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In Case You Missed It: News Round-up

martin.jpgContributed by Martin Mitchell of the Corporate Training Group

In case you were too busy working on your New Year’s resolutions (or too busy breaking them) to have kept up with the news, contributor Martin Mitchell has gathered some important market events from the first ten days of 2009 to help you start this week well informed:

Mergers and Acquisitions

  • Aberdeen Asset Management has purchased the traditional fund management business of Credit Suisse for around £200m. The deal will see Aberdeen become the UK’s largest listed fund manager with about £150bn under management, and give it access to Credit Suisse’s valuable network of private banking clients. Credit Suisse auctioned the long-only traditional funds business and will concentrate its asset management activities on Swiss fund management and alternative investment operations. The purchase was paid for in shares, with Credit Suisse holding around 25% of the enlarged Aberdeen Asset Management.
  • In a sign that corporate credit markets are returning to some sort of normality, Roche of Switzerland is preparing a fresh offer for Genentech, the US biotechnology company. Roche already holds 56% of Genentech, but launched a failed offer for the remaining 44% last July. The new offer is expected to cost Roche around $44bn, which will see Roche raise $30bn to $35bn in debt. $10bn will be drawn from an existing revolving credit facility, with a further $25bn longer-term facility already agreed on a preliminary basis with a syndicate of 10 banks, led by HSBC and JPMorgan.
  • The trustees of the HBOS pension scheme sought to delay the scheme of arrangement enabling the takeover of HBOS by Lloyds TSB. The HBOS final salary pension scheme has an estimated shortfall of £3bn to £5bn, and the trustees wanted Lloyds TSB to put the scheme on a ‘secure footing’. However, the challenge was abandoned after management persuaded them that they could be imperilling the group’s future.
  • The world’s biggest pharmaceutical group, Pfizer, is contemplating acquisition to provide a boost to revenues as its patented drugs become exposed to competition. Some investors suggest that Amgen, the US biotech group would be a suitable target.
  • French energy group EDF’s £12.5bn takeover of British Energy became unconditional. The deal generates £4.4bn for the UK government.
  • Porsche has increased its stake in Volkswagen from 42% to 50.8%. As a result, under Swedish law it is now required to make a bid for the 31% of the shares in Swedish truckmaker Scania that are not held by VW. However, since Porsche has no strategic interest in Scania’s truckmaking activities, the offer is likely to be pitched at around 15% below the current share price.
  • Dow Chemical of the US is prepared to miss next week’s deadline to complete its $15bn takeover of Rohm and Haas to give it time to raise the cash without having to take on too much debt. Dow’s plans were scuppered when Kuwait’s state owned oil company pulled out of a joint venture in plastics that would have raised $9bn to set against a $13bn bridging loan for the Rohm and Haas transaction. Missing the deadline will cost Dow a ‘ticking fee’ that requires the US company to pay an additional $100m for every month of delay.
  • Germany has injected a further €10bn into Commerzbank, enabling it to complete the takeover of Dresdner Bank. Without the additional capital, Dresdner’s dismal fourth quarter performance looked likely to torpedo the takeover. In total the German government has provided €18.2bn to Commerzbank – whose market capitalization is just €3.8bn. Of the €18.2bn, €16.4bn is in the form of so-called silent participations, bond-like instruments that count towards the bank’s tier one ratio but do not carry any voting rights. The remaining €1.8bn gives the government a stake of 25% plus one share, although it insists it will not exert influence over Commerzbank’s day to day operations.
  • US private equity firm, KPS Capital Partners has signed a letter of intent with the administrators Deloitte to buy the ‘major assets’ of tableware manufacturer Waterford Wedgewood.

Financial Institutions

  • Investment banks are counting on their traditional core businesses of underwriting equities and bonds and giving merger advice to see them through the financial crisis. As revenues from trading complex securities shrivel, the hope is that restructuring advice, rights issues and high-grade debt sales will be required to keep clients afloat in 2009.
  • Citigroup is in advanced talks to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley. The plan involves Morgan Stanley paying an upfront fee for a 51% holding in Smith Barney, and then having an option to buy the remainder in 3 to 5 years. The brokerage merger would have over 24,000 financial advisors, even bigger than the Merrill Lynch ‘thundering herd’ of 16,000 now owned by Bank of America.
  • Merrill Lynch has been dropped as joint corporate broker to United Business Media, and replaced by Credit Suisse. Credit Suisse and Morgan Stanley will now act as joint brokers. In a similar move Kingfisher has replaced UBS with Deutsche Bank, leaving Deutsche and Credit Suisse as joint brokers. The changes are thought to part of a larger shake-up as listed companies prepare for the difficult year ahead, when they may need to break bad news to their shareholders.
  • UBS has sold its 1.3% stake in Bank of China for $835m. The move follows the expiry of a three-year lock-up period and will realise a $335m gain for the Swiss bank.
  • Royal Bank of Scotland is also discussing the sale of its 4.3% stake in Bank of China. The stake was purchased for £800m in December 2005 and is now worth around £2bn.
  • Bernard Madoff’s alleged $50bn fraud claimed its biggest victim to date, with the Austrian government forced to take control of Bank Medici, a private bank. Bank Medici had around $3.6bn under management, most of which was invested in Madoff funds. Mr Madoff was also accused by US prosecutors of sending valuables to friends and family in violation of a court order. The valuables included Cartier and Tiffany diamond watches, a diamond bracelet, four diamond brooches, a jade necklace and a gold watch. Mr Madoff is on bail and under 24-hour house arrest at his Manhattan apartment.
  • Multilateral trading facility Chi-X raised £12m in additional funding, in advance of what are expected to be challenging conditions in 2009.
  • US regulator, the Financial Industry Regulatory Authority, has fined two units of E-Trade $1m for failing to have proper anti-money laundering procedures in place. The failure related to a lack of automated tools to detect suspicious trading activity.

