Manhattan-New York

In Case You Missed It: Weekend Round-up

martin.jpgContributed by Martin Mitchell of the Corporate Training Group

In case you were too busy enjoying your weekend (or too stuffed from your Thanksgiving repast) to have kept up with the news, contributor Martin Mitchell has been kind enough to gather some important market events from this past weekend (and week) so that you can start this week well informed:

Saturday, November 29th
Mergers and Acquisitions

  • Commerzbank has accelerated the purchase of Dresdner Bank from Allianz. The revised deal reduces the equity stake that Allianz was due to receive and increases the amount of cash. It will enable the deal to be completed 6 months earlier than first planned.

Financial Institutions

  • Redemptions are adding to the pain of poor performance for hedge funds. Morgan Stanley analyst Huw van Steenis estimates that industry assets could shrink from $1,930bn in June 2008 to $900bn by the end of 2009.
  • Royal Bank of Scotland’s latest rights issue managed just 0.24% take up – leaving the UK government providing the vast majority of the funds.
  • The European Commission has blocked the French government’s plan to shore up the capital position of France’s six main retail banks – BNP Paribas, Société Générale, Crédit Agricole, Caisse d’Epargne, Banque Populaire and Crédit Mutuel – insisting that the banks must reduce their lending in return for state support.

Credit

  • The UK’s credit insurance industry suffered a blow as Amlin decided to withdraw from the market. Amlin cited the difficulties in getting reinsurance as part of the reason for the withdrawal.

Other

  • Capital raising for UK companies will become quicker, whilst preserving pre-emptive rights. The government is proposing to shorten the period for existing investors to subscribe for a rights issue from 21 to 14 days, and the Association of British Insurers is planning to change its guidelines to increase the proportion of shares that can be issued without calling a shareholders’ meeting.
  • British Sky Broadcasting (BSkyB) has applied to the Competition Appeal Tribunal to take their ruling to the Court of Appeal. Last month, the Tribunal ruled that BSkyB must sell its 17.9% stake in ITV. BSkyB paid £940m for the stake, and based on the current ITV share price it would be worth just £240m.
  • “Black Friday” sales disappointed U.S. retailers and indicated a poor Christmas retail season, as shoppers focused on discounted products and basic items rather than luxuries.
  • The OPEC oil cartel deferred a decision to further cut its output in order to boost prices, although it is expected that they will revisit the decision later in the month.

Friday, November 28th

Financial Institutions

  • After almost two decades of dominance, Goldman Sachs and Morgan Stanley dominance of the commodities market looks to be under threat. The financial crisis has forced both players to adopt a more cautious approach, creating an opportunity for other players – in particular Barclays Capital and JPMorgan.

Credit

  • Both the UK and Italy struggled to entice investors in their latest bond auctions. The UK auctioned £3.75bn of four year bonds and had to offer 10 extra basis points over similar existing debt. Italy had to do the same as it auctioned €1.4bn of three-year bonds.
  • General Motors, the troubled carmaker, is looking to generate cash in the face of financial difficulties. It is hoping to sell and lease back its Detroit HQ, to raise $500m, and has asked Jones Lang LaSalle to help it sell and lease back some European property assets, hoping to raise a further €200m.

Other

  • UK listed electronics retailer DSG International scrapped its dividend as it reported a first half loss. Passing the dividend will save the owner of the Currys and PC World chains £78m. DSG shares responded with a 10.7% fall to 12.5p.

Thursday, November 27th

Mergers and Acquisitions

  • The world’s biggest consumer goods company, Procter & Gamble, has taken a stake in the UK online grocer Ocado. The 1% stake is costing P&G £5m and P&G’s interest is mainly to research the way consumers use the internet. Ocado was formed 9 years ago by three ex-Goldman Sachs investment bankers, and is yet to make a profit.

