking disclosure that his retirement package approached $190 million. And toward year-end Alliance Capital Management and Putnam Investments inked settlements with regulators over charges that they had permitted improper trading of their mutual funds -- practices that enriched sophisticated and well-connected investors at the expense of average shareholders. This year is likely to see many more such mutual fund mea culpa deals.

Deal makers should hope that the scandals don't force them to stamp out their stogies and send back the champagne.

MERGERS & ACQUISITIONS

MARATHON MAN

Lawrence Ellison doesn't like to take no for an answer. The famously brash CEO of Oracle Corp., the world's second-biggest software company behind Microsoft Corp., launched a hostile all-cash $5.1 billion takeover attempt on PeopleSoft back on June 6. Since then he has upped his bid twice and extended the offering period, hoping to create the No. 2 player, behind SAP, in enterprise applications software. (Oracle ranks as the No. 1 supplier of database technology.)

PeopleSoft CEO Craig Conway, who once likened former boss Ellison to Genghis Khan, perhaps anticipated Ellison's attack and made it more difficult: On June 2, Conway tendered an ultimately successful $1.8 billion all-stock bid to acquire rival J.D. Edwards & Co. That merger would make a takeover by Oracle harder to integrate and increases the risk that antitrust regulators would block it.

Oracle had tried and failed to derail the PeopleSoft­J.D. Edwards merger, raising its bid for PeopleSoft to $6.1 billion in cash on June 18, hoping to create uncertainty about the company's fate. Ellison then upped Oracle's bid to $7.4 billion in cash in late July for the combined companies. But the obstacles kept mounting. In November, PeopleSoft's board adopted a poison-pill provision that guaranteed its customers about $800 million in refunds if the company were taken over.

Meanwhile, the Department of Justice began reviewing Oracle's bid shortly after it was announced, and the European Union started to look at the potential pact in October. Oracle says that it expects Justice's investigation to be completed in early 2004, while the Europeans said in November that they would take up to four months to complete a comprehensive review. Oracle's offer may also face opposition from increasingly aggressive state attorneys general. No sweat, says Chuck Phillips, a former Morgan Stanley software analyst who became an Oracle executive vice president in May. "We're committed to getting this transaction done, and there are always ways to get things done," he said just hours before the EU announced its inquiry. In late December, Oracle extended its offer to February 13 from December 31. -- Steven Brull

BRONFMAN'S NEW TUNE

Edgar Bronfman Jr.'s Lexa Partners and Thomas H. Lee Partners see value in the recorded music business even though domestic sales have slumped 22 percent since mid-2000 as online song-swapping has taken off. In late November the two investment firms, along with Bain Capital and Providence Equity Partners, teamed up to acquire Warner Music Group, the world's fourth-largest recorded music company, from Time Warner for $2.6 billion. For Bronfman, who will lead the newly independent company, which features artists such as Missy Elliott and Alanis Morissette and owns publishing rights to songs by George Gershwin and Cole Porter, among others, the pact presents a chance to become a media mogul again. In 2000 the inheritor of part of the Seagram Co. liquor fortune sold film studio and recorded music giant Universal to French conglomerate Vivendi.

"There is a better, more efficient model for how a music company in the 21st century should be organized and managed," Bronfman, 48, an amateur musician who cowrote a hit single recorded by Celine Dion, tells Institutional Investor .

Lee invested an estimated $600 million, Bain Capital as much as $350 million, Bronfman $250 million and Providence Equity $150 million. Bank of America Corp., Deutsche Bank, Lehman Brothers Inc. and Merrill Lynch & Co. financed just over half the total.

Scott Sperling, the Lee managing director who led the investor group, rejects criticism that the price, about nine times 2003 cash flow, was too high. Bronfman, he says, is a proven cost-cutter, and he thinks the deal has "grand slam potential" as consumers turn away from file-sharing sites like Kazaa because of the risks of copyright infringement lawsuits and computer viruses. "It's possible that industry declines will ameliorate within the investment period of, say, five years," says Bronfman.

Time Warner, advised by Morgan Stanley, has the right over the next three years to buy back 15 percent of the business at a 25 percent discount to then-current market values, or to buy back 19.9 percent of the company, which retains the Warner Music Group name, if it merges with another enterprise. -- S.B.

COMING HOME TO LEHMAN

Since its 1995 spin-off from American Express Co., Lehman Brothers has been considered by many to be the least likely of Wall Street's major firms to survive on its own in an industry increasingly dependent on scale. But Lehman, prospering on the strength of its fixed-income franchise, went from takeover candidate to acquirer in October when it bought Neuberger Berman for $3.1 billion in cash and stock. "We had looked at Neuberger for a long time," says CEO Richard Fuld. "There was a point in there when our stock went up and their stock went down and the ratio got to a level where it made sense. And that's why we acted." The acquisition marked a homecoming for Neuberger's top executives: Chairman Jeff Lane was president of Lehman when it was known as Shearson Lehman Hutton in the late 1980s; Robert Matza, Neuberger's COO, used to be Lehman's CFO; and Neuberger CIO Jack Rivkin was once Lehman's research chief and head of equities. "We clearly understood their culture," says Fuld of his quarry. "We thought it would be a terrific fit." Barely two months after closing the transaction, Lehman had already integrated Neuberger's $68 billion-in-assets operation into Lehman's existing high-net-worth private client business. And Fuld says the unit, which has not been implicated in ongoing government investigations into improper mutual fund share trading, is picking up assets "every day" from the firms that have been tarred by the scandal. -- Justin Schack

TRAVELERS' FELLOW

Jay Fishman and Robert Lipp are no strangers to turbulent corporate marriages. The onetime Chemical Banking Corp. executives were trusted lieutenants of Travelers Group -- later Citigroup -- chairman Sanford Weill when Travelers and Citicorp combined in 1998. Now they are determined to pull off their own merger of equals. Travelers Property Casualty Corp., headed by Lipp since 2001 and spun off by Citi in 2002, is combining with Fishman-led St. Paul Cos. in a $16 billion transaction, the biggest insurance merger of 2003.

