A Wall Street disaster’s final chapter 

One thing to start: Brookfield has abandoned plans to sell holiday resort group Center Parcs for more than £4bn. Read the full story. 

In today’s edition:

• The back-story on the Sculptor deal

• Mars checks into Hotel Chocolat

• Blackstone diversifying financing sources

High-stakes melodrama for Sculptor deal

For a company that lost shareholders more than $10bn during one of the great bull markets, the fight to buy Sculptor Asset Management was unusually brutal. 

A number of Wall Street billionaires and mere millionaires saw a pound of flesh in the publicly listed carcass of Sculptor, formerly one the world’s largest hedge funds, which started life as Och-Ziff Capital Management. 

Now that shareholders of Sculptor have voted on the asset manager’s $720mn sale to Rithm Capital, DD would like to give a shout-out to the lawyers at Latham & Watkins who represented the company’s independent directors. 

The M&A melodrama was a year in the making and involved multiple bidders, lawsuits and financial engineering feats. The saga is captured in the “background of the mergers” section of the proxy, drafted by Latham, which lays out the narrative in all its gory detail, perhaps the most legally scrutinised M&A literature in history. 

The first filed background section clocked in at a cool 25,000 words or so, and with addenda we estimate that the final length exceeds 30,000 words. May some Latham associate write a novella that is so gripping.

Recall, the fireworks really got started in late 2022 when Sculptor and its founder Dan Och, settled litigation over the $145mn pay package handed to current Sculptor chief executive Jimmy Levin. 

In July, Sculptor signed a deal to sell itself to Rithm, a former affiliate of Fortress Asset Management. But that was merely a prologue for the improvised portion of the deal process. 

Och didn’t like the price, and suddenly Boaz Weinstein, Bill Ackman and Jeff Yass showed up to inject a “will they or won’t they” element to the deal. Ultimately, the billionaire boys’ club never convinced Sculptor to take their various offers seriously. But Rithm was forced to bump up its takeover price by more than a tenth.

And as DD’s Sujeet Indap points out, the fine print on Sculptor’s web of public and private layers is where the action was playing out. 

Rithm is set to pay out Och and other founders $294mn for tax benefits it can realise related to the partnership units held by Och and other former executives. But another Sculptor employee group holding “Class E” units is getting a bagel for this, $127mn less than the group’s members think they deserve. 

A New York court said they can chase Rithm for monetary judgments down the road. For Latham and the other lawyers, it’s time for a well-earned break.

The next chapter for Sculptor, which once paid a record-breaking $412mn criminal fine for bribing officials in Libya and the Democratic Republic of Congo, will probably come inside an obscure finance firm best known for servicing loans banks don’t want. 

The sweet deal that has London buzzing

The UK chocolate business Hotel Chocolat has proved a target too sweet to resist for the pet food and confectionery giant Mars. 

Mars is paying an unusually high premium of about 170 per cent to take over the UK-listed Hotel Chocolat in a deal worth about £534mn.

While takeover premiums this year for public buyouts have typically ranged from 30 per cent to 50 per cent of a company’s share price, Hotel Chocolat was in a unique position. The company’s founders, entrepreneurs Angus Thirlwell and Peter Harris, together own more than 54 per cent of the company.

That gave them leverage to hold out for a higher price even as Hotel Chocolat’s stock has lost about a third of its value since it listed on the junior London stock market in 2016.

While Mars’s and Hotel Chocolat’s leadership had gotten to know each other in recent years, talks only started to heat up in recent months, sources familiar said. It was an off-market transaction rather than a formal auction, with Mars making just two bids for the business.

The acquisition is expected to help Mars move into the higher-value premium chocolate category and more experiential space. 

A Mars executive said the valuation was based on “where we see the long-term potential” for the business. Analysts at Peel Hunt characterised it as “a knockout bid”.

