Manhattan-New York

In Case You Missed It: News Round-up

Martin Mitchel of CTGContributed 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

  • Chrysler emerged from bankruptcy after a deal to sell most of its assets to Fiat, the US and Canadian governments and the United Auto Workers healthcare trust was approved by a US appeals court. The deal sees Fiat hold an initial 20% stake that can rise by another 15%. Fiat is barred from taking majority control until Chrysler has repaid all taxpayer-funded aid, which stands at $4bn. Fiat will hold three seats on Chrysler’s nine-member board.    
  • German carmaker Porsche is in advanced talks about selling a 25% stake to the Qatar Investment Authority. Porsche is struggling under debt of more than €9bn and is in merger talks with Volkswagen.
  • UK college and training company BPP has agreed a £303.5m offer from Apollo Global. The two companies announced they were in preliminary discussions in April. Apollo Global is 20% owned by private equity group Carlyle and 80% owned by Apollo Group, a listed US education provider that owns the University of Phoenix and is the world’s largest provider of MBAs. In particular, the BPP deal has been driven by rising student rates in professional and legal markets and the strong international reputation of UK degrees.
  • Talks commenced on two private equity deals in the UK. Charterhouse Capital is hoping to buy energy research and consultancy group Wood Mackenzie for around £550m. Wood Mackenzie is currently owned by Candover, and the plan will be financed with 50% debt and 50% equity, with incumbent banks led by Lloyds Banking Group remaining involved.
  • Lloyds Banking Group is also talking to the management team of the asset management arm it acquired when taking over HBOS last year. The managers of Insight Investment Management are hoping to use private equity backing to buy-out the third party business amounting to £74bn of funds under management. The in house business will remain within Lloyds banking Group and merged into Scottish Widows Investment Partnership.
  • Baxi, the UK boilermaker owned by private equity firms BC Partners and Electra Partners, is close to agreeing a merger. The merger partner is set to be a smaller Dutch rival De Dietrich Remeha Group. The merger rationale is thought to be partly based on solving Baxi’s debt problems, with some £445m of debt to be repaid between now and 2014.
  • India-based mining group Vedanta Resources is paying $368m in cash to buy rival iron ore producer VS Dempo. VS Dempo controls reserves of 70m tonnes of iron ore in Goa.

Financial Institutions

  • The sale of Barclays’ asset management operation, Barclays Global Investors (BGI) to BlackRock was finally agreed. The $13.5bn deal will see BlackRock become the world’s largest asset manager with $2,700bn assets under management that will employ 9,000 people in 24 countries. Barclays will receive £4bn in cash and take a 19.9% stake in BlackRock. It will book a £5.3bn gain on the sale and will boost its core tier one ration to 8%. President of Barclays Bob Diamond will personally make a £16m profit on the deal and join the BlackRock board.
  • A US congressional committee questioned Bank of America chief executive Ken Lewis over the lack of disclosure about losses at Merrill Lynch. Shareholders were unaware of the true scale of losses until after they approved the acquisition of Merrill in early December 2008. Mr Lewis simply put it down to the advice of lawyers and outside counsel. He also denied that former Treasury secretary Hank Paulson’s pledge to remove Mr Lewis and his board if they failed to consummate the transaction was a ‘threat’.  
  • Ten US financial groups were granted permission to repay around $68bn of troubled asset relief program (Tarp) to the US Treasury. Although the names were not formally announced, the 10 are thought to be Goldman Sachs, Morgan Stanley, JPMorgan, American Express, Northern Trust, BB&T, State Street, US Bancorp, Capital One Financial and Bank of New York Mellon. The move questions the competitiveness of others including Citigroup and Bank of America who have not yet been allowed to repay the combined $90bn in Tarp money they received.
  • The Obama administration announced that it will appoint a ‘pay Tsar’ with the power to vet the remuneration of each of the top 100 employees in each US company taking US government bail-out funds.
  • The advisers for the IPO of AIG’s major Asian insurance operation American International Assurance (AIA) are currently being selected. The IPO is set to be the world’s largest since 2007 with the sale set to raise between $5bn and $10bn depending on the precise stake sold. The rumoured line up of advisers is set to exclude two major players in UBS and Merrill Lynch. Still in the running are Morgan Stanley, Goldman Sachs, Citigroup, JPMorgan, Deutsche Bank and Credit Suisse as well as China’s CICC and Citic Securities.  
  • Mutual fund group Fidelity is teaming up with private equity firm Kohlberg Kravis Roberts (KKR) to give Fidelity’s huge retail client base access to future public listings of KKR-owned and underwritten companies. The deal is thought to be a step towards KKR’s plan of building a capital markets business that will partly free it from dependence on Wall Street. It will give Fidelity’s 12m brokerage customers exclusive access to buy retail shares allocated to KKR.
  • Lloyds Banking Group is to repay £2.6bn to the UK Treasury and become the first bank in the western world to repay state equity in the current financial crisis. After a successful government-underwritten placing and open offer that raised £4bn, Lloyds will redeem government-owned preference shares saving £480m each year. The UK government will still own 43.4% of the ordinary shares of the banking group. For underwriting the issue, the UK Treasury earned £60m in commission, and Citigroup, JPMorgan Cazenove and UBS share an estimated £30m for bookrunning the deal.
  • Citigroup introduced a ‘poison pill’ provision to discourage investors from buying more than 5% of its shares and deter large stakeholders from increasing their holdings. However, rather than to protect itself against hostile takeover, the poison pill provision is to protect a $43bn tax benefit. The US tax rules constrain companies’ ability to use tax losses when more than 50% of their shares are held by investors with more than 5%. Under the new provision, if an investor buys a stake of more than 5%, or an existing investor with more than 5% increases its holding by more than 50%, all other shareholders will be able to buy one new share for every one held at a 50% discount to the market price.  

