In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group

Bernie Madoff’s right-hand man pleads guilty. Publicis beats Microsoft out on a bid to acquire Razorfish. Guidelines on bankers’ pay issued by UK and German regulators. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed .

Economic Backdrop

Business sector confidence is surging in Europe, with the UK and Italy leading way according to the latest KPMG business outlook survey. A separate survey on the ‘BRIC’ countries of Brazil, Russia, India and China has also seen a strong rise in optimism, particularly in Brazil.
To underline the KPMG survey’s findings, the two biggest economies in Europe, Germany and France reported growth in the second quarter. After the economies had seen four consecutive quarters of negative growth, the second quarter of 2009 saw GDP grow in both by 0.3%. Elsewhere in Europe the second quarter saw the UK’s GDP shrink by 0.8%, the Dutch by 0.9% and Austria and Belgium by 0.4%. Like Germany and France, Greece and Portugal both grew 0.3%.
To complete the Eurozone quarterly figures, Spain reported its GDP shrinking by 1% in the second quarter, slightly worse than expected.

Mergers and Acquisitions

French media company Publicis has beaten rivals to acquire Razorfish from Microsoft. The digital agency is being purchased for $530m, including a five-year media buying relationship between Publicis and Microsoft. 55% of the deal is being settled in cash and the balance in treasury shares.
India’s largest mobile operator, Bharti Airtel, has approached the State Bank of India for a $2bn loan to help it sweeten the $23bn tie-up with South Africa’s MTN. Bharti and MTN entered into a deal that could eventually result in a merger back in May. MTN is due to acquire 25% of Bharti and Bharti is due to acquire 49% of MTN, however talks are still ongoing about the precise terms.
A subsidiary of telecoms giant Hutchison Whampoa has agreed to sell its 51.3% stake in Partner Communications, which controls a third of Israel’s mobile market. The stake will cost Scailex, a Tel Aviv-listed mobile phone importer, HK$10.7bn ($1.38bn).
The complex merger between VW and Porsche was started with VW announcing that it will pay €3.3bn for a 42% stake in Porsche’s main production division. Later in the week the second stage was agreed, with Qatar Holding buying a 10% voting stake in Porsche and acquiring a 17% voting stake in VW by taking on options that Porsche had purchased in its own attempt to take over VW. The agreement amounts to a €7bn investment by Qatar Holding. Porsche already owns 50.8% of VW and the merger, that one analyst described as the ‘world’s most complex’, is scheduled to be completed in 2011.
Pole position in the battle to buy General Motors’ Opel subsidiary looked to have shifted away from Belgium-based RHJ International and towards Canada’s Magna International. Magna has offered GM revised terms and said there was agreement between the parties ‘on all points.’
China’s Yanzhou Coal Mining is in advanced talks to buy Australian coal miner Felix Resources for around A$3.7bn (£1.9bn) cash.
UK insurance consolidation vehicle Resolution Limited launched a £1.86bn bid for Friends Provident. The agreed bid is anticipated to be followed by a number of other acquisitions by Resolution over the coming months, expected to include the UK life operations of companies like Aegon, AXA, Prudential, Zurich Financial Services and parts of Lloyds Banking Group’s Scottish Widows and Clerical and Medical businesses.
The sale of the UK’s Lloyds Banking Group’s Insight asset management business to the Bank of New York Mellon (BNYM) for £235m was confirmed. BNYM will take on £80bn of funds managed by Insight for customers outside of the Lloyds Banking Group. Insight’s remaining £57bn of in-house funds will be transferred to Lloyd’s Scottish Widows Investment Partnership business, based in Edinburgh.
Pakistan’s privately-owned Muslim Commercial Bank has agreed an $87m deal to by a 99.4% stake in Royal Bank of Scotland’s Pakistan branches.
Allied Irish Bank confirmed it had received expressions of interest from an unnamed third party. The third party is thought to be the Canadian Imperial Bank of Commerce.

