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 It's been nearly two years since the recession began with the implosion of the subprime lending markets in July 2007. The turmoil that ensued in the financial sector has provided dealmakers with one opportunity after another for transformational M&A deals. Some have been wildly successful game-changers, while others have blown up in the face of both buyer and seller. This was especially true in September 2008 as the failure of Lehman Brothers Holdings Inc. shook the financial system to its roots, providing some "once in a lifetime" opportunities as well as some lemons that couldn't be turned into lemonade no matter how hard a buyer squeezed. Without further ado, some of The Deal's Best and Worst Deals of the Financial Crisis.
See Dealscape post: Goldman may pay largest bonus pool ever Loser: TPG Capital loses its shirt on WaMu See Dealscape post: How J.P. Morgan did the deals Category: Sovereign wealth fund cash calls Winner: Temasek invests in Merrill Lynch After watching the value of its $6 billion investment in Merrill Lynch & Co. go into free-fall, the Singapore sovereign wealth fund got its own bailout when Bank of America Corp. (NYSE:BAC) bought the investment bank for $60 billion, bringing its investment to a respectable nearly breakeven. See Dealscape post BofA buyout can't quite save Temasek's investment in Merrill See Dealwatch: Bank of America/Merrill Lynch Losers: Abu Dhabi, Singapore and Kuwait invest in Citigroup In November 2007, Citigroup Inc. (NYSE:C) sold $7.5 billion in equity to the Abu Dhabi Investment Authority and issued additional debt securities with capital benefits of about $4.3 billion. Then in January 2008, the financial giant said it was getting another $14.5 billion from investors, including the governments of Singapore and Kuwait. Since then Citi has received multiple bailouts from the U.S. government, which took a much larger stake than any of those sovereign wealth funds ever dreamed of getting. See Dealscape post: Sovereign wealth funds investing in Citigroup See Dealscape post: Sovereign wealth funds invest in banks from 2008 Category: Box of sweets or Pandora's box? Winner: J.P. Morgan gets Bear Stearns and WaMu with government backstops Jamie Dimon does it twice in one year! In March 2008, J.P. Morgan Chase & Co. (NYSE:JPM) snapped up Bear Stearns Cos. at a rock-bottom $2 a share, as the Federal Reserve was unwilling to let the investment bank fail. The price was later raised to a bargain-basement $10 per share. J.P. Morgan pulled off the same trick again in September 2008, getting Washington Mutual for a song after the FDIC seized the bank's assets as capital fled. In both cases, the government backstopped losses, and J.P. Morgan is still considered one of the strongest U.S. banks. See Dealscape post: How J.P. Morgan did the deals Loser: Bank of America gets Merrill along with $19 billion in fourth-quarter losses, a bailout, proxy fights, subpoenas, etc. Too long to go into, but since Ken Lewis agreed to pay $50 billion for Merrill Lynch & Co., he's lost his position as chairman, needed a $20 billion bailout and seen the share price that was once considered strong fall roughly 60%. Even worse for BofA, Merrill has been rife with defectors jumping ship to competitors. See Dealwatch: BofA Merrill Lynch talent exodus See Dealwatch: Bank of America/Merrill Category: Lehman Brothers files Chapter 11 Winners: Nomura Japan's Nomura Holdings Inc. paid only $225 million for Lehman Brothers' Asia-Pacific operations a week after the investment bank declared bankruptcy. It would then go on to scoop up Lehman's European assets for $2 -- not per share, literally two bucks. Losers: Lehman's creditors, KfW Bankengruppe With $639 billion in assets and $613 billion in liabilities, Lehman dwarfed Enron to become the largest Chapter 11 filing in history. In the aftermath of the bank's fall, bidders have been able to buy the Wall Street bank's operations at flea market sale prices. KfW Bankengruppe was left looking foolish as it transferred €300 million ($426 million) to Lehman on the day that it filed for bankruptcy. The fallout included ridicule by German newspapers, a government inquiry and having to getting in line with other creditors to get a fraction of its money back. Category: Close calls Winner: Korea Development Bank Lehman Brothers reportedly missed a chance to stop its slide into bankruptcy when it turned down a $44 billion ($6.40 a share) offer from Korea Development Bank in the weeks before its Chapter 11 filing. Who knows what would have happened had Lehman's management and board accepted the offer, which they considered shockingly low at the time? Loser: Citigroup Before its myriad problems surfaced, Citigroup thought it had a real steal when it bought Wachovia's assets from the FDIC for $1 a share. But steal ended up being the operative word. Wachovia's board secretly continued talks with Wells Fargo & Co. (NYSE:WFC) before Citi could close the deal and announced a merger -- at a significantly higher price -- by the end of the week, leaving Citi with egg on its face and regulators in an awkward position. Citigroup sued, but was unwilling to top Wells Fargo's offer, eventually losing its prize to the San Francisco bank. See Deal magazine story: Unimpartial arbiters Category: AIG's bailouts Winner: Goldman Sachs, Societe Generale, Merrill Lynch, Morgan Stanley, Bank of America, Deutsche Bank and Barclays American International Group Inc. (NYSE:AIG) couldn't cover its margin calls in September 2008 (the same weekend that Lehman ran into the same problem), but the insurer was considered too intertwined with the financial system to be allowed to go under, so the Treasury bailed it out with loans that would eventually reach $185 billion. The initial tranche of taxpayer money though was used to pay more than $75 billion to Goldman, Merrill Lynch, Morgan Stanley (NYSE:MS), Bank of America, Société Générale SA, Deutsche Bank AG (NYSE:DB) and Barclays plc (NYSE:BCS), who were demanding to collect on collateral payments connected to AIG's derivatives contracts. See Deal Pipeline story on AIG payments (subscription required) See Dealscape post: Why did AIG pay its counterparties Loser: AIG, taxpayers Now the poster-child for bailouts gone wrong, the company is busy divesting businesses to pay back its three government loans. When it was revealed that the unit responsible for the company's derivatives business was due to receive bonuses, an uproar ensued, resulting in bomb threats and the return of the money (accompanied by resignation letters) by employees. It's still not possible to say whether most of the problem deals above won't eventually turn out to be huge successes and what look like home runs won't get ruled foul, but with the changes they've wrought in the regulatory environment, bankruptcy law and the role of government in in the American business community, their effects will certainly be felt for a long time to come. - George White
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