But there was also another reason why London was buzzing about the deal on Thursday. As our colleagues at Alphaville spotted, an email to journalists about the deal accidentally left in company code names for the transaction.

DD sends our congratulations on the deal to both Queen Bee and Beekeeper. 

Blackstone finds a new lender: Blackstone

Securing a line of credit has been getting harder and harder for investment funds, as Wall Street banks retrench from one of their core lending franchises. 

The impact has mainly been felt by smaller funds, those second- or third-tier managers who aren’t prized as clients by the Goldman Sachses of the world.

That, of course, is not a problem for Blackstone (the investment banking world is tripping over itself to bank the firm). But the world’s largest alternative asset manager is nonetheless trying to diversify its financing sources.

The investment behemoth is in the final stages of raising just under $400mn through a collateralised loan obligation secured by the very loans held by its $52bn Blackstone Private Credit Fund, known as BCRED, according to documents obtained by DD’s Eric Platt.

The deal will provide Blackstone with another funding mechanism, alongside its own revolving credit facilities. And if Blackstone executives get what they are after, it may help whittle down their borrowing costs while expanding the number of lenders it can potentially tap in the future.

To do that, they are pitching something called a private credit CLO. It uses the industry’s buzzword of the moment to spice up an otherwise staid asset: the middle-market CLO.

The new CLO will buy up loans from BCRED, with corporate borrowers in the CLO generating annual ebitda of $200mn on average, the documents showed. That compares with about $50mn in middle-market CLOs.

Blackstone is betting — and investors have agreed — that the larger corporate borrowers are less risky than smaller ones, even though the loans are illiquid. The CLO’s triple-A tranche is expected to price with a yield that is 0.1 to 0.2 percentage points below a classic middle-market deal.

Job moves

• Deutsche Bank has appointed Ian Wesson as a managing director covering M&A within its financial institutions group based in New York. He was previously a longtime banker at Citi.

• Blackstone senior managing director Brian Sauvigne is leaving the firm, DD has confirmed after an earlier Bloomberg report. Sauvigne focused on buying minority ownership interests in private equity groups. Doyle Queally will also move to a business development role in the GP stakes unit. Blackstone declined to comment. 

• Goldman Sachs Asset Management has tapped Irit Kahan to be managing director and head of growth equity investing in Israel. Kahan joins from DTCP Growth. 

• Azimut Alternative Capital has hired Morgan Stanley’s Michael Shedosky and Brian Farrell to help the Italian asset manager expand its US business focused on buying stakes in private equity and other alternative investment firms. 

• Latham & Watkins has hired Pamela Reddy as a partner in its white-collar defence and investigations practise to be based in London. Reddy joins from Norton Rose Fulbright. 

• Prosek Partners, the communications firm, has hired Jon Schwartz as a managing director to launch a new sports business strategic communications practice. He previously worked at groups including the NFL and Nascar.

Smart reads

Full-court press Mortgage king Mat Ishbia has made a name for himself in business and basketball, and is approaching both games with a flair for risk, The Wall Street Journal reports.

Stock trading The London Stock Exchange makes less than 4 per cent of its revenues from listing and trading equities, a figure dwarfed by its data and analytics unit, the FT reports.

Treasure hunt For years a shipwreck hunter has battled governments and rivals over the ocean floor’s riches. He’s kept his identity a secret, until now, Bloomberg reports. 

TV turmoil The chief executive of Warner Bros Discovery was friends with some of the network’s biggest names. That didn’t matter when their jobs were on the line, The New York Times writes. 

News round-up

Wall Street megadonors warm to Nikki Haley as their anti-Donald Trump Republican (FT)

Walmart tumbles 8% on cautious holiday outlook for consumer spending (FT) 

Hedge fund Schonfeld to cut 15% of jobs after ending Millennium talks (FT)

Alibaba ditches plans to spin off cloud business and list supermarket (FT) 

Arctos invests in Aston Martin F1 team at £1bn valuation (FT)