Financial Institutions

  • A survey by executive search company Armstrong International indicates that bonuses for City of London bankers will be slashed by around 60%. Some top performers may take home bonuses at or near last year’s levels, but the majority will see a collapse by as much as 80%. The mix between cash and stock is yet to be revealed, with concerns about the dilutive impact of stock bonuses due to low stock prices. Last year’s bonuses paid around 70% in stock and 30% in cash, reversing the more usual pattern of paying 70% in cash.

Credit

  • Two well-known UK retailers, Woolworths and MFI, slipped into administration after failing to reach agreement with their lenders.
  • One of the world’s biggest private equity deals is in jeopardy after outside auditors at KPMG warned that the resultant debt burden could threaten the solvency of the group. The deal is for Montreal-based telecom group BCE, led by the Ontario Teachers Pension Plan plus two US private equity firms, Providence Equity and Madison Dearborn. The proposed C$34.8bn ($28.1bn) deal involves debt of C$32bn from a consortium led by Citigroup, RBS, Deutsche Bank and Toronto-Dominion Bank. KPMG has been hired by BCE to provide an independent opinion on solvency.
  • Toyota Motor lost its status as one of the few companies to hold the top credit rating from all of the three big agencies. Fitch cut it rating by 2 notches from AAA to AA, citing the negative developments in the motor industry.
  • The credit risk of the UK has increased rapidly according to the CDS market. Prior to the announcement of plans to recapitalise its beleaguered banks in October, it cost €27,000 to insure €10m of UK government debt over 5 years. Today it costs €97,000.

Other

  • Nasdaq OMX is set to launch Britain’s first electricity exchange. The transatlantic exchange group won a tender organised by the Futures and Options Association on behalf of a group of energy companies and financial institutions. The new exchange is targeted to be up and running by next summer.

Wednesday, November 26th
Mergers and Acquisitions

  • BHP Billiton has abandoned its hostile, all-share bid for Rio Tinto. BHP blamed the ‘continued deterioration of near-term global economic conditions’, although the view from people close to the deal was that BHP would have struggled to complete the disposal of iron ore mines required by the European Union in its anti-trust ruling. As a result of the decision, the eight investment banks advising BHP will lose out on fees of around $140m. The banks included Goldman Sachs, Citigroup, UBS, Merrill Lynch and HSBC. On the Rio Tinto defence, eight banks including Morgan Stanley, Credit Suisse, ABN Amro and JPMorgan Cazenove are in line to receive $162m.

Financial Institutions

  • Three former executives at UBS followed the lead of former chief executive, Peter Wuffli, and agreed to repay bonuses handed out at the height of the credit boom. Marcel Ospel, former Chairman and his two deputies, Stephen Haeringer and Marco Suter agreed to hand back a total of SFr33m.
  • Goldman Sachs became the first US bank to issue debt backed by the US Federal Deposit Insurance Corporation. Goldman raised $5bn, yielding 3.367% for the debt that matures in June 2012.

Credit

  • DIFC Investments, a Dubai government fund, plans to pay off an entire $500m loan that matures in the first week of December. A DIFC Investments official said it had mandated Goldman Sachs to raise $350m at Libor plus 250 basis points to help pay off the loan, although if this does not happen, the loan would be paid off using internal resources and Dubai government money. The loan marks the first test for the Dubai government as it faces billions of dollars of refinancing over the coming years. Dubai’s borrowings are estimated at $80bn.
  • The European Union is to raise €2bn in fixed rate three year bonds as the first tranche of a financial assistance package for Hungary.
  • UK housebuilder Taylor Wimpey is set to yield to pressure from its lenders to offer them some equity as part of a refinancing package. Taylor Wimpey has net debt of £1.9bn and is negotiating a waiver of lenders’ covenant tests.

Other

  • Martin Wolf’s article in the FT presents some potentially good news on stock prices. Tobin’s Q (the ratio of the value of stocks compared to the replacement cost of the net assets of the entity) and a ‘cyclically adjusted’ p/e ratio (CAPE – using a 10 year moving average for earnings) indicate that today’s market values are considerably below average for the first time since 1988 according to CAPE, and since 1991 according to Tobin’s Q.

