In Case You Missed It: News Round-Up

Contributed by Martin Mitchell of the Corporate Training Group

In case you were too busy 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

• As expected, pharmaceuticals group Pfizer unveiled a $68bn takeover of Wyeth.The bid is to be paid for using equal amounts of cash, equity and debt. The news will be good for the seven advising banks that could earn as much as $150m in fees. The lucky recipients are three lead financial advisers for Pfizer (Bank of America/Merrill Lynch, Goldman Sachs and JPMorgan Chase) plus another two financial advisers (Barclays and Citigroup), the advisers to Wyeth are Morgan Stanley and Evercore Partners.
• Dow Chemical’s planned $15bn takeover of Rohm & Haas is in jeopardy since Dow does not have the funds to close the deal. The deal was struck last summer before valuations collapsed and Dow saw a potential cash infusion of $9.5bn from Kuwait for a planned joint venture vanish. However, the US Federal Trade Commission has now cleared the deal, which under the original terms means Dow should now complete the takeover. Dow is scrambling to get together the finance and is considering cutting its dividend. This would save around $1.6bn, but Dow has not cut its dividend since 1912! Rohm & Haas have asked a US court to enforce the transaction at the original price.
• Swiss drugmaker Roche launched a surprise $42bn hostile bid for the 44% of Californian biotech company Genentech Inc that it doesn’t own. It bid $86.50 per share against an $89 per share bid that was rejected in August.

Financial Institutions

• UK bank Barclays adopted a highly unusual step of publishing an open letter to confirm that it made profits of more than £5.3bn last year and does not need to raise fresh capital. The news sparked a share price rise of 73% in a day, and also a wider rally across other UK banks Royal Bank of Scotland and the newly formed Lloyds Banking Group.
• Meanwhile, hedge fund Paulson & Co is reported to have made a profit of at least £270m betting on a fall in the price of Royal Bank of Scotland shares in the last 4 months.
• John Thain, the recently ousted head of Merrill Lynch, reacted to recent criticism. He admitted that spending $1.2m to redecorate his office suite was ‘a mistake’, and insisted that Bank of America was fully aware of the payment of $4bn of bonuses to Merrill staff just before the B of A takeover.
• Bank of America itself is planning to defer the bonuses for its capital markets and investment banking staff. Reports say bonuses of $50,000 or more will not be paid in February 2009, but deferred and paid in three equal instalments in February 2010, February 2011 and February 2012!
• After receiving SwFr 6bn of Swiss government assistance last year, UBS has been told that it will have to slash bonuses by more than 80%.
• Elsewhere, it was revealed that Citigroup plans to accept delivery of a $50m corporate jet. Apparently the jet was ordered more than two years ago and cancelling the order now would trigger a multi-million dollar penalty. The Citigroup statement caused uproar in the light of the US government’s $45bn bailout. The following day Tim Geithner, the US Treasury secretary forced Citi to scrap the plan. Citi issued a one line statement saying ‘we have no intent to take delivery of any new aircraft’.
• Later in the week another problem for Citigroup arose when a $400m deal to name a new stadium for the New York Mets baseball team was revealed. The stadium is to be called ‘Citi Field’. Two New York City councilmen are less than happy with the deal, but Citi say that the legally binding arrangement was signed 2 years ago. The councilmen proposed renaming the stadium ‘Citi/Taxpayers Field’ in the light of the $45bn government bail out.
• Spanish bank Santander has made an offer to repay victims of the Madoff pyramid scheme in a bid to preserve its reputation and stave off lawsuits. Santander has said it will offer to repay 100 per cent of investments made in its Optimal Strategic US Equity fund that was wholly invested with Mr Madoff. The repayments will amount to €1.38bn in the form of Santander preference shares paying 2% per annum in exchange for the investors agreeing not to sue. The announcement came a day after victims of the Madoff scheme filed a lawsuit against Santander and the Optimal fund in Florida, accusing the bank of gross negligence.
• Iceland’s largest remaining listed bank Straumur-Burdaras is planning to shift its stock exchange listing and legal domicile to either London or Stockholm. The move is hoped to distance the bank from the financial crisis in Iceland.
• Japanese bank Nomura announced a third quarter loss of Y349.2bn ($3.9bn) including Y60bn in costs from the Lehman deal, Y43bn on exposure to Icelandic banks, Y32bn in relation to the Madoff pyramid scheme and a Y62.3bn writedown on its 15% in US hedge fund, Fortress.
• Wells Fargo, the San Francisco-based bank, revealed a $2.5bn loss for the last quarter of 2008. Surprisingly, the loss included a $294m charge related to clients who were impacted by the Madoff fraud. The charge related to clients that borrowed from Wells Fargo to fund investments in Madoff’s funds.
• The National Bank of Kuwait has decided to fully reimburse all clients who lost money in Madoff funds – paying out both the principal and the gains, despite the fact that the gains may have been fictitious. The reimbursement has cost NBK around $50m.
• UK fund manager Henderson sealed a £115m deal to buy New Star Asset Management, paying £21.6m for the ordinary shares (just 2p each), £73m for the preference shares and £20m for the remaining debt. New Star had recently undergone a debt for equity swap as it struggled with its debt levels.