The price tag topped the $11 billion that Canada's Manulife Financial Corp. agreed to pay for John Hancock Financial Services in September and is the largest in the industry since American International Group's $23 billion buyout of American General Corp. in April 2002. In terms of shareholders' equity ($20 billion) and commercial-lines market share (7.6 percent), the combined Travelers St. Paul Cos. will be second only to AIG ($68 billion, 8.8 percent) among U.S. insurers. Although Travelers is larger than St. Paul in net premiums written ($13.1 billion to $7.5 billion), employees (20,000 to 10,000) and projected 2004 operating income ($2 billion to $1.1 billion), "it is indeed a merger of equals and has been structured as a merger of equals," insists Fishman, who will be CEO after the transaction closes and remain at his St. Paul, Minnesota, headquarters. Each Travelers share is to be exchanged for 0.4334 shares of St. Paul, a rate designed to "convey no premium to either party," says Fishman. (A month after the November 17 merger announcement, Travelers' and St. Paul's shares were roughly unchanged, at about $16 and $38, respectively.) Travelers gets 12 board seats and St. Paul 11, with Fishman and Lipp as the only inside directors. Lipp, 65, will serve as what Fishman, 51, calls full-time executive chairman through 2005; then Fishman will add that title. -- Jeffrey Kutler

HMOS PUT ON BULK

As health care costs grow, so too do health insurance companies. On October 27, Anthem and WellPoint Health Networks, the two largest providers of Blue Cross and Blue Shield health insurance in the country, combined in a deal then valued at $16.4 billion (by December it was worth $14.9 billion) and created the largest HMO in the country. The same day, UnitedHealth Group, formerly the largest health insurer in the U.S., announced that it would pay $2.95 billion for Mid Atlantic Medical Services.

The mergers reflect the belief that size matters in the insurance business -- particularly in light of the consolidation of physician groups, hospitals and pharmaceuticals companies over the past five years. Even so, there are more differences than similarities between the two deals, say investment bankers in the industry. The Anthem-WellPoint merger represents the culmination of a roll-up strategy that both companies have pursued since converting to for-profit status -- WellPoint in 1993, Anthem in 2001. With no geographical overlap between the two companies, the annual pretax savings of $250 million that the combined company expects to realize by 2006 will be largely back-office and administrative, with some more leverage in negotiating national contracts with pharmacy benefit managers and lab service providers. The new company will assume the WellPoint name and operate as a BlueCross licensee in 13 states, insuring 26 million people nationally.

United, on the other hand, was looking to improve its product offerings to Fortune 500 companies in the mid-Atlantic states. "Their capabilities in the region were less than they would have liked," says one investment banker close to the deal. "The Mid Atlantic merger makes them a lot stronger there." -- Andrew Osterland

RUPERT GETS HIS DISH

Big things come to those who wait -- and lobby. In October 2001, Rupert Murdoch lost the big prize he had sought for years when EchoStar Communications Corp., led by Charlie Ergen, outdueled him for Hughes Electronics Corp., whose DirecTV unit, boasting more than 11 million subscribers, is the biggest satellite TV operator in the U.S. After two years of battling, Ergen won control of Hughes in a last-minute deal only to see the Department of Justice reject the merger a year later on antitrust grounds.

News Corp. chairman and CEO Murdoch swooped in last April, paying $7.66 billion in stock and cash for the company, a whopping $19 billion less than Ergen's offer. The lower price was painful for Hughes and its controlling shareholder, General Motors Corp. But the savings were icing on the cake for Murdoch, whose chief goal was to put in place the last link in News Corp.'s constellation of satellite TV systems that would span four continents and reach 23 million subscribers.

Negotiations were anticlimactic. There was no serious competition for Hughes, which was advised by Credit Suisse First Boston and Goldman, Sachs & Co. And GM, advised by Merrill Lynch & Co. and Bear, Stearns & Co., had fewer cash needs than before, according to Dan Richards, managing director of Citigroup's media banking group. "The first time was a very complicated M&A deal, a big financing and lots of work," he says. "This time the bulk of the details were settled in the month of March." -- S.B.

ALCAN-DO ATTITUDE

Travis Engen knows a good deal when he sees one. In September the CEO of Toronto-based aluminum producer Alcan agreed to buy French rival Pechiney for E 5.73 billion ($7.16 billion), creating the world's biggest aluminum company, with nearly $24 billion in annual revenues, eclipsing Alcoa's $20.2 billion. The transaction valued Pechiney at a healthy 8.7 times earnings before interest, taxes, depreciation and amortization, or E 48.50 a share, but well below its two-year high of E 75 a share in early 2001, when aluminum prices were peaking.

"We struck when we did because we had the strongest balance sheet in the industry and because the aluminum price was beginning to rise," says Engen. "If you have the financial strength to make a purchase as a market is turning, you often get a good deal." Aluminum prices have climbed 16 percent since April, following a 24 percent drop over the previous two years.

It wasn't an easy deal to pull off. Before the terms were sweetened, Pechiney CEO Jean-Pierre Rodier and his board considered the offer hostile because the price, at about E 5.1 billion, or 7.7 times ebitda, was too low. And there was an unhappy history behind the acquisition. Four years ago Engen's predecessor, Jacques Bougie, crafted a three-way deal whereby Alcan would have bought both Pechiney and Zurich-based Alusuisse Group. Bougie bought Alusuisse but walked away from the Pechiney portion when the European Union's Competition Commission insisted that he divest a big part of the combined group's rolled aluminum business.

"What was not evident four years ago was that being smaller in rolled product was really a modest price to pay compared to the possible opportunities we have coming out of this acquisition," says Engen, who became CEO in February 2001. Even after divesting certain aluminum assets, Engen says he can save $250 million a year in costs through this combination. -- David Lanchner

PARKED AT THE CURB

The National Association of Securities Dealers plunked down $190 million for the American Stock Exchange in 1998, planning to merge it with the NASD's electronic Nasdaq subsidiary to create a formidable rival to the dominant New York Stock Exchange. Five years and countless headaches later, the NASD, which is recasting itself as solely a private sector regulatory body, decided it wanted out and put the Amex up for auction (Nasdaq, the other market owned by NASD, is in the process of splitting off and going public). But few bidders emerged for the Curb, which has long since lost its importance in equity trading and has been bleeding market share in its core listed-derivatives business.

Finally, in June, NASD agreed to sell the bourse to Chicago leveraged buyout firm GTCR Golder Rauner for a paltry $110 million -- or barely half of NYSE chairman Richard Grasso's retirement package. But GTCR backed out in October amid further market share declines and growing regulatory scrutiny of the Amex's governance and trading practices.

Now the only interested buyer seems to be a group formed by the Amex's own members, the Amex Membership Corp. In November it agreed in principle to reacquire the exchange for an undisclosed sum rumored to be far less than GTCR's bid. "This transaction provides for a new, stronger American Stock Exchange that is independent and well capitalized," AMC says in a statement. AMC representatives won't specify what's next for the Amex, but some members say the exchange may demutualize and perhaps pursue an IPO, following in the footsteps of other open-outcry markets like the Chicago Mercantile Exchange. Which begs the question: Where will it list? -- J.S.

Rx FOR GROWTH

Success can be a bitter pill to swallow for small and midsize biotechnology firms. To avoid becoming one-hit wonders, many take a painful cure: selling themselves to a midsize drug company or a giant, such as Amgen or Genentech, that has marketing and distribution muscle.

