Manhattan-New York

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

  • The end of the first quarter league tables for M&A advisers saw JPMorgan at the top of the list, followed by Morgan Stanley and Goldman Sachs. The first 3 months of 2009 saw global M&A fall 36% on a year earlier, with governments helping to stem a complete collapse by investing $145.8bn (28% of the total) in banks and insurance companies. The top 10 advisers with deal values and number of deals were as follows: JPMorgan – $207bn, 70 deals;2) Morgan Stanley – $198bn, 61 deals;3) Goldman Sachs – $169bn, 41 deals;4) Citigroup – $139bn, 39 deals;5) Bank of America/Merrill Lynch – $102bn, 45 deals;6) Deutsche Bank – $94bn, 38 deals;7) Credit Suisse – $87bn, 48 deals;8) Barclays Capital – $74, 9 deals;9) UBS $72bn, 46 deals;10) Evercore Partners – $69bn, 3 deals

  • The battle for control of privately held soccer club Arsenal took a decisive shift as one of the UK shareholders agreed to sell one third of his stake to Stan Kroenke, the US sports franchise owner. The deal involved 5,000 shares changing hands at £8,500 each – a total of £42.5m. It will increase Mr Kroenke’s stake from 12.4% to 20.5%, making him a close rival to Uzbek-born Alisher Usmanov who holds 25%.
  • Minmetals, the Chinese company that had its $2.6bn ($1.8bn) agreed takeover of Oz Minerals blocked by the Australian government had submitted a revised bid. The revised bid excludes Oz Minerals’ mine in Canberra that was cited as the reason for the government block – it is located in an Australian military zone.
  • The caretaker board of scandal hit Indian software company Satyam Computer Services expects to sell the company by mid-April in what will be very unusual circumstances. Bidders are being warned that there will be no reliable financial accounts available and that they must come up with their own assessment of the potential liability from shareholder suits. In spite of the uncertainties, seven bidders have emerged already.
  • Spain’s biggest bank, Santander, has sold its 32.5% stake in oil refiner Cepsa to the International Petroleum Investment Company of Abu Dhabi for €2.8bn.
  • Germany’s K+S will acquire US-based Morton Salt for $1.7bn cash to create the world’s biggest salt producer. Morton Salt was acquired by Dow Chemical when it recently purchased its rival Rohm and Haas. Dow will use the proceeds to start the repayment of a $9.5bn short-term loan that was raised for the Rohm and Haas acquisition.
  • Centrica of the UK and EDF of France are in talks about the planned sale of 25% in British Energy. British Energy was purchased by EDF last year for £12.4bn and the two companies have a non-binding agreement that Centrica will buy 25% for £3.1bn, representing the same price paid by EDF. However, electricity prices have fallen sharply since the deal was struck and Centrica is under pressure from shareholders not to overpay.
  • London hedge fund GLG Partners completed the acquisition of SG Asset Management UK from French bank Societe Generale for £4.5m. The business had $8.5bn under management at the end of last year, and marks the first stage in an assault on the market for private investors by GLG.

Financial Institutions

  • Barclays has decided not to take part in the UK government’s insurance scheme designed to ringfence toxic assets. After passing ‘stress tests’ by the UK regulator to assess if Barclays required any additional capital, the bank decided to remain free of government interference. Meanwhile, Barclays own efforts in raising capital by selling iShares are progressing. Barclays has started exclusive negotiations with private equity group CVC Capital Partners in a deal expected to be for about £3bn. The deal will not include the securities lending activities of iShares, just the exchange traded funds business.
  • UK retailer Tesco is hoping to capitalise on consumers’ disenchantment with traditional banks. It will push more aggressively into personal finance products by opening 30 branches of what is likely to be branded ‘Tesco Bank’ in its existing supermarkets before the end of 2009. After running a pilot in Glasgow, three more outlets will open in April in Bristol, Blackpool and Coventry. All will offer existing Tesco Personal Finance products which include insurance, credit cards and savings accounts. Tesco hopes to offer current accounts within 18 to 24 months.
  • European banks are boosting their capital bases by buying back billions of euros worth of junior bonds at substantial discounts to face value, and booking the gains to equity. Amongst the banks are the UK’s Lloyds Banking Group and Royal Bank of Scotland, Switzerland’s UBS and France’s Credit Agricole.
  • The Bernard Madoff ‘Ponzi’ scheme ramifications began to spread when a Massachusetts securities regulator accused Fairfield Greenwich of turning a blind eye to suspicions. Fairfield Greenwich ran ‘feeder funds’ that invested heavily with Mr Madoff, including its Sentry funds that placed 95% of assets totalling $7.2bn in Madoff funds.
  • Joint bookrunners JPMorgan Cazenove and Goldman Sachs are about to discover the take-up for the £12.5bn rights offer from HSBC – the largest rights offer in UK corporate history.
  • Shareholders at the annual general meeting of UK bank Royal Bank of Scotland delivered an angry protest against the controversial pension award to former chief executive Sir Fred Goodwin by rejecting the remuneration report. 90.42% of the votes cast on the report rejected it, however the vote is advisory in nature and is not binding on the bank.