Credit

• UK do-it-yourself chain Focus’ chief executive has called on the UK government to investigate the behaviour of credit insurers. The large credit insurers, Euler Hermes, Coface and Atradius have all started to withdraw or reduce cover in the recession. The Focus DIY chain chief exec branded them ‘fair weather friends who don’t go into enough detail.’
• Evidence of the withdrawal of insurance cover came later in the week when Euler Hermes withdrew cover for the suppliers of Gala Coral, the private equity owned gambling group. Gala Coral has net debt of £4.3bn, and last year made a pre-tax loss of £397m whilst it received £125m from its private equity backers to avoid breaching banking covenants.
• Sources of finance to US companies considering Chapter 11 bankruptcy are drying up in the credit crisis, according to a report from Standard and Poor’s. So-called ‘debtor in possession’ finance is vital for companies seeking a second chance and the worry is that its disappearance will push more companies into liquidation.
• Luxury yacht maker Ferretti, already in talks with its banking syndicate about restructuring its €1bn plus debts, is potentially going to require more money from its private equity owner as a result of collapsing sales. The company is owned by Candover, who had planned to list Ferretti on the Milan stock exchange until a few months ago.
• Argentina is planning to swap domestic bonds for longer dated paper in order to ease its 2009 debt servicing costs. The domestic bonds pay a variable rate linked to inflation, and the new five year bonds will pay a fixed rate for the first year. The hope is to save about $1bn in servicing costs.
• Rio Tinto are considering selling more equity to help repay $10bn of debt. A rights issue of around £2.8bn is thought to be under consideration.
• Nokia, the world’s biggest mobile phone maker, raised €1.75bn in 5 and 10 year paper in its first international bond offering. Demand for the bonds totalled €9bn. Nokia paid 299 basis points over the equivalent Bunds for the five year bonds and 355 bp over Bunds for the 10 year paper. Citigroup, Deutsche Bank, Goldman Sachs and JPMorgan managed the deal.
• Nigeria is planning to launch its first international bond, hoping that a $500m offer of 10 year bonds will lay the foundation for future bond issues by Nigerian companies and create an international benchmark for sub-Saharan Africa’s second biggest capital market.
• Ford Motor revealed it was drawing down $10.1bn from its credit lines. Ford is burning cash rapidly, having used up $5.5bn in its fourth quarter and $7.7bn in the previous quarter. It finished 2008 with a cash balance of $13.4bn.
• GE’s “triple A” credit rating that has stood since 1967 could be at risk. Standard and poor’s issued reports arguing that it will struggle to keep the grade. GE has decided to stick to its plan to pay out a $13bn dividend, and analysts feel the choice for GE’s management is to pay the dividend and lose the “triple A rating”, or cut the dividend and preserve it.

Other

• Indian police have detained two PwC auditors in their probe into the Satyam Computer Services scandal. The pair are being interrogated in relation to the former chairman of Satyam’s claim that he fixed the accounts for several years. In response to the detention, PwC’s global head has flown to Mumbai to help deal with the crisis. PwC has suspended the two auditors from its Indian arm that led the Satyam audit.
• Swiss mining group Xstrata announced a large equity fund-raising. In common with other companies, Xstrata is looking to bolster its balance sheets and offset the drying up of the debt markets. Xstrata is looking to raise £4.1bn through a two for one rights issue at £2.10 per share – a substantial discount to the current share price of around £6.50. The rights issue has a controversial aspect too – Xstrata’s 35% shareholder, Glencore, is being allowed to take up its rights in exchange for coal mines in Colombia. The mines are being valued at £2bn and Glencore retains an option to buy them back in one year for £2.25bn. There is some concern that Xstrata is helping out Glencore at the expense of the minority shareholders. Deutsche Bank and JPMorgan are underwriting the rights issue.
• A survey of 50 big UK businesses by KPMG has shown that 145 of them are considering moving their tax base out of Britain. A year ago, only 6% were considering a move.

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