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My Mea Culpa on Thain

Monday, September 15, 2008 | 02:08 PM

in Bailouts | Corporate Management | Credit | M&A | Valuation

Its time for me to fess up: I was wrong about John Thain.

In the past, I have been critical about some of the comments from Thain. That they were disingenuous, misleading, and sandbagged investors. But while all of these things were mean and rotten and undesirable from any company's management, let's look at the bottom line: Thain sold Merrill for $25-30 per share, and got $40B for the whole enterprise. Most of his employees will keep their jobs, most of all, the company will survive. Hell, it wouldn't surprise me to see Mother Merrill spun out as an independent entity a few years down the road, if it were worth it to Bank America (BAC) to do so.

Now, don't get me wrong. This isn't an endorsement of this merger. Most large acquisitions of this type are disasters. Think of AOL/TIme Warner, Travelers/Citibank, and more recently Bank America/Countrywide. But hell , its better than the alternative.

Everyone's comparing Bear v. Lehman. But that's the wrong comparison -- it's really Lehman v. Merrill and Fuld v. Thain. One is a goat, and one is the game winner.

A few weeks ago, many people were scratching their heads at his loss of credibility. Judged by this outcome, you can make a case that he kept his eye on what would make Merrill salable. He got enough crap off of the books to keep Mother Merrill solvent. His clearing the balance sheet paved the way for an acquisition.

Merrill could have easily been next in line after Lehman. But Thain did what Fuld wouldn't -- probably because he had no legacy investment in keeping Merrill independent. Thain wasn't a deal maker at Goldman, but he certainly pulled a rabbit out of his hat with a pretty good deal for Merrill's shareholders. Thain performed a magic trick to make the liability seem to disappear. He got a deal and earned his $80 mil as a banker's fee.

This does not excuse a lot of what I called anti-shareholder behavior and statements from MER's CEO. But Goddammit, sometimes its the big things that matter, and survival is the biggest of them all.

If I had to choose a financial sector CEO to tie my life savings to as an employee -- my 401k, my ESOP, my options it wouldn't be Dick Fuld of Lehman, or Alan Schwartz of Bear Stearns, or Martin Sullivan of AIG. It sure as hell wouldn't be Wachovia's Ken Thompson or CitiGroup's Vikram Pandit or Washington Mutual's Kerry Killinger.

Nope, it would be none of the above.

If you had to be in a foxhole with a Broker Dealer CEO, you could do worse -- a lot worse -- than John Thain.

Previously:
Rinse. Lather. Repeat. (July 29, 2008 )
http://bigpicture.typepad.com/comments/2008/07/how-f**ked-are.html

Actual Merrill CDO Sale: 5.47% on the Dollar (July 29, 2008)
http://bigpicture.typepad.com/comments/2008/07/merrill-writedo.html

The Reign of Thain Has Been Anything But Plain (August 1, 2008)
http://bigpicture.typepad.com/comments/2008/08/gartman-the-rei.html