Tuesday 25th Nov 2008
Mergers and Acquisitions

  • Anheuser-Busch InBev, the newly formed brewing group, launched a €6.3bn rights issue priced at a discount of almost 70% of its share price. The money will be used to repay a bridge loan used to fund part of InBev’s $52bn takeover of Anheuser-Busch that was completed last week.
  • Facebook is holding talks that could lead to a takeover of Twitter for around $500m. Twitter is a micro-blogging company that is growing rapidly, where users post short messages (up to 140 characters) about what they are doing, and these ‘Tweets’ are broadcast to anyone who signs up to follow them.
  • India’s largest alcoholic drinks company, United Spirits, is considering a tie-up with Diageo. United Spirits is the clear market leader in the distribution of spirits in India, whilst Diageo derives less than 1% of its sales there. Analysts believe Diageo could pay around $600m for a 15% stake.

Financial Institutions

  • Citigroup shares rose 58% after the US government agreed to put up to $300bn behind the group. The rescue package involves the US government standing behind $306bn of Citi’s ‘problem’ domestic assets (including residential mortgages, commercial real estate, leveraged loans and auction rate securities). Citi will be responsible for the first $37bn in losses on these assets, with 90% of any remaining losses being borne by the government. The protection will cost Citi $7bn of 8% preferred stock, plus $2.7bn of warrants at $10.61 per share. The US Treasury will also invest $20bn in Citi’s 8% preferred stock.
    Barclays investors reluctantly accepted the £7bn fund raising at an extraordinary general meeting.

Credit

  • The UK government unveiled its pre-budget report, cutting VAT from 17.5% to 15% and anticipating government borrowing to rise to £78bn this year and rising to £118bn in 2009/10. From 2010 it is expected to fall to £105bn and then £54bn by 2012. Total gilt issuance in the current fiscal year will be some £146bn.
  • In an effort to support Dubai’s real estate and banking sectors, the UAE government merged a pair of mortgage companies into two federally owned banks. The mortgage companies are two of Dubai’s largest – Amlak Finance and Tamweel – and will be merged into Real Estate Bank and Emirates Industrial Bank. The new entity will be called Emirates Development Bank.

Other

  • After the tumultuous trading of VW shares in the last month, the Deutsche Borse has rewritten its free float requirements for index inclusion. The changes will impact the Dax, with the required free float increased from 5% to 10%.

Monday, November 24th
Mergers and Acquisitions

  • The entrepreneur behind Cobra Beer is looking to sell the Indian-themed lager company. Lord Bilimoria is looking to raise up to £200m and NM Rothschild have been asked to contact potential buyers.

Financial Institutions

  • The latest rumoured bank capital raising involves Standard Chartered. The emerging market bank is said to be considering a $3bn rights issue, priced at a deep discount to the prevailing share price.
  • Share price collapses for Deutsche Bank (currently €18.80 compared to €90 a year ago) and Citigroup (falling from $9.36 to $3.77 over the last week) are presenting strategic challenges. Deutsche has ‘initiated a process of overhauling’ its group strategy, whilst Citigroup’s board were said to be ‘locked in crisis talks’.

Credit

  • Barclays Private Equity and Investcorp have defied the credit crisis by raising about €600m of loans to finance the purchase of an Italian maker of food and drink vending machines. The buy-out of N&W Global Vending is from Merrill Lynch Private Equity and Argan Capital. The senior debt comes from a consortium of banks including Barclays, BNP Paribas, Calyon, Bank of Ireland, ING, Intesa Sao Paolo, Natixis and Societe Generale. The buy out sees debt to EBITDA of around 5.7 times, and the senior debt is priced at between 275 and 400 basis points above Euribor.

Note: The details contained in this article have been drawn from a daily review of the Financial Times.

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