The $400 Million Dollar Man

The Financial Times reports tonight that if Merrill wants Larry Fink, the head of Black Rock, to become CEO, the price is probably $400 million. That’s the estimated cost of buying out Fink’s stake in the company, an necessary step, since would otherwise have an incentive to make decisions that favor Black Rock (Merrill now owns a 49% interest).

The precedents for this move are not favorable at all. In 2000, Chase paid $500 million to buy Beacon Group, an energy industry merchant bank headed by former Goldman M&A chief Geoff Boisi. That was the price of getting Geoff to join Chase as vice chairman to beef up its merger and acquisitions effort.

The sale of Beacon was almost certainly Boisi’s most successful deal. The people I know in the energy industry reported at the time that Beacon had done relatively few deals (and they weren’t seen as particularly astute, which was not surprising given that Boisi didn’t know the industry and only a couple of his lieutenants did ). The firm was also heavily staffed relative to its apparent level of activity. The price clearly had more to do with Chase’s keen desire to secure Boisi’s services, not the value of Beacon.

Although I cannot prove it, I am highly confident that Boisi did not generate anywhere enough in fees to recoup the handsome premium paid for his firm. Boisi had been one of the top M&A pros in the swinging 1980s, but his Rolodex had to have eroded after a decade at a boutique with a narrow industry focus. Indeed, Googling his name provides no insight into his time at Chase, which was brief (he was gone by 2003).

Not a good harbinger for Fink, needless to say.

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