In June, Cambridge, Massachusetts­based Biogen and San Diego­based IDEC Pharmaceutical Corp. filled a less common prescription for growth and survival: Their all-stock merger-of-equals, the largest ever among two independent biotech companies, created the third-biggest biotech company in the world, with a market capitalization of about $12 billion. "Both companies said they had developed to a certain stage with blockbuster drugs, and merging would create a company with a more robust product portfolio and pipeline," says Robert King, a managing director at Biogen adviser Goldman, Sachs & Co.

Biogen has been a leader in immunology with Avonex, the top-selling drug for relapsing multiple sclerosis. IDEC has been strong in oncology, where its Rituxan compound is used to fight non-Hodgkin's lymphomas. But recently introduced products -- Biogen's compound for psoriasis and a more powerful drug from IDEC for non-Hodgkin's lymphomas -- have proved disappointing. That has made products in development even more crucial. "Both of us wanted to invest more in the pipeline to become top-tier in the biotech industry," says Peter Kellogg, Biogen IDEC's chief financial officer.

Technically, IDEC, which had a slightly bigger market capitalization, acquired Biogen, which was much larger in terms of employees and sales. IDEC's 50.5 percent stake in the renamed Biogen IDEC allowed the firms to avoid triggering IDEC's change-of-control agreement with Genentech, which co-developed Rituxan. If Biogen ended up owning more than 50 percent of the combined company, Genentech would have had the right to buy out the rest of

the drug.

Despite a rash of recent biotech and health care industry deals, no other firms have taken the merger-of-equals remedy. "I'm not sure we'll see a whole bunch of these," says Kellogg. "It's a very strategic and unique fit." -- S.B.

LEWIS COMES MCCOLLING

After taking over as CEO of Bank of America Corp. three years ago, Kenneth Lewis sought to distance himself from the hard-driving, hyperacquisitive style of his predecessor, Hugh McColl. "We've just eaten, and we're not hungry," Lewis said. Then the old appetite kicked in again. In October, BofA agreed to pay $47 billion in stock for FleetBoston Financial Corp. -- by far the largest acquisition of the year and the biggest since Pfizer's $60 billion takeover of Pharmacia Corp. was announced in 2002. This was also the biggest banking deal since the flurry of 1998 transactions that included McColl's $60 billion acquisition of BofA. And it helped reignite the merger business.

Lewis saw FleetBoston as a natural extension of BofA's coast-to-coast franchise. With $934 billion in postmerger assets, 33 million customers and 9.8 percent of nationwide deposits, BofA will strengthen its position as the biggest U.S. retail bank. To Lewis, who racked up a 23.74 percent return on equity in the third quarter, earnings accretion is a no-brainer. "The [projected $1.6 billion] cost savings alone make this earnings-neutral for our shareholders within 18 months," he asserts.

Most analysts, however, deemed the Fleet offer too pricey at $45 a share, or 2.7 times book value and a 42 percent premium to the bank's market price before the deal announcement. "BofA overpaid wildly and won't earn anything near the return on the investment that they claim," says Thomas Brown, head of Second Curve Capital, a New York­based bank-oriented hedge fund. BofA's shares fell 10 percent, to $73.57, on the day of the announcement, though they recovered to about $79 by late December. Fleet jumped 23 percent on announcement day, to $39.20, and climbed to $43 last month.

Lewis argues that investors aren't giving BofA credit for the long-term revenue opportunity and for its ability to keep reducing costs as revenues and market share increase. "We have extraordinary resources at our disposal to invest in technology and the brand," he says. "And if you live in New England and winter in Florida, your bank now goes with you." -- J.K.

GE'S UNIVERSAL APPEAL

The week of October 6 was a big one for Jeffrey Immelt. First, the General Electric Co. CEO won the hotly contested auction for Vivendi Universal Entertainment. Then, just two days after announcing that $14 billion transaction, GE reached a $9.5 billion agreement to buy Amersham, a British medical-imaging and biosciences company.

The deals capped a yearlong shopping spree for Immelt's GE. Last January the Fairfield, Connecticut­based company forked over $2 billion for Instrumentarium, a Finnish medical technology concern, which GE is integrating into its medical systems business. All three deals nudge the company further from its roots as an industrial manufacturing conglomerate toward a future in which it will place even more emphasis on creating and moving content.

"We really are changing the characteristics of the company for the future and making it a technology, services and financial company," Immelt told investors in a conference call shortly after the Amersham deal was announced.

The two health care transactions fall under this rubric in that they provide GE with data that makes its medical systems more attractive to customers. In Vivendi Universal Entertainment, GE's NBC television unit gets a major TV production studio to provide content for the network, a premier movie producer with a library of more than 5,000 films and interests in five theme parks. The deal thus better positions NBC to compete with diversified behemoths like Viacom and Walt Disney Co.

Landing Vivendi Universal Entertainment wasn't easy. GE locked horns with several rival bidders, including John Malone's Liberty Media Corp., Metro-Goldwyn-Mayer and a well-financed consortium led by Edgar Bronfman Jr., who sold Universal to Vivendi in 2000. GE distinguished itself from the competition, say people involved in the deal, largely on the strength of its reputation for sound management, which is important to Vivendi because it retains a 20 percent stake in the combined NBC Universal, with an annual option to monetize that holding beginning in 2006. -- J.S.

CORPORATE FINANCE

GM REPAIRS ITS PENSION

On the hook for a $19 billion underfunded pension plan, General Motors Corp. embarked on a seemingly counterintuitive plan: Go even deeper into debt. With interest rates at 45-year lows in June, the giant automaker tapped public markets in the single biggest debt offering ever: some $17.9 billion in straight debt and convertible bonds spread across 11 separate transactions involving six tranches and 16 book runners. Although there were no official lead bankers, three institutions -- Citigroup, Merrill Lynch & Co. and Morgan Stanley -- underwrote 60 percent of the deal. Of the total, $13.5 billion was issued by GM for its pension fund, while the balance went to General Motors Acceptance Corp., the company's financing arm. GM planned to use the expected proceeds from the sale of Hughes Electronics Corp. to put a further $5 billion into the pension plan, bringing the total contribution to $18.5 billion.

The automaker needed the money after its pension fund was hit by a double whammy of low interest rates, which increased its liabilities, and falling stock prices, which reduced its assets. By January 2003 GM knew it would have to contribute $15 billion to the fund over the next five years.

"We could have made the payments from our operating cash flow. But instead of having a bunch of liabilities due over the next five years, we've converted them into a liability that is more like ten to 30 years -- allowing us to better structure the maturity profile of our debt," explains Sanjiv Khattri, assistant treasurer at GM. "Anytime you can take such a significant pension obligation off the table with good terms, I'd call it innovative corporate financing."

