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A Big Payday For Goldman, Lehman With Anthem/WellPoint finally completed, banks rake in $20 million each
Sandra Lea Abrams (sandra.abrams@thomsonmedia.com)
December 6, 2004
Investment Dealers Digest

Investment banks finally saw their payday from Anthem Inc.'s $16.4 billion acquisition of WellPoint Health Networks Inc., 14 months after the healthcare deal was first inked.

With the bulk of their fees coming when the deal was completed last week, lead advisers Goldman Sachs, which represented Anthem, and Lehman Brothers, advising WellPoint, each collected $20 million. Fees earned by the deal's other advisers, Banc of America Securities and UBS, weren't disclosed.

At the same time, the megadeal gave a boost to Goldman's partners on the deal in terms of league-table ranking for completed healthcare M&A, according to Thomson Financial.

Information on the fees comes from an S-4 document filed with the Securities and Exchange Commission that was filed one month after the deal was announced. The filing stated that Goldman would receive a cash fee of $5 million from Anthem when the merger agreement was executed and an additional cash fee of $15 million payable upon the merger's consummation. BofA, which also advised Anthem, received compensation only upon completion of the merger. The amount wasn't disclosed.

WellPoint agreed to pay Lehman $20 million in total, but only $2 million when the deal was announced. The rest was contingent upon the transaction closing. Fees to UBS, which also advised it, were not disclosed. None of the firms commented by press time.

While most M&A fees aren't disclosed in public filings, it is well known that M&A fees have come down in recent years. "The fees in 2004 are not at the same level percentagewise as they were in 1994," said Richard Peterson, market strategist of Thomson Financial. "Today, they are more likely some fraction of 1%."

At the same time, Peterson said, "The deal was still rewarding for the banks, regardless of the fee structure."

It's common for much of the fees to be dependent upon a deal's success. "Each deal is case specific, there is not a cookie-cutter structure for fees, but there are certain norms. One is the so-called success fee to be paid upon the actual completion of the deal," said Ken Froewiss, a professor of finance at New York University's Stern School of Business in New York and a former managing director at JPMorgan. "In this case, the deal didn't close until the final sign-offs came from the insurance commissioners, and the banks have to factor in the time value' of money-it is part of the game."

The megadeal also gave a boost to three of the firms with a jump in the league tables for completed M&A healthcare transactions so far in 2004. BofA moved to the number-two spot, advising on 20 deals with a total value of $32.8 billion, compared with an eighth-place ranking for the same time period last year when it advised on 10 deals valued at $3.2 billion. Lehman also jumped up; it is now third with 10 deals valued at $31.3 billion, compared with only five deals for $882 million for a lowly 12th place ranking during the year-earlier period. UBS is now fourth, with 16 deals valued at $25 billion, up from ninth in the same time period of last year, which it advised on seven deals worth $2 billion.

For Goldman, however, the triumph is bittersweet. While Goldman is still ranked number one for completed M&A healthcare league tables for the second year in a row, its dominance may be ebbing. Last year, the firm advised on nine deals valued at $75.5 billion, but so far this year it has advised on 14 deals, valued at only $36.1 billion. That puts it just a few billion dollars ahead of BofA.

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