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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 caught up in the pomp and circumstance surrounding the inauguration of the new U.S. president to have kept up with all the news, contributor Martin Mitchell has gathered some important market events from last week to help you start this week well informed:

Mergers and Acquisitions

  • BAA has received at least 6 indicative bids for London Gatwick airport. The price is likely to be around £1.7bn to £1.8bn. The confirmed bidders are:- A consortium of Canadian pension funds including Ontario Teachers and Canada Pension Plan plus 3i Infrastructure. The consortium is being advised by Rothschild and Macquarie.- Global Infrastructure Partners, being advised by Credit Suisse and JPMorgan.- Gatwick Future Partnership, led by Babcock and Brown European Infrastructure Fund and RREEF, the Deutsche Bank infrastructure fund.- Lysander Gatwick Investment, a consortium of Citi Infrastructure Investors, Canada’s Vancouver Airport Services and John Hancock Life Insurance of the US.- Hochtief AirPort, part of Germany’s largest construction group.- Manchester Airport Group along with Borealis, the Canadian infrastructure fund.
  • New Star Asset Management, the troubled fund management group controlled by its bankers after a debt for equity swap, is hoping to be able to announce a buyer this week. New Star’s bankers (HBOS, Lloyds TSB, HSBC, RBS and National Australia Bank) have been soliciting offers after they converted £260m of debt into £94m of preference shares and a 75% stake. Initially an indicative price was set at £115m, but that is in doubt given a current market capitalisation of just £10.45m.
  • Troubled US insurance group AIG started the sales process for its Asian life assurance unit (American International Assurance). AIG is hoping to raise up to $20bn, and sent out the sales memorandum to potential bidders including China Life, HSBC and Prudential. The unit is regarded as the jewel in AIG’s , with 20m policy holders across 13 countries, it made an operating profit of around $2bn last year. AIG is being advised by Blackstone, Goldman Sachs and Citigroup.
  • The UK’s Co-operative Financial Services group and Britannia, the UK’s 2nd largest building society, are set to merge, creating a ‘supermutual’. The deal will form a group with £70bn of assets, 9m customers and 300 branches. Britannia was advised by Citigroup and Allen and Overy, the CO-op by JPMorgan and Slaughter and May.
  • Alexander Lebedev, a Russian oligarch and former KGB officer has purchased the London Evening Standard from Daily Mail and General Trust (DMGT). The Evening Standard is loss-making and has been sold for about £1 and DMGT is retaining a 24.9% stake.
  • A $5bn deal to sell the world’s 3rd largest shipbuilder, Daewoo Shipbuilding and Marine Engineering, has collapsed after South Korea’s Hanwha Group failed to secure the required funds.
  • Irish airline Ryanair’s offer for Aer Lingus was dealt a fatal blow by the Irish government. The government holds a 25% stake in Aer Lingus and rejected Ryanair’s offer on the basis of it creating a ‘virtual monopoly’ in air transport on the island. Ryanair’s offer contained a 90% acceptance condition.
  • The planned merger between British Airways (BA) and Spain’s Iberia could face problems. The merger was due to be based on comparative market capitalisations – when it was first revealed, BA would have been 65% and Iberia 35% of the merged entity, now the relative market cap is 50.4% Iberia and 49.6% BA. BA Chief Exec Willie Walsh said the ‘present valuation was unacceptable – our shareholders would not accept it’.
  • US pharmaceuticals group Pfizer is in talks to acquire rival Wyeth in a deal that would create a group with a combined market value of about $60bn.
  • Japan’s Asahi Breweries is buying a 19.99% stake in China’s biggest beer company Tsingtao from Anheuser Busch InBev for $666.5m. The proceeds will help the newly created AB InBev in its efforts to pay back a $7bn bridge loan that has to be repaid by the end of the year.
  • Again in pharmaceuticals, GlaxoSmithKline has agreed to purchase Belgium-based UCB’s portfolio of marketed medicines in emerging markets for £486m.