Demand for GM's paper, which paid an average of 7.9 percent, was overwhelming. Initially, the auto giant hoped to raise $10 billion, but the June 26 offering attracted $40 billion of demand.

The average maturity on the new debt is 20 years, although individual issues were tailored to several specific pockets of demand. The package covered three currencies -- dollar, euro and sterling -- and various tenors, from short-term GMAC issues to long-term GM automotive paper, including a $1.5 billion issue of 30-year euro debt, the largest ever in that market. -- Rich Blake

AN OPTIONS OPT-OUT

Microsoft Corp. is accustomed to setting the pace for technology companies. Last year it was among the first to eliminate options from its compensation plan -- a controversial move within the technology world, which has long embraced them as a cheap and easy way to reward employees. But with options grants losing favor -- both among accounting rulemakers, who are expected to require them to be expensed, and among workers whose holdings have been underwater since the tech market crashed -- Microsoft announced in July that it would substitute restricted stock as a performance incentive. Then, to placate the approximately 37,000 of its 55,000 employees holding options at impossibly high strike prices, Microsoft offered at least a partial reward for sticking it out through the downturn. Under a first-of-its-kind arrangement with J.P. Morgan Chase & Co., employees holding 621 million options at strike prices of $33 and higher -- well above the late-December market price of $27 -- were offered one half to one third of what experts said the options were worth according to the Black-Scholes model. That's just $2 for a $33 option, but as Microsoft CEO Steve Ballmer told analysts when the program was unveiled, the arrangement "helps with some of this angst we have seen in our employee community, and it represents a great return to the shareholders. There's no new cost [to Microsoft], no new options, no new cash being used." When the take-it-or-leave-it offer expired on November 12, 18,503 employees had agreed to tender their 344.6 million options. In mid-December they collected a total of $218 million in payouts, or more than half of the $382 million that J.P. Morgan paid Microsoft to take possession of the options. (Employees who were owed less than $20,000 got lump-sum payments; the rest will get their balances in two installments, in 2005 and 2006.) The bank, in turn, hopes to earn a trading profit by executing a hedging strategy that involves shorting Microsoft stock to cover the risk of holding the options. "It's simple in concept but extremely detailed in execution," asserts Peter Engel, the 38-year-old J.P. Morgan investment banker who masterminded the transaction. The bank did two years of groundwork, obtaining Securities and Exchange Commission clearances and assurances that the transfers would be tax-free for employees. Now, says Engel, "any corporation that issues options can make them worth more to employees -- at no cost to the company." Except, of course, for investment banking fees. J.P. Morgan collected $10 million. -- Jeffrey Kutler

BACK TO OLD FORM?

The high-tech IPO market was dormant until June 12, when FormFactor brought the sector back to life. The Livermore, California, maker of semiconductor test equipment issued 6 million shares at $14 -- upped from the initial talk of 5.5 million shares in the $9 to $11 range -- and saw the price pop 26 percent that day, to $17.58. This was no bubble-era throwback: FormFactor sported strong fundamentals (it earned $10.4 million in 2002), and investors were starving for a solid tech offering. "Honestly, I think the benefit we had was that we were one of the first IPOs to go out, and there definitely was a strong reception from people who wanted to invest in new issues," says FormFactor CFO Jens Meyerhoff. After FormFactor, 18 tech-related concerns (not including health care, communications and other services companies) came to market, according to Morgan Stanley. That compares with 16 in 2002 and 19 in 2001 and is still a far cry from 221 in 2000 and the record 308 in 1999. Many more, however, have registered to go public, including the much-anticipated Google.com and Salesforce.com. "FormFactor emboldened other companies and their bankers," says Colin Stewart, who runs global high-tech capital markets operations for Morgan Stanley, FormFactor's sole book runner and lead underwriter. (Goldman, Sachs & Co. was co­managing underwriter.) "In 2004 we'll see for the first time a meaningful increase in the number of tech companies going public," adds Stewart. FormFactor kept its momentum through the year: It made a secondary offering in November of 5 million shares at $26. The proceeds, says Meyerhoff, will help pay for a new, $25 million factory in Livermore. Of the total, 3.5 million of the shares were sold by insiders, mostly venture capitalists -- an echo of the 1990s. By late December, FormFactor's price had cooled to about $19. -- Steven Brull

JUST IN TIME FOR CALPINE

Talk about timing. Embattled U.S. power giant Calpine Corp. raised a whopping $3.3 billion on July 16 -- the biggest high-yield bond offering in the past four years -- just days before the white-hot junk bond market nose-dived on twin hits from rising interest rates and the bankruptcy slide of rival power producer Mirant Corp. Subsequently, San Jose, California­ based Calpine's paper dipped from par into the high 80s.

"We got our money and were very happy, but two days later the market turned instantly, and the investors were unhappy. There's not much we could do about that," confides a chagrined Robert Kelly, Calpine CFO.

Calpine, which had $6.5 billion in debt coming due in 2003 and 2004, had already tapped the market once, for $800 million in May. But with interest rates heading toward 45-year lows, Kelly decided to raise more -- $1.4 billion to refinance maturing debt and $400 million in new money to complete projects under way. (Calpine had 13 generation plants under construction across the U.S. and total debt of $16 billion, including $8 billion in junk bonds). He turned to Goldman, Sachs & Co., which had to work with Calpine's deteriorating performance (the company had posted losses in three of its previous five quarters) and slipping credit ratings from both Moody's Investors Service and Standard & Poor's (to B1/B from Ba1/BB+). But demand was high for the privately placed deal, secured by Calpine's assets, because investors were confident that the financing would improve the company's liquidity. The offering was boosted from $1.8 billion to $3.3 billion -- $760 million in senior secured-term loans and $2.55 billion in fixed- and floating-rate notes. In November, Calpine raised another $1 billion in junk bonds. -- Jessica Sommar

KMART GETS A GREEN LIGHT

Fifteen months after suffering what turned out to be the biggest bankruptcy of a retailer in U.S. history ($14.6 billion in assets), Kmart Holding Corp. reemerged last May 600 stores smaller but still in business.

In what could be considered the blue-light special of bankruptcy, the ailing discounter converted more than $7 billion in debt into equity and now has $900 million in cash. Kmart still owes $1.5 billion (down from an initial $2 billion) in so-called exit financing arranged for it this past January by GE Corporate Financial Services, Fleet Retail Finance and Bank of America -- the biggest such financing ever. That loan replaced a $2 billion debtor-in-possession financing for Kmart, at one time the largest such deal in U.S. history.

