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ATD deal value drops with stock prices
By Dan McCue
Staff Writer
Citigroup’s billions of dollars in mortgage-related losses and its lack of a CEO haven’t stalled the banking giant’s integration of Automated Trading Desk into its global equities business.
But those hurdles have been rough on the net worth of the investors who received Citigroup stock as part of the merger deal.
On Oct. 3, the day Citigroup completed its acquisition of the 18-year-old Mount Pleasant-based stock-trading technology firm—a deal valued at $680 million and consisting of $106.5 million in cash and 11.17 million shares of Citigroup stock—its stock closed at $47.86 per share.
As a result, the total value of the Citigroup stock component of the deal when the transaction was closed was roughly $523.3 million.
On Wednesday, Nov. 29—hours before it was announced the bank accepted a $7.5 billion investment from the government of Abu Dhabi—Citigroup shares closed at $29.75, falling below $30 a share for the first time since 2002.
As a result, the value of those 11.17 million shares at the close of the New York Stock Exchange that day was $332.3 million, the difference of approximately $191 million cutting the deal’s value nearly in half.
Neither Mary Waggoner, who handles media queries for ATD, nor Steven Cohen, a spokesman for Citigroup, would comment on the decline in the stock’s price per share.
But a Citigroup official asserted privately in late November that the deal closed at $680 million and that from then on, the transaction was closed. Anything that affected the value of the stock thereafter is simply the result of the vagaries of the market, the executive said.
The same official also said there are two critical points to consider when assessing the impact of the mortgage crisis on participants in the ATD deal.
One is that on Oct. 2, 2007, the day before the Citigroup/ATD transaction closed, the principals in ATD held relatively illiquid equity in a private company; 24 hours later they shared in millions of shares they could sell.
The other point is that the true impact of the declining stock price is hard to decipher because of confidentiality agreements related to the deal. Without those particulars, there’s no way to get a handle on how much of the stock is still in ATD principals’ hands and how much has already been sold.
Historically, however, acquisition deals involving stock. include a restriction on the sale of securities tied to the continuation of the share recipient’s employment.
The Citigroup official also said what’s happened to Citigroup stock in recent weeks represents a snapshot of one moment in time. Six months from now a run-up in the stock could dramatically increase the value of the shares.
Jeff Martin, ATD’s president of financial services, said earlier this year that an infusion of $60 million in venture capital into the company last January piqued the interest of several financial industry suitors.
When Citigroup initiated discussions with the 115-employee, high-tech trading company in February, it was looking to forge some kind of joint venture. As those conversations continued into the spring, principals with both companies concluded a merger simply made more sense.
As a result of the deal, Citigroup’s Global Equities business added a network of approximately 120 dealer/brokers to its network of customers.
Financial Technology Partners LP of San Francisco acted as the financial adviser to ATD, while the New York law firm of Blank Rome LLP served as its legal adviser. Citigroup was represented by the New York law firm of Skadden, Arps, Slate, Meagher & Flom LLP.
No one from any of these companies responded to requests for comment.
In the months that followed the July 2 announcement of the acquisition deal pending regulatory approval, Citigroup has weathered a series of storms related to the subprime mortgage crisis and the resultant credit crunch.
In the third quarter of this year, Citigroup announced a drop in earnings of more than $14.5 billion because of writedowns for securities backed by subprime mortgages and loans tied to corporate takeovers.
Within days, Charles Prince, the banking giant’s chairman and CEO, had resigned and had been replaced as chairman on an interim basis by former U.S. Treasury Secretary Robert E. Rubin, once co-chairman of Goldman Sachs.
Sir Win Bischoff, chairman of Citi Europe, is now serving as interim CEO.
On Nov. 27, Citigroup’s board approved the $7.5 billion deal with the investment arm of the Abu Dhabi government that gives the Abu Dhabi Investment Authority a 4.9% stake in convertible stock in the company.
Citigroup’s stock rose 57 cents on word of the deal, but some analysts reacted coolly, saying that such infusions of capital are typically bad for stockholders because they tend to dilute earnings.
A Citigroup official objected to that characterization, however, saying that Abu Dhabi’s investment would go directly to the bank’s balance sheet and be freely accessible for the company’s needs. The investments won’t be convertible to shares until 2011, he said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@setcommedia.com.
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