Financial Institutions

  • UK Prime Minister Gordon Brown’s latest bail out plan for the banking sector involves the government providing insurance against risky assets. The banks taking up the offer will have to pay a fee, payable in cash, or potentially preference shares and bear the first 10% of any losses. Crucially for the government, the banks taking up the insurance will have to sign up to explicit lending targets.
  • The Royal Bank of Scotland (RBS) will be the guinea pig for the government’s insurance scheme. It made a preliminary announcement of dismal 2008 results – the loss of £28bn is the biggest in UK corporate history. £20bn is due to goodwill writedowns, including the goodwill from the ABN Amro acquisition. In response the RBS share price fell 67% in a day to 11.6p, giving it a market capitalization of just £4.5bn, a fraction of the £78bn it was just 18 months ago.
  • UK regulator the Financial Services Authority (FSA) issued a statement on bank capital aimed at helping to ease the financial crisis. In essence, the FSA is suggesting that UK banks have tier one capital of 6-7 per cent of risk-weighted assets at this low point in the economic cycle. At the same time, banks are being allowed to measure the probability of default based on an average calculated over the course of the economic cycle, rather than the most recent available data. Both measures should ease the strains on banks’ balance sheets.
  • In a further move to help the banks, the FSA is holding talks with top auditors to try to ensure that their accounts are not qualified on going concern worries. The possibility of qualification has been reduced by the Bank of England announcing an extension of its special discount window from a one-month limit to a full year.
  • US custody bank State Street reported a 71 per cent fall in quarterly net profits, triggering a near halving of its share price.There is a possibility that the US Securities Investor Protection Corp may be able to recover profits that have been paid out to investors in Bernard Madoff’s funds. This is because the profits in the pyramid scheme were ‘illusory’, and there is legal precedent to recover such payouts.
  • Questions are being asked about Santander’s risk management processes, after it was revealed that it praised Bernard Madoff’s ‘impeccable’ market timing and his ability to ‘find great entry and exit points to benefit investors’. The investors in Santander’s Optimal hedge fund were amongst the biggest losers in the Madoff scandal.
  • Just three weeks after closing the purchase of Merrill Lynch, Bank of America ousted Merrill’s chief executive John Thain. The decision came after Merrill’s revelation a week ago of a $15bn loss in the fourth quarter, and Mr Thain’s decision to accelerate Merrill’s bonus plan for 2008 by paying out $4bn in discretionary bonuses on December 29th – just 3 days before the Bank of America acquisition was completed.
  • Frits Seegers, chief executive of Barclays’ retail and commercial division, pledged almost 900,000 shares in the bank as collateral for a loan to buy more shares. The loan was taken out from his former employer, Citigroup. Since the loan, Mr Seegers has purchased 140,000 shares at £6.80, a further 50,000 at £5.94 and another 122,000 at £5.73. The shares are currently trading at around 59p.
  • The threat of nationalization of UK banks is putting pressure on the value of hybrid instruments that count towards Tier One capital. Royal Bank of Scotland’s tier one bonds have fallen to just 10p in the £, and newly issued Lloyds Banking Group bonds fell from 100p to 52p over the week.

Credit

  • The UK government also announced an ‘Asset Purchase Facility’ aimed at improving financial stability and easing credit constraints for large non-financial corporates. The facility will involve the Treasury providing £50bn to the Bank of England to spend buying high quality corporate debt from Feb 2nd onwards. The funding will be raised by issuing Treasury bills.
  • In an indication of potential strains in the Eurozone, Standard & Poor’s reduced the credit rating of Spain from triple A, to double A plus.
  • Non-financial European companies sold $15.2bn of bonds in the last week, with issuers including well-known entities like Gaz de France, Daimler and Deutsche Telekom. Amongst them was junk bond rated German healthcare group Fresenius that sold $850m of bonds priced to yield between 10.25% and 10.5%.
  • Lenders to troubled UK leisurewear retailer JJB demanded £8.3m for continuing to finance its debt of about £60m. The lenders, Barclays, HBOS and Kaupthing, agreed the fee in December for extending access to credit until the end of January.
  • Oleg Deripaska’s UC Rusal is considering seeking a standstill agreement to give it time to restructure it $17bn of debts. The lenders include more than 70 banks. The standstill will be an agreement from Rusal’s lenders not to take any unilateral action to enforce any of their debt claims against the company. Rothschilds is providing the restructuring advice.
  • UK retailer Debenhams has appointed Lazard as financial adviser with a brief to revise the department store chain’s capital structure. Debenhams has about £900m of debt and is expected to make £240m in EBITDA this year. Lazard will consider an equity raising, covenant waiver and renegotiating the maturity of the debt beyond the existing 2011 repayment deadline.

Other

  • A preliminary investigation into the $1bn fraud at Satyam, the Indian outsourcing company listed in Bombay, New York and Amsterdam, has shown ‘serious irregularities in the preparation of the balance sheet’. Indian authorities also claimed that the former chairman inflated the size of the company’s workforce by nearly one quarter and siphoned off the wages of fake employees.
  • Thomson Reuters launched an ‘independent consolidated tape’ that pulls together prices for the most liquid listed equities across exchanges and other trading facilities throughout Europe. The data should be attractive to asset managers given the fragmentation caused by the proliferation of share trading facilities since the enactment of the EU markets in financial instruments directive (MiFID).
  • UK audio chipmaker Wolfson Microelectronics has been fined £140,000 by the FSA for failing to reveal inside information quickly enough. Wolfson took 17 days to reveal contract losses that could reduce revenue by 8%. The contract was to supply audio chips to some of Apple’s devices.
  • Tullow Oil made a successful placing of just over 9% of its shares for £400m. The money was raised through a structure known as a ‘cash box issue’ that enabled the placing to be made on a non pre-emptive basis despite exceeding 5%. The 5% limit is raised to 10% when the money is used for an acquisition, and the ‘cash box’ approach creates a vehicle that allows Tullow to make an acquisition, although it is not buying another business. The method has previously been used by Logica.
  • Amongst concerns about a sharp downturn in equity trading, multilateral trading facility Turquoise has announced it has raised enough money to cover the rest of the year.
  • As developers of the Olympic village and media centre for the London 2012 Olympics struggle to raise funds to meet their planned contributions, the UK Chancellor has released over a quarter of the £2bn set aside in contingency reserves to keep the project on track.
  • The US government is in talks to sell its London embassy in Grosvenor Square to Chelsfield Partners, a property company backed by the Qatar Investment Authority for a sum thought to be around £300m to £400m.
  • In a rare positive for investment bankers, dozens of British companies are preparing to issue fresh equity in the coming weeks. The companies are thought to include Wolseley, Premier Foods, Debenhams, Chaucer and a list of property companies including British Land and Land Securities. The equity issues will help offset the burden of debt and raise finance to enable the purchase of assets at distressed prices.

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

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