Credit

  • Analysts expect a record $3,000bn of government bonds to be issued by the developed economies of the US and Europe in 2009 – three times more than 2008. The US issuance is likely to be around $2,000bn and the UK is likely to issue around £146bn ($215bn). January alone is forecast to see $250bn in bond issuance in the US and Europe. However, the glut in government bond issuance could lead to oversupply. The week saw a German government auction of €6bn 10 year bonds only manage to attract bids of €5.24bn.
  • The suicide of Germany’s fifth richest man, the publicity-shy billionaire Adolf Merckle, came as he was struggling to negotiate a bridging loan for his holding company. Mr Merckle controlled a network of about 120 companies employing more than 100,000. Analysts estimate that the holding company, VEM, has about €5bn of debt. Mr Merckle also lost substantial sums by selling VW shares short – his strategy backfired as the price of the shares rocketed when Porsche revealed the extent to which it was interested in VW shares. His family described Mr Merckle as ‘broken’ by the financial crisis and his powerlessness over the fate of the companies he controlled.
  • Houghton Mifflin Harcourt (HMH), the second largest educational publisher in the US, has challenged a Moody’s downgrade of its credit rating. Moody’s estimated that HMH’s debt was 10.5 times ebitda and warned of a likely default under its senior secured loan covenants. HMH’s claims its debt is only 9 times ebitda and it is within covenants.
  • UK housebuilder Taylor Wimpey has informally agreed key terms with its banks and other senior creditors. The agreement involves extending the debt maturities to 2012 in return for a rate increase to more than 500 basis points over LIBOR. In a similar move, Bovis Homes announced a successful renewal of its banking arrangements that involves an increase in funding costs in spite of a commitment by Bovis to reduce its debt facility from £220m to £160m by 2011.

Other

  • Stock market performance for the calendar year 2008 saw the FTSE 100 down 31.3%, the Dow Jones Industrial Average down 33.8%, Shanghai down by 65.4% and Dubai and Moscow both down 72.4%. The worst performer was Iceland, down a staggering 95% over the year.
  • As Barack Obama’s team works on a rumoured half a trillion dollar fiscal stimulus package, Angela Merkel’s German government is about to announce a €40bn to €50bn stimulus package to add to the €12bn announced in November 2008.
  • UK regulator the Financial Services Authority (FSA) is investigating whether businesses have kept their shareholders properly informed in advance of profit warnings. It seems that the FSA is concerned that companies have not updated the market quickly enough.
  • The UK’s Financial Services Authority also announced that it will lift its temporary restriction on short selling financial stocks on 16th January. The restrictions were introduced during the market chaos of September and apply to 34 stocks, including banks, insurers and asset managers. The FSA will retain the requirement to disclose short positions.
  • The UK’s Association of British Insurers (ABI) that represents some of the UK’s biggest investors has relaxed its recommendations in relation to rights issues. The ABI now advises that companies can issue shares worth up to two-thirds of their market capitalisation without asking for approval from existing shareholders. Previously, the limit was one-third of market capitalisation.
  • Estimates from State Street’s WM show that British pension trustees are on average looking at negative returns of about 13% for 2008. The fall is much better than the 30% fall in the UK stock market, mainly due to the fall in the value of sterling.
  • The Chairman of India’s fourth largest software group, Satyam Computer Services admitted to a $1bn black hole in the reported accounts. B. Ramalinga Raju, the founder and Chairman sent a letter to the Board outlining the extent to which he had rigged the accounts and submitting his resignation. It appears that the fraud mainly involved the overstatement of cash and bank balances, and Satyam’s auditors PwC are examining Mr Raju’s letter. Satyam is listed in New York with a secondary listing on Euronext Amsterdam, and NYSE Euronext have suspended the shares. The revelation is already being dubbed ‘India’s Enron’.
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