While due diligence on the MetWest transaction was being done in October 2009, TCW's investment banker already had concluded that the price was too high, according to a document at the trial.
“It's already clear that their stand-alone business is not worth the $300 million nominal value they are asking for,” wrote Gary Shedlin, a consultant with Citigroup, in an Oct. 5, 2009, e-mail to Jacques Ripoll, head of global investment management and services for Societe Generale, TCW's owner. “My initial guess is that it's worth closer to $200 million.”
MetWest had $30 billion in assets at the time; TCW had $100 billion, about $65 billion of which was in fixed income.
But Mr. Shedlin told Mr. Ripoll in the e-mail that “one needs to decide if a $100 million premium (50%) is too expensive an `option' to preserve near-term value at TCW.”
In his response, Mr. Ripoll called it a “fair vision of where we stand and where we should go.”
TCW Chief Executive Officer Marc Stern testified that by early September 2009, he thought TCW could be destroyed if he did not move swiftly to replace Mr. Gundlach, TCW's star money manager, who Mr. Stern suspected was plotting to leave to join a rival or start his own firm. Trial testimony shows Mr. Gundlach's mortgage-backed securities team was responsible for at least 50% of TCW's revenue.
Mr. Shedlin, then chairman of Citigroup's global financial institutions group, also wrote in the e-mail: “I strongly believe that terminating JG and having a credible "replacement plan' to execute will preserve significantly more value than reacting to his departure.”
TCW began termination proceedings against Mr. Gundlach on Dec. 4, 2009, after officials said they uncovered a plan by Mr. Gundlach and associates on his mortgage-backed securities team to download millions of TCW documents.
TCW is charging in the lawsuit that those trade secrets helped Mr. Gundlach launch his rival money management firm within days of leaving TCW. Mr. Gundlach is countersuing for more than $500 million in back and future compensation.
In a statement to Pensions & Investments, Mr. Stern said the MetWest deal has turned out well for TCW.
“We think it was a fair deal when we made it, and in retrospect it has turned out to be a great deal,” he said in a statement.
“Given the serious challenges TCW faced in late 2009 when we were forced to terminate Jeffrey Gundlach, the MetWest acquisition has exceeded my expectations by every single measure,” Mr. Stern continued. “The group's investment performance has been outstanding, and MetWest has significantly broadened our offerings in core fixed-income and high-yield products, allowing us to better serve our clients.”