Business

➘ SELL: UBS. The Swiss bank will pay $1.4 billion for its misdeeds underwriting and packaging shoddy mortgages in the run-up to the 2008 crisis. Fines from that era are still trickling in, and the U.S. Justice department’s running tab is more than $36 billion.

➘ SELL: UPS. The company cut its 2023 revenue forecast by 4%, citing the costs of its new contract with the Teamsters. Drivers will now make $170,000 a year in pay and benefits, the company said this week.

Big payday ends Blue Owl’s civil war

THE NEWS

The cost of peace at Blue Owl, the hot-handed investment firm where a civil war erupted this spring: $34 million a year.

Michael Rees, the co-founder who Semafor reported was being pressured to quit, will be paid a quarterly bonus currently set at $8.5 million, according to corporate filings. That number will fluctuate depending on how much money Rees makes for the firm and could rise significantly as his business grows. He’ll take his bonus in Blue Owl stock through 2025.

The rejiggered contracts resolve an ugly internal battle at the top of one of Wall Street’s hottest firms. Rees also gets tighter control over the day-to-day operations of his business, in exchange for a promise to publicly support the firm’s top brass.

Blue Owl was formed from the 2021 merger of Owl Rock, a leader in private lending, and Rees’ business, Dyal, which takes stakes in other investment firms and professional sports teams. A reorganization this spring effectively demoted Rees, who refused requests from the firm’s co-CEOs, Doug Ostrover and Marc Lipschultz, to resign.

A Blue Owl spokesman declined to comment.

LIZ’S VIEW

I wrote in June that this all seemed foolish and that there was more than enough money to go around, and it turns out there is. Everybody has a price, and Rees’ was high, but manageable for a firm whose only problem was internal.

In two years, Blue Owl has nearly tripled the money it manages to $150 billion. It’s in the fastest-growing parts of the investing world; private credit is exploding, as is Dyal’s business of cashing out private-equity founders for a slice of their profits.

Ostrover and Lipschultz had few options. The executive-compensation lawyers I asked this spring to look at Rees’ contract said it was ironclad, making it nearly impossible to force him out or fire him.

And having invested most of the $13 billion fund he raised last year, Rees is out raising another one. Investors want to know who will actually be putting their money to work, and turnover in the “key man” tends to send them fleeing. “Blue Owl clearly thinks it can shed Rees while keeping his business,” I wrote. It seems they couldn’t, and sued for peace.

For Room for Disagreement and the rest of the story, read here.

A bidding war has erupted for U.S. Steel. Two offers so far, one of which the company has rejected, would pay shareholders about 50% more than the recent share price.

A glut of global steel has depressed prices, which are down by about a third since their peak two years ago. And China, which surpassed the U.S. in production in the mid-1990s, is running away with the global market.

But U.S. Steel has a few valuable attributes. Its Arkansas mill is one of just two U.S. sites that can churn out parts for electric-car motors. American national-security regulators are unlikely to let the company fall into foreign hands.

A BigLaw raid

Law firm Paul Weiss is poaching more than a dozen of Kirkland & Ellis’ top private-equity partners, people familiar with the matter said, one of the largest legal coups in recent memory.

Thirteen Kirkland partners from London and Los Angeles are decamping for Paul Weiss, including dealmakers with close ties to KKR, Warburg Pincus, EQT, and Bain, people familiar with the matter said.

Joining in London are Neel Sachdev, Matt Merkle, Deirdre Jones, and Kanesh Balasubramaniam. In Los Angeles: Eric Wedel, who will open an L.A. office for Paul Weiss, along with Ben Steadman, Matt Leist, and Caroline Epstein.

Roger Johnson, who left Kirkland in an acrimonious split two weeks ago, will also join and bring at least two partners with him, people familiar with the matter said.

Johnson was unhappy about Kirkland’s own poaching of Alvaro Membrillera, the head of Paul Weiss’ London office, and sparred with Kirkland Chair Jon Ballis about the hire, leading to Johnson’s exit, some of the people said. Membrillera is bringing three other Paul Weiss partners with him, one person said.

“Kirkland appreciates their contributions to the partnership and wishes them the best at their new firm,” a spokesman said of the departing lawyers.

Some of the moves were earlier reported by the Financial Times.

A jury awarded shareholders of Fannie Mae and Freddie Mac, the troubled mortgage lenders that were seized by the U.S. government in 2008, $612 million.

Previous lawsuits challenging a 2012 recut of the deal, in which the Federal Housing Finance Agency allowed a sweep of all of the companies’ profits, had each failed. (One succeeded in proving the FHFA itself unconstitutional, but resulted only in the firing of its chief.)

This one succeeded, arguing that Fannie and Freddie were on the cusp of profitability when Treasury laid claim to their profits, though the award was less than the $1.6 billion investors had sought. The government is expected to appeal.

Shares of Fannie and Freddie popped about 15%. But they’ve been pink-sheet penny stocks for years now, with little hope that they’ll emerge from government care as for-profit companies.

Once more with feeling: Bankers are shopping $3.2 billion in bonds and loans to support Apollo’s $7 billion buyout of car-parts maker Tenneco, struck in early 2022. The first attempts last November failed and the market for LBO debt remained shut for most of the year.

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