Greenhill Falls Toward League-Table Obscurity

By Dakin Campbell - Dec 20, 2011 12:00 PM GMT+0700

AT&T Inc. (T)’s failed $39 billion acquisition of Deutsche Telekom AG (DTE)’s T-Mobile USA Inc. is sending Greenhill & Co. (GHL) toward M&A league-table obscurity.

Greenhill plunged to 40th place in the mergers and acquisitions rankings after AT&T scrapped its deal yesterday, from 18th place with the transaction included, according to data compiled by Bloomberg. AT&T’s advisers -- Greenhill, JPMorgan Chase & Co. (JPM) and Evercore Partners Inc. (EVR) -- will lose about $65 million in fees, according to estimates by New York-based researcher Freeman & Co.

“It’s an embarrassment, but they will feel the loss more financially,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco and a former managing director at Salomon Brothers Inc. “They want to hold onto their star bankers, some of whom worked on this deal, and they have to pay them bonuses. They have a heck of a lot less to pay them with now.”

Greenhill Chief Executive Officer Scott Bok has lost at least three managing directors since early June. Previously, the firm averaged less than one such departure annually since its founding in 1996 by Robert Greenhill. The company has slid 57 percent in New York trading this year, the worst performance (S4FINL) in the 79-company Standard & Poor’s Midcap Financials Index.

Superior Energy

With the scrapping of the AT&T deal, the largest transaction for Greenhill this year was advising Superior Energy Services Inc. (SPN) in its purchase of Complete Production Services Inc. (CPX), according to Bloomberg data. Greenhill has served as an adviser on 25 deals valued at $21.2 billion this year, the data show.

Greenhill had been set to beat last year’s 23rd-place ranking. At 40th, the firm ranks below Wells Fargo Co. (WFC) and BMO Capital Markets Corp., among other firms.

Jeffrey Taufield, a spokesman for Greenhill, declined to comment.

The “great weakness” of boutique firms is that without research, they have less leverage with potential clients and are thus more reliant on the league tables to prove their worth, Connelly said. The fall in the rankings makes Greenhill’s job more difficult, he said.

“If you are a naked boutique, as I call the M&A boutiques, you don’t have enough axes to grind with clients,” Connelly said. “The league table standing is more vital for them than it would be for even, say, Lazard, which has other lines of business.”

Global Volume

Greenhill posted net income of $8.56 million in the third quarter, compared with $14.5 million in the same period a year earlier, according to a statement. The firm will have “considerably lower” fixed compensation costs this year because of the departure of managing directors, Bok said in July.

The collapse of the T-Mobile deal pulls global takeover volume down to about $2.19 trillion this year, little changed from all of 2010.

Advisers on the Deutsche Telekom side may fare better, and could still get a percentage of the deal’s reverse $3 billion breakup fee, said Lam Nguyen, a director at Freeman. Deutsche Telekom’s bankers included Morgan Stanley (MS), Credit Suisse Group AG (CSGN), Deutsche Bank AG and Citigroup Inc. (C)

Goldman Sachs (GS), the only bank among the top four advisers that wasn’t involved in the deal, now has 24 percent of the market with $529.8 billion in takeovers, according to data compiled by Bloomberg. JPMorgan’s share fell to 19.6 percent, followed by Morgan Stanley with 19.2 percent and Credit Suisse with 15 percent, the data show.

Express Scripts

T-Mobile is the biggest deal to be scrapped since BHP Billiton Ltd. (BHP)’s $40 billion takeover bid for Potash Corp. of Saskatchewan Inc. was blocked by the Canadian government, according to the data.

Goldman Sachs may further extend its lead over rivals if regulators reject Express Scripts Inc.’s proposed purchase of Medco Health Solutions Inc. (MHS) The $29.1 billion acquisition, which would result in the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, is under review by the Federal Trade Commission, and states have opened inquiries into the sale out of concern that the combined company will command too much market power.

St. Louis-based Express Scripts plunged 18 percent since July 20, the day before the deal was announced. Medco, based in Franklin Lakes, New Jersey, has dropped 2.5 percent.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; David Scheer at dscheer@bloomberg.net.