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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 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

  • Abu Dhabi-based Aabar Investments is to take a 9.1% stake in Daimler, the German car manufacturer. The deal will see Aabar pay a total of €1.95bn, €20.27 per share, and Daimler will increase it number of shares in issue by 10% to facilitate the investment.

  • Canadian oil company Suncor Energy is to buy rival Petro-Canada for C$19.6bn (£11bn) in an agreed all-share deal, creating North America’s 5th largest oil and gas producer. CIBC and Morgan Stanley advised Suncor, RBC and Deutsche advised Petro-Canada.

  • UK oil and gas company BG Group has won control of Australian group Pure Energy. 70% of the target’s shareholders have said yes, in a deal that could cost BG A$1.03bn (£497m).

  • Pharmaceutical giant GlaxoSmithKline is preparing to take a significant stake (estimated at 10%) in Aspen Pharmacare of South Africa. Aspen has a market capitalisation of R17bn (£1.23bn).

  • The Australian government cited national security concerns as it blocked a A$2.6bn ($1.8bn) bid by China’s Minmetals for Oz Minerals. Oz Minerals has a flagship asset located in a military zone in South Australia.

Financial Institutions

  • US Treasury Secretary Tim Geithner unveiled his detailed plan to take hundreds of billions of dollars of toxic assets off banks’ balance sheets. The scheme will be a ‘public private investment program’ that will see the state subsidise private investors to enable the purchase of the assets. The plan has two schemes – in the first, the government will authorize up to 5 investment managers to raise equity and will match each private equity dollar with a dollar of government equity and a dollar of debt. The money will then be used to invest in mortgage and other asset-backed securities issued prior to 2009, with a triple A rating at origination. Blackrock’s Larry Fink and Pimco’s Bill Gross have already expressed positive interest. The second scheme is designed to remove toxic loans from banks’ balance sheets. It will see investors’ capital matched by government capital, and the combination can be leveraged up to 600% by loans guaranteed by the Federal Deposit Insurance Corporation. The funds can be used to buy bank loans at auction. Private equity firms are expected to be attracted by the high levels of leverage available.

  • Meanwhile President Obama appears to be slowing down the progress of the potential retroactive 90% tax on bonuses that was rushed through the House of Representatives last week. The US president suggested the proposals could violate the constitution and urged Congress not to ‘govern out of anger’.

  • An analysis of the world’s 50 biggest financial institutions 10 years ago and now shows a stunning fall from grace for US entities in particular. In 1999 the list was topped by Citigroup, with a market cap of $150.9bn; Today Citigroup is number 46 with a market cap of $13.7bn. Bank of America was 2nd in 1999 at $112.9bn and is now in 11th at $40.1bn despite having taken over 1999’s 24th placed Merrill Lynch, which had a $30.2bn market cap. Others in the top 50 in 1999 that are no longer in the list include the UK’s Lloyds TSB (previously 4th at $72bn), Fannie Mae, Freddie Mac and Washington Mutual.

  • French bank Societe Generale (Soc Gen) has decided not to proceed with a discounted option award to four of its directors, including its Chairman and its Chief Executive. The bank admitted the plan has sparked ‘strong indignation’ and ‘incomprehension’ amongst the public, staff and clients. Soc Gen has already received a €1.7bn capital injection from the French government.

  • Goldman Sachs is working on a bid for iShares, the fund management business being auctioned by Barclays. Offers are due by the end of the week and other interested parties include Bain Capital and a consortium led by Hellman & Friedman. The value of the business is expected to be as high as $6.5bn. Amongst the beneficiaries of any sale of iShares are more than 200 executives at Barclays who are part of an incentive scheme in which they own 4.5% of Barclays Global Investors, the owner of iShares. Barclays president Bob Diamond is amongst this group, and is set to make millions if the deal goes ahead.

  • Barclays is undergoing stress tests by the UK regulator to assess whether it has sufficient capital. It has until March 31st to apply for the UK government’s toxic asset insurance scheme, and the Financial Services Authority wants to assure itself that Barclays can weather a severe economic downturn. The iShares sale will potentially avoid the need for involvement in the scheme. Barclays is thought to want to avoid joining the government’s scheme because of the interference on pay and bonus incentives that is likely to come with it.

  • Dutch banking and insurance group ING has made a ‘moral appeal’ to its senior managers to return their bonuses for 2008. ING has received €10bn of state support and has asked a total of 1,200 staff to hand back their bonuses on a voluntary basis.

  • Mitsubishi UFJ Financial Group, Japan’s biggest bank, is cutting 2,000 jobs at its head office and closing 50 branches. Rather than blaming the economic downturn, the bank said the redundancies were aimed at ‘realising the benefits of integration’ following its creation through the merger of two banks in 2006.

