Morning Coffee: Strangely behaving client costs Goldman Sachs & Morgan Stanley bankers millions. New upside to the Goldman oath

M&A bankers at Goldman Sachs and Morgan Stanley are surely not the sorts of people to curse volubly and throw heavy objects at the wall, but if they were, they might have done so this week after a large deal they'd been working on for at least one year (and maybe 20) came to nothing. All due to some allegedly awkward behaviour by a client. 

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That client was Seven & i, a Japanese 7-11 operator, which may have invented a new way of seeing off offers, intentionally or not.

Seven & i doesn't seem to have been entirely averse to its suitor. When Couche-Tard, a Canadian convenience store operator whose name means "night owl," first approached it wafting $47bn last July, Seven & i didn't dismiss it out of hand. The two firms signed an NDA along with customary standstill provisions, agreeing not to make any dramatic changes while the deal unfolded.  

At this stage, the Goldman Sachs bankers representing Couche-Tard and the Morgan Stanley bankers representing Seven & I probably felt quite positive. Bloomberg reports that they stood to earn "tens if not hundreds" of millions of dollars in fees. 

It was not to be. If Couche-Tard is right, Seven & i might be too peculiar to be an acquisition target. Couche-Tard claims that Seven & i's management wouldn't attend meetings and that when they did, they seemed to be reading from a script and refusing to answer difficult questions. “Even to this day we are trying to have meetings,” the WSJ reported Couche-Tard chairman Alain Bouchard as saying in March. “It’s hard. Actually, it’s not possible.”

On another occasion, Couche-Tard says it successfully asked a Seven & i executive a question, whereupon  Seven & i's chief executive interrupted and pointed to his head, seemingly suggesting that his colleague needed to think before answering.

Couche-Tard therefore withdrew its offer. Seven & i shares promptly fell nearly 10%. Bankers threw their deal toys at the wall.  

Seven & i says it did nothing wrong. In its own press release, it said it had been mischaracterized and was disappointed after acting in "good faith." There were other regulatory complications to the deal. But maybe Goldman and Morgan Stanley bankers should have seen this coming: the WSJ notes that Couche-Tard has been sniffing 7 & i for 20 years to no avail and that an initial $39bn deal offer was refused when Seven & i claimed to be "grossly undervalued."

It's a reminder that M&A pipelines and M&A fees are two entirely different things. And that being an M&A banker is about human behaviour as much as underlying financial realities. 

Separately, junior Goldman Sachs bankers swearing their quarterly oaths of fealty to the firm now have some possible upside in return. 

Bloomberg reports that Goldman will be offering its honest juniors the opportunity to work in its own private equity teams as recompense for their willingness to make a promise that they haven't accepted offers to join external private equity teams 18 months in the future. 

The inevitable question is how many such positions Goldman actually has on offer. Bloomberg doesn't say. It also seems that Goldman is dangling its internal private equity pathway to this year's banking interns rather than this year's incoming analyst class, who will actually be making the oaths. 

The implication is that interns might be otherwise be discouraged from accepting Goldman's return offers this year. 75% of juniors reportedly want to join the buy-side. If working from Goldman will inhibit that, they might choose to go elsewhere instead. 

Meanwhile...

 Goldman Sachs' equities traders had their best quarter in history. (Bloomberg) 

Jamie Dimon says deal pipelines are unpredictable things. “You’ve seen how rapidly pipelines can grow and shrink. And so that lesson we’ve learned over and over. It may stay wide open for 1.5 years. Something may happen geopolitically that all of a sudden that pipeline slows a little bit. And, so I’m always a little cautious to guess what that’s going to be.” (Financial News) 

Markets revenues might stay high. “Volatility is going to, I suspect, be a feature, not a bug, of the new world order, and we will benefit from that,” said Citigroup chief executive Jane Fraser. (Financial News) 

Citi hired Ashish Agrawal, who leads JPMorgan’s real estate, gaming and lodging investment banking team in Europe, the Middle East and Africa. (Financial News)

Man Group says it's cutting jobs for the second time this year and is excited about using AI for all sorts of things. (Bloomberg) 

T Rowe Price is cutting jobs too. (Bloomberg) 

7,930 US students applied for undergraduate courses starting this autumn, an annual rise of 13.9 per cent and the highest number since records began in 2006. (Financial Times) 

High marginal tax rates and the withdrawal of state sponsored childcare means that someone in London with two children under five who earns £99,999 will have more disposable income than someone earning £149,000. This is why everyone wants to go to Dubai. (Evening Standard) 

Maybe you need a three page résumé after all? “My breakthrough came when I saw a listing where I matched everything in the job description. I submitted my résumé—the old résumé—and I instantly got rejected.” (WSJ) 

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