To emerge standing, Kmart had to slash its store count from 2,114 to 1,510 and eventually disposed of two distribution centers and 300 dark, or unused, stores from previous investments. It terminated a costly distribution arrangement with food wholesaler Fleming Cos. and renegotiated contracts with key suppliers, distributors and licensers, including Martha Stewart Living Omnimedia and Joe Boxer Co.

"Kmart substantially eliminated its liabilities and made itself into one of the lower-leveraged retailers," says Henry Miller, chairman and managing director of New York­ based Miller Buckfire Lewis Ying & Co., which served as financial adviser and investment banker.

The biggest single beneficiary of Kmart's reorganization was billionaire hedge fund manager Edward Lampert of Greenwich, Connecticut's ESL Investments. Along with affiliates, ESL owns more than 50 percent of the common stock, including a $60 million, 9 percent note convertible into new shares at $10 each. At $23.25 per share in late December, that put the value of Lampert's holdings at more than $1 billion. Quite a nice return for the financier who was mysteriously kidnapped last January and returned unharmed more than 30 hours later. -- Stephen Taub

GRASSO'S VERY GOLD WATCH

Some of the most notable -- er, notorious -- deals of 2003 were made well beforehand and only came to light last year. Foremost among these was the eye-catching compensation package awarded to former New York Stock Exchange chairman and CEO Richard Grasso by an all-too-compliant board of directors. When he decided, for reasons still unclear, to accelerate his retirement benefits, it emerged that Grasso, an exchange lifer, was owed nearly $190 million. His employment contract was signed in 1999 at the peak of the Internet mania, and Grasso, a consummate salesman, evidently convinced his board that the exchange, widely viewed as anachronistic, was the avatar of a new trading millennium. The abiding irony of Grasso's fall from power -- he left in September -- is that he had done nothing illegal, unlike many other disgraced corporate chieftains. Nor did he have any shareholders to answer to. But the Big Board represents the center of U.S. capitalism, and its flouting of corporate governance standards outraged the wider public.

In contrast, many mutual fund shenanigans exposed by regulators led by crusading New York Attorney General Eliot Spitzer were illegal, or at best unseemly, violations of fiduciary duty. In September, Spitzer announced a $40 million settlement with Canary Capital Management, an obscure hedge fund that he said had entered into behind-the-scenes deals with major mutual fund complexes. According to Spitzer, Canary had agreed to invest millions in long-term bond funds owned by four fund companies -- Bank of America Corp., Bank One Corp., Janus Capital Group and Strong Capital Management; in return the fund companies would look the other way while Canary profited by trading in and out of fund shares. The most grievous abuse was the late trading through which Canary was allowed to purchase or sell mutual funds after 4 p.m. -- at the current day's price rather than the next day's price as required by law. Canary allegedly was also permitted to move quickly in and out of funds with big international holdings, taking advantage of time zones and trading anomalies in ways normally unavailable to small investors. This practice, known as market timing, is not illegal, but it has regulators concerned.

One firm snared in the crackdown was Alliance Capital Management, which in December announced that it would pay $250 million in fines for trading abuses, including market timing. Alliance settled civil fraud charges by agreeing to reduce management fees on its mutual funds by 20 percent, or an estimated $350 million. Putnam Investments reached a settlement with the Securities and Exchange Commission to pay an as-yet-undetermined fine for market-timing abuses, which involved four portfolio managers trading in their own accounts at the expense of fund shareholders. The scandal cost longtime CEO Lawrence Lasser his job.

Separately, the SEC fined Morgan Stanley $50 million for failing to disclose that it had received extra commissions from 16 mutual fund companies for selling certain funds. Such widespread and illicit directed brokerage agreements have come under intense regulatory scrutiny: The Investment Company Institute, the leading industry trade association, has called for substantial restrictions in the use of directed brokerage. In November fund manager Massachusetts Financial Services Co. suspended its directed brokerage arrangements. Later in the month Putnam followed suit.

INFLATIONARY EXPECTATIONS

Opposites attract derivatives strategists. So leave it to generational lows in bond yields to get market wizards preparing for a resurgence in inflation. Bonds and swaps linked to inflation have been popular in Europe for years, and the U.S. government has issued Treasury Inflation-Indexed Securities (TIPS) since 1997. But the market for U.S. inflation-linked corporate debt only began to rev up last year, spurred by a raft of danger signs -- from yawning budget deficits and expanding trade bills to the plunging dollar and resurgent U.S. economy.

The past year saw deals linked to the consumer price index from Bear, Stearns & Co.; Merrill Lynch & Co.; and several other financial institutions, including Household Finance Corp., now a unit of HSBC Holdings. Perhaps the most aggressive issuer was SLM Corp., better known as Sallie Mae, a provider of federally guaranteed student loans. Even as the Federal Reserve Board roiled bond markets by publicly debating whether deflation were imminent, Sallie Mae in July issued $46 million in medium-term CPI-linked notes designed to protect investors against accelerating inflation rates. Sold through J.P. Morgan Securities, the Sallie Mae notes, which pay a monthly coupon of 1.6 times the year-on-year percentage increase in the CPI, are especially appealing to taxable investors. TIPS pay a fixed rate based on a principal amount that increases or decreases as the CPI rises or falls; when the principal grows, investors must report the increase as taxable income that year, even though they won't receive the inflation-adjusted principal until maturity. Sallie Mae's structure avoids that so-called phantom income.

Including the July offering, the company raised more than $500 million through eight issues of CPI-linked notes, says Charles Colligan, a Sallie Mae vice president for corporate finance who is responsible for unsecured funding and derivatives. "The structure has become more and more appealing as investors and analysts have seen that we're in a historically low interest rate and inflation environment and are concerned about the potential for both higher interest rates and inflation as a result of increasing economic growth," he says. -- Lewis Knox

ROY DISNEY HEDGES HIS BETS

Heads I win, tails I don't lose. That was Roy Disney's aim in August when he cut a deal to lock in at least $125 million on the forward sale of Walt Disney Co. shares for the 1987 Disney Trust, a family trust that he established. The then­Disney vice chairman -- who is Walt Disney's nephew -- agreed to sell 7.5 million shares of Walt Disney stock at $21.75 a pop five years in the future in a so-called variable prepaid forward, or VPF, netting $125 million after a negotiated discount and fees. (On the day of the deal, Walt Disney stock closed at $21.98.)

A VPF allows an investor to sell shares at a future date, guaranteeing the seller a minimum price while ensuring some of the upside if the stock appreciates. The deal is similar to a collar, in which an investor buys a put and sells a call. The Disney family trust is protected against a decline in the stock price below $21.75 but may benefit from an increase in the share price up to $32.63. The family will maintain its voting rights and defer taxes on the sale until the 2008 settlement date -- at which time it may settle the contract in cash and keep the shares if it chooses or even roll over the VPF to a future date.

