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As the adage goes, drastic times lead to drastic measures. So it should come as no surprise that investment banks have become so desperate for business these days that three signed up to share the lead underwriting role for Sprint Corp.'s PCS unit on its combined secondary equity offering and convertible deal last week.
Not only did Merrill Lynch & Co., J.P. Morgan Chase and UBS Warburg agree to share underwriting responsibilities for the telecom company's $2.2 billion worth of combined offerings, the trio engaged in an even more unusual practicejoint management of both sets of books.
Using two lead managers on larger, more important issues is not out of the ordinary and has become all but commonplace over the last few years. Even then, however, the responsibility of managing the books is usually left to a sole underwriter. And while a three-way split of the lead manager role is not unprecedented, it remains quite rare.
Some say it's a recipe for trouble. To avoid problems, Sprint also designated what bankers call "fixed economics," which means that the banks are guaranteed a certain percentage of the fee no matter which bank brings in the most clients.
"It was like a group bear hug," especially when "all three underwriters got on the phone to talk about allocations," said one capital markets banker. That may sound utterly chaotic, but the convert portion of the deal was so well received that it was enlarged to $1.5 billion from $1 billion.
Good reasons
"Tri books," may be rare, but in this case there was a reason each institution was chosen. UBS is the firm's historic investment bank, having served as its IPO underwriter with Salomon Smith Barney. J.P. Morgan Chase is the firm's historic commercial bank, and Merrill is the more recent best friend, working on cultivating a relationship with the largest telecom player in recent years. It underwrote lots of Sprint paper, not directly for Sprint, but for companies like Cox...