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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

  • The Financial Times reflected on how the mergers and acquisitions market has reacted to the absence of bank debt by moving to asset swaps to get deals done. Effectively the deals use the oldest form of commerce – exchanging one asset for another, or bartering. Examples include: 1) March 2008, Santander and General Electric, deal value $3.2bn; 2) May 2008, Suez and ENI, deal value $2.7bn; 3) July 2008, Mitchells & Butlers and Whitbread, deal value $121m; 4) May 8th 2009, Verizon Wireless and AT&T, deal value $2.35bn; 5) May 11th 2009, Centrica and EDF, deal value $3.5bn; 6) May 12th 2009, Aspen Pharmacare and GlaxoSmithKline, deal value $320m

  • Metro, Germany’s largest retail group, has called on Berlin to reject an application for state support from rival Arcandor. Instead, it wants to merge the two group’s department stores. Arcandor is asking the German government for a mixture of credit guarantees and loans as it seeks to refinance €700m of debt by mid June.

  • Japan’s Daiwa SMBC is to buy the London-based financial advisory business of Close Brothers for net cash of £67m. The division, Close Brothers Corporate Finance, employs around 200 people. After the disposal, Close Brothers will concentrate on its more profitable banking, securities and asset management divisions.

  • At least three bidders will make formal offers for a stake in General Motors’ European operations. Brussels listed RHJ International, Fiat and Canada’s Magna are all serious contenders in the deal that could cost €650m. The German government is set to provide a €1.5bn bridge loan to General Motors’ Opel subsidiary to fund it through the takeover process, although competitor Ford is concerned that the loan could breach EU state aid or competition policy.

  • The deal for Lufthansa to buy the majority (51%) stake in UK airline BMI from its chairman Sir Michael Bishop may not go ahead unless Mr Bishop agrees to inject more capital into the airline. The German airline owns 30% minus one share and is being forced to buy Mr Bishop’s stake under the terms of the original contract, but it is arguing that the contract requires BMI to have ‘the funds it needs to operate’, or else it will walk away. Mr Bishop has issued proceedings in the High Court in London to try to enforce the original contract.

  • One of the two remaining bidders for London Gatwick airport, Global Infrastructure Partners has dropped out of the bidding process. Gatwick’s owner Ferrovial is now left with just one consortium – Manchester Airports Group and Borealis, the Canadian infrastructure fund. The price is in the region of £1.4bn and the consortium has not yet finalised agreements with banks regarding funding.

  • The ongoing saga at Anglo-Australian mining company Rio Tinto regarding the deal it has entered into with China’s Chinalco may be nearing a conclusion. Chinalco has agreed to offer concessions in its proposed $19.5bn investment in Rio Tinto, including reducing the resultant stake from 18% to 15%. The reduction would make it much less likely that the Australian Foreign Investment Review Board would block the deal.

  • Merck’s planned $41bn takeover of Schering-Plough is threatened by a legal action from Johnson & Johnson (J&J) to seize control of two drugs. Rights to sell the two drugs concerned outside the US are currently held by Schering-Plough and one of the drugs generated $2bn in sales last year and other is forecast to deliver $1bn in sales this year. There is a clause in the deal that a change in control allows J&J to reclaim the sales rights.

Financial Institutions

  • Sir Victor Blank, the chairman of the UK’s Lloyds Banking Group, announced that he will step down before June 2010. The announcement is thought to be an attempt to restore the bank’s credibility after the much-criticised takeover of HBOS.

  • The US authorities are planning to let five or six big financial groups to repay their troubled assets relief programme (Tarp) funds. The decision will avoid the possibility of lenders vying for the ‘bragging rights’ of being the first to repay. The timing and the groups to be involved are still under discussion, but Goldman Sachs, JPMorgan Chase and American Express are all expected to be included after passing the recent stress tests without the need for additional funds.

  • UK Financial Investments (UKFI), the body managing the UK government’s 43.5% stake in Lloyds Banking Group and the 70% stake in Royal Bank of Scotland has begun to sound out sovereign wealth funds and other investors about selling its stakes. The process of selling the stakes is thought likely to commence within a year.

  • It was revealed that the investment banker at the centre of Hong Kong’s highest profile insider dealing trial had his trades approved by Morgan Stanley compliance officers. Du Jun worked in Morgan Stanley’s fixed income department and was working in teams advising Citic Resources on a bond offering and hedging deal. Mr Du spent HK$86m ($11m) acquiring shares in Citic Resources and the deals were allowed by compliance despite Citic Resources being on the Morgan Stanley watch list.

  • Morgan Stanley was again caught up in a disciplinary scandal when the UK regulator FSA banned a former Morgan Stanley oil trader for 2 years. The trader hid potential losses of $10m on trades after returning from a three and a half hour lunch under the influence of alcohol.