When the deal was announced, Roy proclaimed his faith in the company but pointed out that the deal allowed him to diversify his investments. Then in November he resigned his posts as chairman of feature animation and vice chairman of the board. He called for the resignation of CEO and chairman Michael Eisner and has taken his case to shareholders, via a Web site called www.savedisney.com. -- Rachel Markus

YAHOO!'S "NO-NO"

Call it the "no-no" deal. In April, Internet media supernova Yahoo! raised $750 million in convertible bonds, offering some extraordinary terms to investors: no coupon and no yield. Moreover, the bonds can't be converted into equity until Yahoo! shares reach $41, an eye-popping 68 percent conversion premium over the $24 price at offering. It was, say market participants, the hottest issue in an already fiery convertible securities market, which, according to research firm Dealogic, saw a 450 percent increase in new-issue volume through the end of July, when rising interest rates and declining stock market volatility chilled the market.

Who wanted to buy these bonds and essentially give the company the closest thing to free money since the height of the Internet stock craze? Hedge funds specializing in convertible arbitrage. These funds look to profit by purchasing a company's convertible paper while shorting the underlying stock (if the stock goes up, the convertible rises in value; and if the stock falls, the short position pays off). The arbs are less interested in any interest income than in owning the portion of a convertible that represents a call option on the underlying stock. To them, Yahoo!'s offering amounted to little more than a principal-protected call on the company's shares (investors get their money back if the conversion price isn't hit before the paper matures in 2008).

Yahoo! didn't need the capital. It generates plenty of cash from operations. But when bankers at Credit Suisse First Boston called to pitch the deal, CFO Susan Decker decided it was too good an opportunity to pass up. "We were not looking necessarily to raise money," says Decker. "But it's always better to raise money when you don't need it." For now "the proceeds are really just sitting on our balance sheet," she adds. But the company may soon reinvest the low-cost capital "into a value-creating acquisition." -- Justin Schack

SOVEREIGNS

A LULA OF A BOND DEAL

To panicky investors, Luiz Inácio Lula da Silva represented the capitalist Antichrist. The prospect that the leftist might actually be elected Brazil's next president drove the interest rate spread between Brazilian government bonds and U.S. Treasuries to a dizzying 24 percentage points.

Lula was indeed elected, in November 2002, and as soon as he was sworn in the following January, he did something unexpected: He mollified markets with a largely orthodox economic policy that sent exports soaring and strengthened the real. In April credit rating agency Standard & Poor's upgraded the outlook on its B+ rating on Brazil from negative to stable, facilitating the country's reentry into the capital markets.

The $1 billion, five-year Brazil Global 2007 straight bond deal, originally slated for $750 million, was oversubscribed more than sevenfold and priced to yield at a spread of 783 basis points, or one third the level at the time of the preelection Lula panic.

The Lula people "picked the time perfectly -- they had been in place long enough for markets to see that this was a constructive, orthodox management," says Dan Vallimarescu, head of Latin America capital markets for Merrill Lynch & Co., which was co­lead manager with UBS. Adds John Welch, head of Latin American research at WestLB in New York, "Everybody piled in -- retail, institutional and crossover investors." By late December the spread on the '07s had shrunk to 325 basis points.

Thanks to rising confidence in its progress, Brazil came back to the market four more times in 2003, raising $4.5 billion for the year. By mid-October the country was able to sell $1.5 billion of dollar-denominated, seven-year bonds at a 9.45 percent interest rate, up from an initial planned offering of $1 billion. The spread: 561 basis points. (The bonds were trading at 428 basis points in late December.) "It was important that we issued below 600," says Joaquim Levy, the Finance Ministry's secretary of the Treasury. "And it was the first time in several years we were able to issue a one-digit yield."

The robust demand for the 2003 deals is generating enthusiasm for forthcoming Brazilian issues -- $5 billion worth this year alone, says the Lula government. -- Lucy Conger

ARGENTINA'S PROPOSED HAIRCUT

Maybe Argentina figured it had nothing to lose. Two years after it defaulted on $150 billion in foreign debt, Economy Minister Roberto Lavagna launched a much-needed debt rescheduling plan last September with an offer that left private creditors aghast: The country proposed to pay just 25 cents on each dollar of $90 billion in defaulted, privately held debt.

Guillermo Nielsen, who as Finance secretary is Buenos Aires's chief debt negotiator, defended the ultrashort haircut, arguing that comparisons with the 42 percent write-off on Russia's debt in 1999 or the 27 percent discount on Ecuador's debt in 2000 were unfair.

A more accurate historical example, he contended, was the post­World War II restructuring of Germany's debt. That accord, reached at a 1952 London conference, resulted in a 77 percent write-off and a flexible repayment schedule. "Creditors are gradually coming out of their state of denial" about the magnitude and the complexity of the Argentinean situation, he said.

A government source who requested anonymity predicts that two thirds of Argentinean bondholders will accept the offer and one third -- divided between deep-pocketed investors, who can hold out in hopes of a better deal, and "vulture" speculators -- will not. The secondary market is pricing the debt as if it will be refinanced at 60 percent below face value.

Miguel Kiguel, head of the Buenos Aires office of the Macroeconomic Advisory Group and onetime chief adviser and undersecretary of international finance at the Ministry of Economy and Production, says Lavagna and Nielsen "have implicitly recognized that they need a way out of the 75 percent straitjacket." -- Judith Evans

FRANCE SETTLES ONE U.S. DISPUTE

Even as France noisily undercut U.S. policies toward Iraq, its government pleaded behind the scenes for a little understanding regarding the criminal activities of Crédit Lyonnais, a formerly state-owned bank. In December, after seemingly endless negotiations, Crédit Lyonnais and the French government settled U.S. charges -- spelled out in a 55-count, 195-page indictment -- that the bank had cheated 400,000 policyholders of Executive Life Insurance Co. out of billions of dollars.

In an era in which incidents of corporate fraud and venality appear as common as highway speeding violations, the breadth of the bank's acts and its decadelong cover-up still astound. The U.S. Justice Department has said that the $771.75 million in fines and penalties, much of which is being paid by the French government, was believed to constitute the biggest settlement in a criminal case in U.S. history.

The deal resulted in the conviction of Crédit Lyonnais, which might have had to shut down its significant U.S. operations if it hadn't settled, and a French government entity, Consortium de Realisation Enterprises, on charges of knowingly and fraudulently skirting the Bank Holding Company Act, which prohibited them from owning a nonbank entity such as Executive Life. U.S. prosecutors alleged that French insurer Mutuelle d'Assurance Artisanale de France, which bought Executive Life, was acting as a front for Crédit Lyonnais, which wanted to acquire the California-based insurer's junk bond portfolio. Another participant in the scheme: Artemis, a special-purpose investment vehicle owned by French billionaire François Pinault, who as head of Financière Pinault and Pinault-Printemps-Redoute owns Gucci and Christie's. Artemis bought some of the bonds from the bank to help conceal Crédit Lyonnais's controlling role.