  • The changes at Merrill Lynch since its takeover by Bank of America continued with two of the biggest names in Wall Street research announcing their departures. Merrill’s chief North American economist, David Rosenberg and chief investment strategist, Richard Bernstein, are both leaving.

  • Goldman Sachs is considering repaying the $10bn received from the US government’s bank recapitalization plan. The bank hopes to be in a position to repay after the first round of the US Treasury’s ‘stress tests’ designed to assess the capital adequacy of the banks. The money could be repaid as early as late April. Goldman is amongst a number of banks considering repaying government money including Bank of America, as Congress debates its retroactive 90% tax on bonuses sparked at AIG.

Credit

  • Oleg Deripaska’s UC Rusal has taken a positive step forwards in its attempts to restructure its debt. It has reached agreement on $2.8bn of debt owed to Mikhail Prokhorov’s Onexim Group. The deal involves exchanging $2bn of debt for 4.5% equity stake in UC Rusal and restructuring the remaining $800m. UC Rusal is attempting to restructure another $14bn of debt owed to foreign creditors and Russian banks.

  • The world’s biggest steelmaker ArcelorMittal issued €1.1bn in convertible bonds that was 5 times subscribed. The five-year bonds will pay a 7.25% coupon and are convertible once ArcelorMittal’s share price rises 32.5% above the price at issue of approximately €15. The Federal Reserve Bank of New York started buying old Treasury securities from dealers – it purchased $7.5bn of a total of $21.9bn offered by primary dealers.

  • The Fed is planning to buy a total of $300bn over the next six months. California raised $6.54bn with its largest bond sale since 2004. It boosted the size of the deal from $4bn after massive demand from individual US investors, attracted by the yield. California is rated single A and the bonds are yielding up to 6.1%.

  • The UK’s Debt Management Office suffered embarrassment and then success. The embarrassment was its first gilt auction failure in 7 years. The auction of £1.75bn of long-dated bonds maturing in 2049 did not manage to attract sufficient buyers, falling some 7% below its target. However, just 24 hours later there was strong demand for the auction of £1.1bn of 2022 index-linked bonds. Bids for close to £3bn were received, and the average yield was 1.375% – much better for the DMO than the 1.875% yield the last time index linked gilts were auctioned in October.

  • The Bank of England kicked off the £50bn corporate bond portion of its quantitative easing, buying £87m of debt. The bank bought 17 different corporate bonds included Anglo-American, British Telecom, Cadbury Schweppes, Vodafone and WPP.

  • Pearl Group, the unlisted vehicle that took over UK life assurance investor, Resolution, has deferred making a £33m interest payment on some of its bonds. Quoting the ‘current environment’, the company is instead evaluating making an offer to buy back the bonds at just 12.5% of their £500m face value.

  • S&P downgraded Tata Motors from BB minus to B plus and said it was keeping the company on ‘creditwatch with negative implications’. S&P cited deteriorating cash flow since Tata spent $2.3bn on Ford’s Jaguar and Land Rover marques last year.

  • Porsche announced a loan refinancing for a €10bn loan, involving 15 banks that included Barclays Capital, Commerzbank, Deutsche Bank and Credit Suisse. It also announced that for the first time it will be seeking credit ratings from the agencies.

  • Songbird Estates, the owner of 61% of Canary Wharf Group warned there was a ‘material risk’ of a breach of a key covenant. The debt of £880m to Citigroup is due to be refinanced by May 2010 and plunging property values mean its loan-to-value ratio is at 86.1%. The covenant limit is 87.5%. The warning brought about a 19% fall in Songbird Estates’ share price.

  • UK directory company Yell has a debt mountain to climb. Its net debt stands at £4.3bn against an equity market capitalisation of £102.1m. The lead lending bank is HSBC, and Credit Suisse estimates that equity now represents only about 2% of Yell’s enterprise value.

  • Abu Dhabi’s upcoming $10bn bond program was given a boost with a AA/Aa2 rating from S&P, Fitch Ratings and Moody’s. The initial tranche of $2bn-$3bn is currently being marketed on roadshows in the US and London.

Other

  • The International Organisation of Securities Commissions (IOSCO), a forum for regulators of more than 100 countries, is proposing common principles to help create a more consistent approach to short selling. It had commissioned a study that said that shorting was ‘a beneficial feature of a well-run and well-functioning market’ and that it did not exacerbate the market turmoil in the last quarter of 2008.

  • UK insurer Legal and General made the first dividend cut in its history. It reported heavy losses and halved the dividend to 2.05p per share.

  • UK engineering conglomerate Smiths Group saw its shares fall more than 14% as it announced its pension deficit had increased from £11m last July to £464m at the end of January. The chief executive said the rise in the deficit was largely due to the fall in global equity markets – 43% of Smiths’ pension funds are invested in equities.

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

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