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Gabriel Clark
Gabriel Clark

Bank Financial Management Macmillan Pdf 35



At a meeting held on June 11, 1987, the Macmillan board authorized the above transactions. During the pendency of Macmillan I, the directors maintained that no relationship existed between the management-proposed restructuring and the June 11 approval of the ESOP transactions along with the grant of options and restricted shares to management. In rejecting this claim the Vice Chancellor observed that "[i]f the directors were unaware of the implications of their actions for the restructuring, it can only be because management failed appropriately to disclose those implications." Id. at 1230 n. 7. This apparent domination of the allegedly "independent" board by the financially interested members of management, coupled with the directors' evident passivity in the face of their fiduciary duties, which so marked Macmillan I, continued unchanged throughout Macmillan II.




Bank Financial Management Macmillan Pdf 35



Due to the significant financial interests of Evans, Reilly, Chell, McCurdy and other managers in the proposed restructuring, management decided in February or March to establish a "Special Committee" of the Board to serve as an "independent" evaluator of the plan. The Special Committee was hand picked by Evans, but not actually formed until the May 18, 1988 board meeting. See id. This fact is significant because the events that transpired between the time that the Special Committee was conceived and the time it was formed illuminate the actual working relationship between management and the allegedly "independent" directors. It calls into serious question the actual independence of the board in Macmillan I and II.


As the Vice Chancellor observed, starting in April, 1988, Evans and others in management interviewed, and for four weeks thereafter maintained intensive contact with, the investment banking firm of Lazard Freres & Co. ("Lazard"), which was *1268 to eventually become the Special Committee's financial advisor. Id. On April 14 representatives of Lazard met alone with Evans, and later with Evans, Chell and McCurdy. A few days later, Evans, Reilly, Chell, McCurdy and Samuel Bell, a Macmillan executive, again met with Lazard. All of these meetings involved extensive discussions concerning the proposed recapitalization. Id.


The Special Committee remained dormant for one week following its formation, and met for the first time on May 24, 1988. Before its first meeting, Evans and Reilly again met with Lazard, allegedly the Special Committee's advisor, and Wasserstein, Perella, apparently to discuss the recapitalization plan. Evans, Reilly, Chell and McCurdy attended the May 24 Special Committee meeting, at which Lazard, as financial advisor, and the law firm of Wachtell, Lipton, Rosen & Katz were formally retained, having been invited to the meeting by Evans.[10] Significantly, Evans and his management colleagues did not inform the Committee of their substantial prior discussions *1269 with Lazard over the preceding month.[11] One of the outside directors, Thomas J. Neff, testified that if he had known of the extent of the activities between Lazard and management, it would have raised "serious doubts" concerning Lazard's independence. Id. at 1234-1235 & n. 22. The restructuring plan, including management's proposed 55% ownership of Information, was presented to the Committee, which then directed Lazard to "evaluate" it further, along with the Bass offer.


Upon the Special Committee's recommendation, the board again rejected the revised Bass offer and reaffirmed its approval of the management restructuring. It is noteworthy that Bass' alternative restructuring proposal was never determined to be financially inadequate or unfair by Lazard or Wasserstein, Perella. Id. at 1238.


Macmillan did not respond to Maxwell's overture for five weeks. Instead, during this period, Macmillan's management intensified their discussions with KKR concerning a buyout in which senior management, particularly Evans and Reilly, would have a substantial ownership interest in the new company. Upon execution of a confidentiality agreement, KKR was given detailed internal, non-public, financial information of Macmillan, culminating in a series of formal "due diligence" presentations to KKR representatives by Macmillan senior management on August 4 and 5, 1988.


Nonetheless, on September 6, 1988, representatives of Macmillan and KKR met to negotiate and finalize KKR's buyout of the company. In this transaction Macmillan senior management would receive up to 20% ownership in the newly formed company. During this meeting, Evans and his senior managers suggested that they would endorse the concept and structure of the buyout to the board of directors, even though KKR had not yet disclosed to Evans and his group the amount of its bid. With this extraordinary commitment, KKR indicated that it would submit a firm offer by the end of the week September 9. Following this meeting with KKR, Macmillan's financial advisors were instructed by Evans to notify the six remaining potential bidders, during September 7 and 8, that "the process seems to be coming to a close" and that any bids for Macmillan were due by Friday afternoon, September 9. It is particularly noteworthy that Maxwell was given less than 24 hours to prepare its bid, not having received this notification until the night of September 8.