The settlement does not extend to six prominent French businessmen -- two former Crédit Lyonnais chairmen, their two seconds-in-command, a former managing director of CDR and a consultant -- who remain under U.S. indictment. -- David McClintick

HALLIBURTON'S IRAQI CONFLICT

Halliburton Co. has been a lightning rod for skeptics of U.S. intentions in Iraq, especially since last March, when the Houston-based oil services and infrastructure firm was awarded a no-bid contract worth up to $7 billion to repair the country's creaky oil industry. The award has been the focus of widespread criticism, in part because Vice President Dick Cheney was CEO of Halliburton until he stepped down in 2000 to become President George W. Bush's running mate. So far, Halliburton has received more than $2 billion for work done under the March oil deal and a preexisting 2001 Logistics Civil Augmentation Program contract to provide the U.S. Army with everything from laundry and dining services to entire bases.

Various U.S. military branches have further stoked the controversy surrounding Halliburton's activities in Iraq. In early December the Pentagon announced that it was investigating the company's Kellogg Brown & Root unit after auditors found evidence that it may have overcharged the U.S. government by $61 million for gasoline imports into the country. Shortly thereafter, the head of the Army Corps of Engineers, which manages big military construction projects abroad, exonerated KBR for any wrongdoing in supplying gasoline and granted the company a waiver to continue its fuel deliveries. The Pentagon audit, meanwhile, is expected to be completed soon.

Halliburton, which has already asked to be released from its fuel delivery agreement, has denied the Pentagon allegations. "We welcome a thorough review of any and all of our government contracts," says Halliburton CEO David Lesar. Democratic Representative Henry Waxman of California, a Halliburton critic, called the Army Corps decision "incomprehensible" because it preempted the findings of the Pentagon audit. The Army Corps countered that it had to grant a waiver to KBR or face a curtailed flow of gas to Iraq. -- Deepak Gopinath

REAL ESTATE

REVVED MOTOR

From its opening day in 1968, the General Motors Building on Manhattan's Fifth Avenue drew tepid reviews. Critics judged the building one of the more pedestrian works of an important architect, Edward Durell Stone.

In late September the tower won a different kind of review: It sold for the highest price ever for a piece of American real estate. Indianapolis-based insurer Conseco sold the tower to New York developer Harry Macklowe and his son, William, for $1.4 billion.

Conseco used the cash to help it emerge from bankruptcy. A strong attraction of the Macklowe offer: a $50 million, nonrefundable deposit.

"We paid a big price for the best building in the city -- arguably the best building in the world," maintains Macklowe.

Wachovia Corp. was initially in line to provide the financing, but Macklowe reportedly worried that the bank wouldn't be able to come through with such a large and complex financing. So just nine days before the transaction was scheduled to close, Deutsche Bank stepped in.

The $1.4 billion financing included a $250 million preferred equity piece sold to Soros Capital, with Macklowe essentially pledging his entire real estate empire as collateral. It also included $225 million of mezzanine debt purchased by Vornado Realty Trust, an additional $25 million mezzanine piece bought by Soros, $275 million of debt committed by a number of banks and $625 million that is now in the securitization market. "It was a well-engineered transaction," says Jon Vaccaro, Deutsche's global head of real estate debt. -- Michelle Napoli

THE ONE THAT GOT AWAY

Sometimes the most interesting deals are the ones that don't happen.

For nearly a year the folks at Taubman Centers, a Bloomfield Hills, Michigan­based real estate investment trust with interests in 32 malls, vowed to fend off an all-cash $1.62 billion takeover offer from Simon Property Group, the country's largest mall REIT, and Westfield America Trust, an Australia-listed REIT. The would-be buyers were attracted by Taubman's upscale shopping centers. (Founder A. Alfred Taubman recently served a one-year federal sentence for price-fixing when he was chairman of Sotheby's Holding.)

After energetic lobbying the Michigan state legislature passed a bill that handed Taubman the tools to ax the deal. In early October, Governor Jennifer Granholm signed the legislation, known as the Taubman bill. The law allows shareholders to coalesce to block a takeover attempt. The Taubmans, who control 33.6 percent of the REIT's outstanding shares through preferred stock, had formed such a group to stave off the Simon-Westfield offer.

Five months earlier U.S. District Judge Victoria Roberts in Detroit had ruled that the Taubmans could not vote their preferred shares unless the voting rights of those shares were approved by a majority of Taubman's public shareholders.

But the Taubman law strikes down that stipulation. Simon and Westfield, which declined to comment, withdrew their offer a day after the bill became law. Says CEO Robert Taubman: "We're not going to look backward. We're focused on delivering value to our shareholders." -- M.N.

GOOD-BYE WITHOUT LEAVING

Unloading the corporate headquarters can be tough -- but it takes the sting out of the sale when the company's employees never have to leave their desks. That's the scenario in a sale-leaseback, and the business is booming. Case in point: the $910 million sale that closed last March of John Hancock Financial Services' Boston headquarters to Boston-based Beacon Capital Partners. In one of the biggest sale-leasebacks ever recorded, Hancock realized a $570 million pretax gain on the sale and then leased back a third of the 3 million-square-foot, three-building complex. "We unlocked a substantial amount of capital that will be redeployed in ways that create value for our stakeholders," Hancock's chairman and CEO, David D'Alessandro, said when the deal was announced in March. He subsequently agreed to merge Hancock with Canadian insurer Manulife Financial Corp. in a stock-for-stock deal then valued at $11 billion.

The Hancock complex, which includes Boston's tallest tower, was purchased by Beacon on behalf of Beacon Capital Strategic Partners II, a $740 million private equity fund. "To buy an institutional-quality asset maintained by a very high-quality corporate owner and then have that high-quality corporate credit standing behind the asset is something we find very appealing," says Alan Leventhal, chairman and CEO of Beacon Capital.

With roughly $627 million of debt provided by Morgan Stanley and Lehman Brothers, Beacon needed about $300 million in cash. But it didn't want to put more than $100 million of its fund's equity into the deal. Lehman put up the rest from its own capital -- something it had never done before -- and then resold the equity within 60 days to a group of institutional investors. Were other investors interested? You bet. The $200 million stake attracted $1.3 billion of demand. Says Robert Lieber, co-head of global real estate investment banking at Lehman, which made a profit on the deal, "We had such strong interest, we had to limit the offer to people who had already invested with either Beacon or us." -- M.N.