Credit

  • The first quarter was a bumper period for bond issuance, particularly from investment-grade companies. Overall investment-grade debt issuance was $825.6bn, more than twice the same period last year. Government-guaranteed bonds from banks made up 33% of the market, however there were also numerous deals from strong companies opting for the bond markets rather than traditional bank loan facilities. Examples included Roche and Pfizer issuing $39.5bn and $13.5bn respectively to fund acquisitions.
  • Two of the largest finance companies in the US, GMAC and CIT are still unable to issue government-backed debt despite applying almost three months ago. Both entities became bank-holding companies late last year. The move enabled them to both qualify for government equity infusions and gain access to the FDIC’s temporary liquidity guarantee program, which allows banks to issue cheap debt backed by the FDIC’s guarantee. GMAC received $5bn of government funds, and CIT received $2.3bn, but both are still awaiting approval from the FDIC to take part in the guarantee program. The cheap debt is supposed to encourage lending to consumers and businesses.
  • Standard and Poor’s reduced the credit ratings of four large European insurance companies. Dutch insurer Aegon was cut two notches to A-minus. Another Dutch insurer ING, Assicurazioni Generali of Italy and UK’s Aviva were all downgraded one notch to A-plus, AA- minus and A respectively.
  • Oil-rich emirate Abu Dhabi started its planned $10bn bond programme with a successful $3bn issue. A $1.5bn five-year bond was sold at a yield of 400 basis points above comparable US Treasuries, and another $1.5bn ten-year bond was sold to yield 420 basis points above comparable US Treasuries. Abu Dhabi has little need to borrow, but is keen to establish a sovereign yield curve for companies.
  • The European Central Bank cut interest rates by a quarter of a percentage point, from 1.5% to 1.25%.Mining company Anglo American raised $2bn in the US bond markets to complete its plans to refinance $3bn in debt due this year. Anglo American has also sold a residual stake in Anglo Gold Ashanti for $1.7bn.

Other

  • The world’s largest industrial group, General Electric (GE) has started to see ‘glimmer of hope’ in the world economy. These include ‘signs of life’ in US and European retail sectors and a recent rise in the Baltic dry shipping index, a proxy for global trade. However, the executive also added a cautious note – ‘this is not light at the end of the tunnel, but rather some little sparkles’.
  • President Obama is getting ‘tough’ with US carmakers General Motors and Chrysler. Both banks are seeking more government assistance and the President’s auto taskforce has decided further money will not be forthcoming without improved survival plans. General Motors has already received $13.4bn in state-aid and is seeking another $16.6bn. Chrysler has received $4bn and is seeking a further $5bn.
  • The world’s third largest accounting firm, KPMG, is being sued for $1bn by the liquidators of New Century Financial. The US subprime lender collapsed two years ago and the liquidators’ lawyers claim KPMG allowed the lender to understate the size of its bad loan problem.
  • The US Financial Accounting Standards Board (FASB) loosened its so-called ‘mark to market’ rules. The loosening allows companies, including banks, to value assets using their own internal models rather than market prices. Proponents of the changes, such as Citigroup, Bank of America and Wells Fargo, argued that the previous regime unfairly magnified losses by requiring banks to use market prices for assets that are based on ‘fire sales’.
  • The International Accounting Standards Board is also pushing forward with a review of how it accounts for financial instruments, with a draft proposal expected within 6 months.
  • The London G20 summit finished with Gordon Brown declaring it was the ‘day the world came together to fight recession’. He said the global fiscal stimulus amounted to $5,000bn, whilst there was another new $1,100bn programme of support to restore credit, growth and jobs. However, there was some doubt as to the actual new commitments that Mr Brown’s figures included given his reputation for numerical inflation. It seems that the $5,000bn was based on the increase in government borrowing across the G20 since 2007. The $1,100bn is made up of $100bn of aid for the poorest countries from the G20, $500bn from IMF funding, $250bn from allocation of ‘special drawing rights’ from the IMF and $250bn from trade finance and guarantees from G20 countries over a two-year period.

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

/by