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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

  • In its contingency plans for its European unit in the event of filing for bankruptcy in the US, General Motors is prepared to part with a controlling stake in its Opel/Vauxhall subsidiary effectively for nothing. An investor will be asked to pay at least €500m for the equity, but General Motors will inject the proceeds into Opel/Vauxhall.
  • Three major M&A deals were announced on the same day – Oracle agreed to buy Sun Microsystems for $7.4bn, Glaxo SmithKline agreed to buy Stiefel Laboratories for $3.6bn and PepsiCo offered $6bn in cash and stock to buy out investors in its two biggest bottling units.
  • Volkswagen is considering making a bid for Porsche’s automotive business. A bid would help relieve the net debt burden of Porsche’s parent company Porsche SE that currently stands at €9bn. The estimated bid price is thought to be in the €6bn to €9bn range. Porsche’s parent would still retain an interest since it would keep its 50.76% holding of Volkswagen.

Financial Institutions

  • UBS sold Pactual, its Brazilian investment banking arm back to its founders for $2.5bn – the same price it paid three years ago to acquire it. The sale should boost UBS’s Tier 1 capital ratio by around 0.6%.
  • Bank of America’s first quarter results beat expectations. The $4.2bn earnings were largely the result of the recently acquired Merrill Lynch contributing $3.7bn.
  • There were also revelations about the discussions surrounding Bank of America’s takeover of Merrill Lynch between CEO Ken Lewis and US Treasury Secretary at the time, Hank Paulson. The discussions, which also involved Chairman of the Federal Reserve Ben Bernanke, appear to have required Lewis to keep revelations about losses at Merrill’s from becoming public to keep the deal on track. It also appears that Lewis was considering invoking a ‘material adverse change’ clause as Merrill’s assets deteriorated and Paulson threatened that the entire board of Bank of America would be removed if it reneged on the deal.
  • Allied Irish Bank (AIB) has agreed with the Irish government on a €5bn state backed recapitalisation. The Republic of Ireland government will contribute €3.5bn and AIB will have to raise the remaining €1.5bn.
  • Citigroup’s annual general meeting saw CEO Vikram Pandit saying the troubled group will bounce back and promising investors a ‘bold new beginning.’
  • The three large US custody banks all suffered in the face of the fall in global markets in the first quarter. State Street saw assets under custody fall 24% to $11,300bn. Bank of New York Mellon cuts its dividend from 24 cents to 9 cents and Northern Trust saw assets under custody fall 29% to $2,800bn.
  • Morgan Stanley’s first quarter results saw a larger than expected loss and a major cut in the dividend. The bank reported a $578m loss, after a $1.5bn charge from a rise in the price of its debt and a $1bn writedown on its real estate portfolio. The quarterly dividend was cut from 27 cents to just 5 cents in an effort to conserve capital.
  • Credit Suisse announced first quarter profits, with chief executive Brady Dougan expressing cautious optimism. In the quarter investment banking delivered SFr2.41bn before tax and private banking SFr992m before tax. The net result was a profit of SFr2bn (€1.3bn).
  • Mubadala, one of Abu Dhabi’s most active investment vehicles released its first annual report showing losses of Dh11.8bn (€2.5bn) for 2008. Mubadala is mandated to help diversify Abu Dhabi’s economy away from oil by attracting business to the Emirate through joint ventures, acquisitions and Greenfield ventures.
  • Chairman of Barclays, Marcus Agius suffered unusual wrath from shareholders when his reappointment was voted on at the Annual General Meeting. More than 16% of the total vote opposed Mr Agius’ reappointment as a result of Barclays’ decision to turn to Middle Eastern investors, rather than existing shareholders, to raise capital.
  • Nomura unveiled its worst set of annual results ever, reporting a net loss of Y709.4bn ($7.3bn) for year to March 2009. With the exception of the asset management business, all of Nomura’s businesses suffered losses – the retail division lost Y5.5bn before tax, the global markets unit lost Y130.8bn before tax and the investment banking division lost Y41.3bn before tax.

Credit

  • Heineken has purchased 30% of the senior debt in UK pub operator the Globe Pub Company. The £60.2m of Class A1 securitised debt was bought at an undisclosed discount. Globe has been facing an uncertain future since breaching its banking covenants and then defaulting on a £257m loan. Heineken’s motivation is thought to be protecting its lucrative beer supply contract with Globe’s 424 pubs.
  • Chile became the only country to get upgraded by Moody’s since the financial crisis began. After accumulating around $22bn from booming copper prices, Chile’s rating has been increased from A2 to A1.
  • Japan is set to issue an extra Y10,800bn of government bonds this fiscal year to fund the bulk of its $154bn stimulus package. Other large borrowing programmes in the face of the global recession include the US $2,000bn, the eurozone’s €800bn and the UK’s £180bn.
  • California sold $6.85bn in bonds, including $5.23bn of so-called Build America Bonds or Babs. Babs take advantage of the Federal government’s stimulus package that reimburses 35% of the interest cost of such bonds. The Californian Babs have maturities of 25 and 30 years and the net interest rate is 4.83%. Goldman Sachs lead managed the issue.

Other

  • Marketing for the IPO of China Zhong Wang has started in what is expected to be the world’s largest initial public offering so far this year. China Zhong Wang’s IPO managers Citic Securities, JPMorgan Chase and UBS are expecting the Hong Kong listing to raise up to $1bn. The last billion dollar IPO was China South Locomotive that raised $1.6bn in August 2008, and the largest so far in 2009 was Mead Johnson, a US-based paediatric nutrition company that raised $828m in February on the New York Stock Exchange.
  • After last week’s announcement that the Deutsche Borse plans to launch a pan-European trade platform designed to take on the London Stock Exchange, figures were revealed about the proportion of FTSE 100 shares traded across various venues – the LSE has around 75%, Chi-X has 16.7%, Turquoise has 4.5%, BATS has 3.4% and Nasdaq OMX Europe has 0.2%.
  • Chi-X announced plans to launch a ‘dark pool’ trading facility in the second quarter called ‘Chi-Delta’.
  • European competition authorities launched an investigation into alliances between some of the world’s biggest airlines. The agreements being looked at are between Air Canada, Continental Airlines, Lufthansa and United Airlines (Star Alliance members) and between American Airlines, British Airways and Iberia (Oneworld Alliance members). The concerns surround levels of co-operation that are ‘far more extensive’ than that amongst alliance members generally.
  • The European competition authorities were also facing criticism from the head of Germany’s Bundesbank. Axel Weber warned that they risk making the global crisis worse by forcing banks benefiting from government support to refocus their credit and lending on their national markets. Brussels hit back by accusing Mr Weber of ‘clear misunderstanding’ and being ’misinformed.’
  • Tesco delivered another year of record profits despite the recession. Trading profits rose 8.8% to £3.1bn with an impressive best-in-class trading margin of 6.2%. However, there were also negatives with net debt ballooning to £9.6bn from £6.2bn a year earlier, and a slower than expected pace of expansion of the US ‘Fresh and Easy’ chain.

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

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