SCORECARD

Mergers & Acquisitions

* ALCAN

* PECHINEY

Size: E 5.73 billion

Advisers to Alcan: Lazard, Morgan Stanley International

Advisers to Pechiney: BNP Paribas, Goldman Sachs International, J.P. Morgan, Rothschild et Cie Banque

* AMEX MEMBERSHIP CORP.

* NATIONAL ASSOCIATION OF SECURITIES DEALERS

Size: Approximately $60 million (not formally disclosed) to purchase the American Stock Exchange

Adviser to AMC: Undisclosed

Adviser to NASD: Credit Suisse First Boston

* ANTHEM

* WELLPOINT HEALTH NETWORKS

Size: $16.4 billion in cash and stock

Adviser to Anthem: Goldman, Sachs & Co.

Adviser to WellPoint: Lehman Brothers

* BAIN CAPITAL, THOMAS H. LEE PARTNERS, LEXA PARTNERS AND PROVIDENCE EQUITY PARTNERS

* TIME WARNER

Size: $2.6 billion (all-cash) for Warner Music Group

Advisers to investment group: themselves, AGM Partners, Jeffries & Co.

Adviser to Time Warner: Morgan Stanley

* BANK OF AMERICA CORP.

* FLEETBOSTON FINANCIAL CORP.

Size: $47 billion

Advisers to BofA: Banc of America Securities; Goldman, Sachs & Co.

Adviser to FleetBoston: Morgan Stanley

* GENERAL ELECTRIC CO.

* VIVENDI UNIVERSAL

Size: $14 billion acquisition of Vivendi Universal Entertainment

Advisers to GE: AGM Partners, Credit Suisse First Boston

Advisers to Vivendi: Citigroup; Goldman, Sachs & Co.

* IDEC PHARMACEUTICAL CORP.

* BIOGEN

Size: $6.6 billion in stock

Adviser to IDEC: Merrill Lynch & Co.

Adviser to Biogen: Goldman, Sachs & Co.

* LEHMAN BROTHERS

* NEUBERGER BERMAN

Size: $3.1 billion in cash and stock

Adviser to Lehman: Lehman Brothers

Adviser to Neuberger: Merrill Lynch & Co.

* NEWS CORP.

* GENERAL MOTORS CORP.

Size: $7.66 billion in cash and stock purchase of Hughes Electronics Corp.

Advisers to News Corp.: Citigroup, J.P. Morgan Securities

Advisers to General Motors: Bear, Stearns & Co.; Merrill Lynch & Co.

Advisers to Hughes: Credit Suisse First Boston; Goldman, Sachs & Co.

* ORACLE CORP.

* PEOPLESOFT

Size: $7.4 billion

Adviser to Oracle: Credit Suisse First Boston

Advisers to PeopleSoft: Citigroup Global Markets; Goldman, Sachs & Co.

* ST. PAUL COS.

* TRAVELERS PROPERTY

CASUALTY CORP.

Size: $16 billion

Advisers to St. Paul: Goldman, Sachs & Co.; Merrill Lynch & Co.

Advisers to Travelers: Citigroup Global Markets, Lehman Brothers

* UNITEDHEALTH GROUP

* MID ATLANTIC MEDICAL SERVICES

Size: $2.95 billion in cash and stock

Adviser to UnitedHealth: Goldman, Sachs & Co.

Advisers to Mid Atlantic: Houlihan Lokey Howard & Zukin, Lehman Brothers

Corporate Finance

* CALPINE CORP.

Size: $3.3 billion high-yield bond issue

Lead banker: Goldman, Sachs & Co.

* ROY DISNEY

Size: $125 million variable prepaid forward covering 7.5 million Walt Disney Co. common shares.

Counterparty: Credit Suisse First Boston

* FORMFACTOR

Size: $96.6 million IPO

Lead banker: Morgan Stanley

* GENERAL MOTORS CORP.

Size: $17.9 billion, six tranche bond issue

Book runners: ABN Amro; Bank of America Corp.; Bank One Corp.; Barclays; Bear, Stearns & Co.; BNP Paribas; Citigroup; Credit Suisse First Boston; Deutsche Bank; Goldman, Sachs & Co.; HSBC Holdings; J.P. Morgan Chase & Co.; Lehman Brothers; Merrill Lynch & Co.; Morgan Stanley; UBS

* RICHARD GRASSO

Size: $187.5 million compensation package

Grantor: New York Stock Exchange

* KMART HOLDING CORP.

Size: $2 billion exit financing

Lead banker: Miller Buckfire Lewis Ying & Co.

* MICROSOFT CORP.

Size: $382 million transfer of employee stock options

Lead banker: J.P. Morgan Chase & Co.

* SLM CORP.

Size: $46 million in medium-term consumer-price-index-linked notes

Lead manager: J.P. Morgan Securities

* YAHOO!

Size: $750 million in zero-coupon senior convertible notes

Lead manager: Credit Suisse First Boston

Real Estate

* BEACON CAPITAL PARTNERS

* JOHN HANCOCK FINANCIAL SERVICES

Size: $910 million

Adviser to Beacon Capital: Lehman Brothers

Adviser to John Hancock: Morgan Stanley

* MACKLOWE PROPERTIES

* CONSECO

Size: $1.4 billion

Adviser to Macklowe: Cooper-Horowitz

Adviser to Conseco: Eastdil Realty

* SIMON PROPERTY GROUP AND WESTFIELD AMERICA TRUST

* TAUBMAN CENTERS

Size: Failed $1.62 billion tender offer

Advisers to Simon-Westfield: Merrill Lynch & Co.; Willkie Farr & Gallagher; Skadden, Arps, Slate, Meagher & Flom

Advisers to Taubman: Goldman, Sachs & Co.; Wachtell, Lipton, Rosen & Katz; Miro Weiner & Kramer

Sovereigns

* ARGENTINA

Size: Offer to buy $90 billion in defaulted privately held debt at 75 percent discount

* BRAZIL

Size: $1 billion of five-year bonds

Lead bankers: Merrill Lynch & Co., UBS

* CRÉDIT LYONNAIS SETTLEMENT

Size: $771.75 million

French principals to the agreement: Crédit Lyonnais; Consortium de Realisation Enterprises; Mutuelle d'Assurance Artisanale de France; Jean-Claude Seys, chairman of MAAF; Artemis; François Pinault; and Patricia Barbizet, managing director of Artemis

U.S. principals to the agreement: Department of Justice; U.S. Attorney, Los Angeles; Board of Governors of the Federal Reserve System

* HALLIBURTON

Size: Up to $7 billion no-bid contract for Iraq oil industry reconstruction