  • Citigroup lost one of its most senior investment bankers in Europe as Christopher Williams quit to join Credit Suisse. Mr Williams was global co-head of Citigroup’s financial institutions group and has left to become vice-chairman of investment banking at Credit Suisse. Mr Williams has been one of the leading advisers to the UK government on its bail-out plans for UK banks.

  • Citigroup is also ramping up efforts to slash technology costs. Citigroup management believe it can save more than $1bn this year by integrating hundreds of systems.

  • In an effort to restart trading in illiquid toxic assets, the Federal Reserve will provide loans to finance the purchase by investors of commercial mortgage backed securities. The plan involves loans to buy triple A rated securities, although the Fed will reserve the right not to finance any securities it deems are too risky. There will be a 15% ‘haircut’ applied and loans will be offered on a first come, first served basis.

  • Investors in AIG will soon receive $843m put aside as part of a 2006 settlement with the Securities and Exchange Commission for accounting misstatements. The money is the latest and largest of the so-called ‘fair funds provisions’ introduced under the Sarbanes Oxley Act – which granted the SEC increased authority to distribute civil penalties and ill-gotten gains to investors.

  • Bank of America (BofA) wants to pay back the $45bn bail-out money from the US government by the end of the year. BofA first needs to raise at least $33.9bn of new capital as a result of the Federal Reserve’s stress tests, and has already raised $13.5bn by selling common stock and $4.5bn by selling a stake in China Construction Bank. It is also thought to be considering selling other assets such as private bank First Republic, administration business Financial Data Services and insurer Balboa.

  • The London Stock Exchange is considering a push into derivatives with a possible strategic alliance in energy derivatives with TMX, the Canadian Exchange. Similar moves are taking place in Australia where the Australian Securities Exchange is planning to launch a range of energy-related derivatives.

  • Barclays has started talks about selling its asset management division BGI. The rumoured interested parties in the division that manages $1,047bn of assets include BlackRock, Bank of New York Mellon and Vanguard. Meanwhile, CVC Capital Partners is sitting on the sidelines, presumably expecting to receive the $175m break fee if Barclays brushes aside its $4.2bn deal to buy the iShares unit that is a part of BGI.

  • The UK’s biggest building society, Nationwide has called the £250m that it has had to pay into the Financial Services Compensation Scheme (FSCS) ‘daylight robbery of our members’. The FSCS is a government safety net that pays out to consumers when banks fail.

  • A group including Blackstone, Carlyle, Centerbridge and WLRoss won an auction for Florida lender BankUnited. The bank was sold by the Federal Deposit Insurance Corporation after federal regulators had taken over the failing bank earlier this year. The transaction includes a loss-sharing agreement on $10.7bn of the banks $12.8bn in assets. The US government will take 80% of the first $4bn in losses and 95% of any remaining losses. In return, the federal government will receive warrants giving it a share in the future upside. The new investors will put $900m of fresh equity in the bank.

Credit

  • Britain became the first big developed economy to be warned that it might lose its triple A credit rating. Standard and Poor’s lowered the medium term outlook from ‘stable’ to ‘negative’. The long term rating was affirmed at AAA and the short-term at A-1+. The change in the medium term outlook is based on government borrowing approaching 100% of national income.

  • Alliance Boots, the retailer taken private by its executive chairman and Kohlberg Kravis Roberts in Europe’s biggest ever buy out almost 2 years ago, has bought back more than £400m of debt at a substantial discount. As it chips away at net debt of around £9bn, debt with a face value of £418m has been bought for around £227m.

  • The Agricultural Bank of China, China’s largest bank by customer numbers and branches, raised Rmb50bn ($7.3bn) in the country’s largest bond issue as it prepares for an IPO in Shanghai and Hong Kong. The sale included a mix of 10-year bonds paying 3.3%, 15-year bonds paying 4% and 10-year floating rate bonds paying 60 bps over the 1 year deposit rate. The IPO is expected to raise $8bn to $10bn.

  • Tata Motors is expecting to get agreement from banks to rollover about $1.05bn in debt. The loan is due next Friday and forms part of a $3bn bridge loan that Tata took out to finance the purchase of Jaguar and Land Rover from Ford. $1.11bn of the loan has been repaid through an equity fund-raising and other measures and $885 has been raised from a domestic bond issue. Citigroup is the lead arranging bank in a syndicate of 27 banks on the US$ loan.

Other

  • Oil company Royal Dutch Shell faced one of the biggest investors’ rebellions over directors’ fees as 59% of its shareholders voted down the remuneration report. The particular issue was chief executive Jeroen van der Veer, who received remuneration of €10.3m and a bonus of €1.35m – the bonus was a discretionary award despite Shell not meeting targets over the period. Votes against remuneration reports are not binding although the chairman said ‘we will reflect carefully’ on the vote.

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

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