Meanwhile, Macmillan's financial advisors, apparently ignorant of Evans' "tip" to KKR, began developing procedures for a supplemental round of bidding. Bruce Wasserstein, the leading financial advisor to Macmillan management, who primarily orchestrated the auction process, developed a second "script" which was to be read over the telephone to both bidders. It stated:


Wasserstein then announced the results of the second round of the auction along with the specific aspects of KKR's $90.05 "face amount" offer and Maxwell's $89 cash bid. Wasserstein, whose firm was originally retained as management's financial advisor, not the board's, then opined that the KKR offer was the higher of the two bids. The Lazard representative, who was retained as the financial advisor to the independent directors of the board, but throughout acquiesced in Wasserstein's predominant role, thereafter concurred in Wasserstein's assessment. Wasserstein additionally explained the ramifications of the conditions of KKR's offer, including the "deterrent" effect of the $250 million tax liability produced by the KKR lockup agreement.


It is clear that on July 14, 1988, the day that the Court of Chancery enjoined the management-induced reorganization, and with Bass' $73 offer outstanding, Macmillan's management met with KKR to discuss a management sponsored buyout. This was done without prior board approval. By early September, Macmillan's financial and legal advisors, originally chosen by Evans, independently constructed and managed the process by which bids for the company were solicited. Although the Macmillan board was fully aware of its ultimate responsibility for ensuring the integrity of the auction, the directors wholly delegated the creation and administration of the auction to an array of Evans' handpicked investment advisors. It is undisputed that Wasserstein, who was originally retained as an investment advisor to Macmillan's senior management, was a principal, if not the primary, "auctioneer" of the company. While it is unnecessary to hold that Wasserstein lacked independence, or was necessarily "beholden" to management, it appears that Lazard Freres, allegedly the investment advisor to the independent directors, was a far more appropriate candidate to conduct this process on behalf of the board. Yet, both the board and Lazard acceded to Wasserstein's, and through him Evans', primacy.


[4] Evans and Reilly consulted the same lender and investment banker involved in the Harcourt restructuring, Morgan Guaranty & Trust Company and The First Boston Corporation, respectively. See Macmillan I, 552 A.2d at 1229. In February, 1988, a group of First Boston bankers formed their own firm, Wasserstein, Perella & Co., Inc. Wasserstein, Perella was similarly retained to represent Macmillan along with First Boston. After the retention of Wasserstein, Perella by management, it appears that First Boston's role was a mere formality, as they had little, if any, discernible involvement thereafter.


Honohan (2007, 2008) examined the fraction of the adult population using formal financial intermediaries for 162 economies and its relationship with poverty and inequality. The composite financial access indicator was constructed by using a cross-sectional series that combined both household survey data sets and published data. The results show that financial access significantly reduced poverty on its own, but not when other control variables were included as regressors, such as per capita income, private credit as a percentage of GDP, inflation, institutions (KKZ index), institutions (freedom house bank), population size, and a sub-Saharan Africa dummy. Furthermore, there was evidence that financial access significantly reduced income inequality on its own and also when financial depth measure (private credit as a percentage of GDP and inflation) was included, but the result did not hold when per capita income and a sub-Saharan Africa dummy were included.


This reflects the maximum number of users entered into the formal financial system. Here, penetration of financial services is indicated by the number of deposit accounts with financial institutions per 1000 adults (Honohan 2007; Sarma 2012; Cámara et al. 2014; Rojas-Suarez and Amado 2014; García-Herrer and Turégano 2015) and the number of depositors with financial institutions per 1000 adults (Honohan 2007; Amidžić et al. 2014; Park and Mercado 2015; Evans and Adeoye 2016). Then a weighted average of these two indices is considered, using 0.70 weight for the deposit account index and 0.30 weight for the depositor index. As deposit accounts index is an imperative indicator to identify the size of the banked population and a measure of more consolidated stages of financial system, we assign a weighted average of 0.70 for this index. Furthermore, the depositor index gets less weight of 0.30, as all depositors who have deposit accounts are not active in the financial system. Finally, as penetration in the financial system is the primary measure of financial inclusion and data in determining whether an individual has penetrated in the financial system are also available, we assign an overall weight of 1 to the penetration dimension for calculating CFII.


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