Financial Institutions

In an attempt to replace the many financial advisers that have left in the past year, Bank of America’s Merrill Lynch is reported to be offering recruitment packages that are greater than those handed out in the boom years of 2006 and 2007.
The right hand man who worked with disgraced fraudster Bernard Madoff pleaded guilty to 10 criminal charges relating to the $65bn Ponzi scheme. The charges range from conspiracy to perjury and could carry a total of 125 years in prison for Frank DiPascali, who worked with Mr. Madoff for 33 years. Mr. DiPascali is co-operating with the authorities.
New chief executive Oswald Grubel has unveiled a total of 20 new senior staff additions to UBS’s fixed income, currencies and commodities team in the past few weeks. The hope is that the division, that reported first half losses of $1.7bn in the first half, will be able to rebuild to rival the impressive performances in FICC at the likes of Goldman Sachs and Credit Suisse.
UBS also agreed an out-of-court settlement with the US regarding the US tax authority’s wish to be given the names of around 5,000 individuals. The details of the deal were not revealed, but as well as releasing the names of the US clients, UBS is thought to have agreed to pay a fine.
A survey by Moebs Services on overdraft charges in the US anticipates that banks are set to collect a record $38.5bn this year. The highest fees are charged by those banks with assets greater than $50bn, a group that includes Citigroup, Bank of America, JPMorgan Chase and Wells Fargo.
Lloyds Banking Group, 43% owned by the government, is floating an idea to raise £15bn to £20bn in a rights issue. The money may mean the bank is sufficiently well-capitalised to enable it to reduce its reliance on the government’s asset protection scheme (APS). The APS is set to cost the bank around £15.6bn for protection over some £260bn of assets.
As a first step towards taking a stake, Deutsche Bank has backed a €300m equity injection into Sal Oppenheim, Europe’s biggest independent private bank.
Activist hedge fund group Atticus Capital is closing its flagship $3.5bn fund. The fund was down 13.5% in the year to 31 July and is below its high water mark, the point at which the manager can start collecting performance fees. Atticus will continue with its $1.2bn European Fund that has gained 20% this year.
UK hedge fund manager Man Group placed its remaining 18.6% stake in MF Global, the derivatives brokerage. The deal was handled by Nomura, and involves an initial payment of $112m plus a share of any gains from share price appreciation over the next 3 to 4 years.

Credit

Defying the usually quiet August in the corporate bond market, Barclays followed up the sale of €2bn 10-year unsecured bonds last week with a further £750m 12-year issue that was the result of a ‘reverse inquiry’ – investors registering an interest for a particular type of bond deal. The latest issue attracted orders worth £1.5bn. The €2bn issue had attracted €6.7bn in bids.
The US Treasury issued $37bn in three year notes, $23bn of 10-year notes and $15bn of 30-year bonds – a total of $75bn in the week.
Latvia reported a GDP fall of 19.6% in the second quarter and was promptly downgraded by S&P from BB+ to BB.
Mexican cement manufacturer Cemex has secured 100% support from its bank creditors to refinance around $15bn debt. The debt was taken on in 2007 when Cemex purchased an Australian building materials supplier for $14.2bn. Lazard acted as Cemex’s financial adviser and the deal will see Cemex pay its bank creditors Libor plus 450 basis points and extend the repayment obligations as far ahead as 2014. The five leading banks involved are BBVA, Citi, HSBC, RBS and Banco Santander.
The world’s sixth biggest container shipping line Hapag-Lloyd is nearing the end of weeks of negotiations over financing. Hapag-Lloyd needs €1.95bn of financing, and with €1.2bn of German state guarantees available, the remaining €750m is required from its owners. The owners had only agreed to inject €330m, but have now increased the commitment to €750m.

Other

The UK regulator, the Financial Services Authority released guidelines regarding bankers’ pay that will apply to the UK’s largest 26 banks from January 2010. There are eight principles: (1) Remuneration committees should be independent, with a majority of non-executives; (2) Risk managers and compliance officers should be involved in setting bankers’ pay; (3) The bonuses available to risk managers and compliance officers should be proportionally lower than for bankers; (4) The calculation of bonus pools should be based principally on profits; (5) When performance related pay accounts for a large share of overall remuneration, there should be a bias towards longer-term performance; (6) Non-financial criteria should be part of bonus calculations; (7) Long-term bonuses should take account of future risks; (8) At least two-thirds of bonuses should be deferred for at least three years.
UK senior cabinet ministers are reported to be considering legislation, believing the FSA is allowing banks to return to ‘business as usual.’
The German regulator, the Federal Financial Supervisory Authority (Bafin) unveiled a set of risk management standards that will oblige German banks to implement new pay structures that outlaw short-term incentives.
The Singaporean exchange SGX has signed a joint venture agreement with Chi-X Global to launch a dark pool for trading large blocks of shares. Expected to start in the first half of 2010, the dark pool will allow institutional investors to trade large blocks of shares in companies listed in Singapore, Australia, Hong Kong and Japan.
Multi-national Reckitt Benckiser is considering joining the growing band of international companies shifting their tax headquarters out of the UK. The move is said to be prompted by overseas employees becoming more reluctant to relocate to Britain due to the high cost of living. If it goes ahead, Reckitt will join the likes of Informa, WPP and McDonalds in moving away from Britain
UK City minister Lord Myners came up with another idea aimed at facilitating more activist investor involvement in listed companies. Lord Myners suggests that companies could make a 1-for-1 issue of non-voting shares to existing shareholders. These could then be traded in the market alongside the voting shares.