Credit

  • Clear Channel Communications, the radio and outdoor advertising group that was bought by private equity firms Thomas H Lee Partners and Bain Capital Partners last July, is confident of finding a solution to its debt problems. The company is carrying a $20bn debt load after its $23.8bn buy out and has had a proposed debt exchange turned down by some lenders. The proposed swap involved some parent company debt being exchanged for debt in Clear Channel Outdoor Holdings, the US-listed billboard division.
  • Arcandor, the German retail chain, filed for insolvency after its request for a €437m loan from KfW, the state-owned development bank was rejected. Arcandor owns 53% of UK-listed travel company Thomas Cook, which could be available since it had been pledged to guarantee loans by Royal Bank of Scotland, Commerzbank, Bayerische Landesbank and others.
  • The long-term credit rating for Ireland was cut by Standard & Poor’s from AA+ to AA with a negative outlook. Ireland only lost its triple A rating at the end of March. The concerns surround the fiscal costs to the government of supporting the Irish banking system.
  • The ECB stepped in to help the Baltic states by lending the Swedish central bank (the Riksbank) €3bn to boost its foreign currency reserves.  
  • State-run Korea Hydro & Nuclear Power is selling up to $1bn of US dollar bonds through Barclays Capital, Citigroup, Deutsche Bank and Goldman Sachs. The deal has attracted more than $8bn of orders and the yield for the five-year bond is likely to be 362.5-375 basis points over US Treasuries.   

Other

  • Two clearing operations are to launch a new clearing system aimed at hedge funds and asset managers. Euro CCP and Omgeo are to link up to offer clearing services that will remove the concerns that banks might not be creditworthy. Traditionally, hedge funds and asset managers have accepted that the banks that are broking their trades gave rise to insignificant counterparty risk, however the financial crisis and Lehman’s collapse has shattered that confidence.
  • The quarterly review of the FTSE 100 index saw the London Stock Exchange, Wolseley and 3i Group promoted and Drax Group, Balfour Beatty and Whitbread drop out. 
  • At the International Organisation of Securities Commission annual conference Lloyd Blankfein, the chief executive of Goldman Sachs gave his backing to fair value accounting. He said that more use of marking assets to market prices would have provided an early warning of the financial crisis, as well as arguing against off-balance sheet accounting – the simple principle is that a bank’s accounts should reflect ‘things for which you might have to cough up’.   

 

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