Could Wal-Mart Bribery Scandal Derail Michaels' IPO?
One of the year's most hotly anticipated IPO offerings, Michaels Stores, could possibly be derailed because of a scandal involving its CEO's previous tenure as a Wal-Mart executive.
On March 30th, Michaels Stores filed a widely anticipated notice with the SEC that it intends to become a publicly-held company again through an IPO that could raise as much as a half-billion dollars according to the SEC filing. Its private equity ownership Blackstone Group and Bain Capital have hired JP Morgan Chase and Goldman Sachs to manage the IPO. Michaels was purchased by Blackstone and Bain in 2006 for $6 billion, and has been burdened ever since with a heavy debt load (currently $3.49 billion) that was used to finance the purchase. The company says it plans to use the IPO in part to pay off some of that debt.
Yesterday, however, the New York Times broke an investigative story that alleges that Wal-Mart de Mexico's rapid expansion prior to 2005 was propelled with the help of million of dollars of bribes paid to government officials in that country to smooth the way for construction permits and for various other things. Even the company's own internal investigation after a whistleblower contacted a US-based Wal-Mart lawyer in 2005 (which was then buried and not reported to outside authorities by Wal-Mart executives) concluded that laws had been broken in both the US and Mexico. The US Department of Justice and SEC are expected to investigate, with civil and criminal penalties for the company and its executives not outside the realm of possibility. The implications for Wal-Mart's future are vast and serious.
So what is the connection of the Wal-Mart bribery scandal to the Michaels Stores IPO? John Menzer, Michaels Stores current CEO, was Vice Chairman of Wal-Mart at the time of the bribery operation and investigation. He retired from Wal-Mart in 2008, before joining Michaels Stores as CEO in early 2009. Menzer is named by the New York Times article as being deeply involved in thwarting the internal investigation into the bribes:
In October, Wal-Mart’s vice chairman, John B. Menzer, intervened in an internal investigation into a senior vice president who reported to him. According to internal records, Mr. Menzer told Mr. Senser he did not want Corporate Investigations to handle the case “due to concerns about the impact such an investigation would have.” One of the senior vice president’s subordinates, he said, “would be better suited to conduct this inquiry.” Soon after, records show, the subordinate cleared his boss.
Adding further complication to the situation, Michaels Stores announced on Friday that 60-year-old Menzer was in the hospital in stable condition, but refused to disclose the nature of his illness for privacy reasons.
Whether Menzer's involvement in the Wal-mart bribery investigation will materially change the course of the Michaels Stores IPO is still to be seen. But in any case, it is definitely a cloud the company does not want hanging over its head at this critical time in its history.
Update, 4/23 9:00PM: The Washington Post is now reporting that the Department of Justice has been investigating the Wal-Mart case since December 2011.
