In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.

Federal Reserve Board Chairman Ben Bernanke says the US recession is probably over, and Governor of the Bank of England Mervyn King expects a slow recovery for the UK. Banks will face limits on the total amount they pay their staff in bonuses under proposals being drawn up by the Financial Stability Board. The board’s plans will be submitted to the G20 countries in advance of their summit in Pittsburgh next week. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

• Ben Bernanke stated that the US recession ‘is very likely over’ as data showed that retail sales rose last month at the fastest rate for more than three years.
• Meanwhile, governor of the Bank of England Mervyn King predicted a ‘slow and protracted recovery’ for the UK.
• Calculations by Goldman Sachs estimate that the European Central Bank has made up to €1bn in extra profits from crisis-related emergency lending.

Mergers and Acquisitions

• Brussels will be scrutinising German backing for the takeover of Opel/Vauxhall by Magna International from General Motors. The German government provided the bulk of €4.5bn in loan guarantees to facilitate the deal and there is some concern that job cuts and plant closures will fall on Britain’s plants rather than Germany’s. The UK’s Lord Mandelson said the Commission’s ‘legal duty is to insist on the difference between what is economically sound and what is politically expedient’.
• Cadbury made public its letter of response to the proposed $10.2bn takeover by Kraft. Rejecting the indicative 745p a share offer, the letter claimed that Kraft was a ‘low growth conglomerate’ with a ‘less focused’ business mix than Cadbury.
• Private equity firm Blackstone is to buy half of the Broadgate office complex in the City of London from property company British Land for £2.2bn. The deal will be the first for Blackstone’s €3.1bn distressed European real estate fund. Bank of America advised Blackstone and UBS advised British Land.
• Thomson Reuters’ tax and accounting division has agreed a $45m deal to take over Deloitte’s Abacus Enterprise tax software business.
• Australia’s Macquarie Airports has agreed to sell its 35% stake in the UK’s Bristol Airport for £128m to the Canadian pension scheme the Ontario Teachers’ Pension Plan. Just over half of the proceeds will be used to buy a further 3.9 per cent in Copenhagen Airport, taking Macquarie’s stake in the Danish airport to 30.8%.

Financial Institutions

• Banks will face limits on the total amount they pay their staff in bonuses under proposals being drawn up by the Financial Stability Board. The board’s plans will be submitted to the G20 countries in advance of their summit in Pittsburgh on September 24th.
• ‘Living wills’ – simplified corporate structures that will enable banks to be dismantled in a future financial crisis – are to be forced on banks on both sides of the Atlantic.
• Morgan Stanley has sold a $1.2bn claim in the liquidation of Lehman Brothers. It is rumoured to have sold at 38.5% of face value, receiving just $462m.
• Founder and chairman of private equity firm Terra Firma admitted that if the May 2007 auction for music group EMI had happened two weeks later, he would not have bought the company. EMI cost £4bn and is struggling under £2.6bn of debt from Citigroup.
• Barclays shifted $12.3bn of mortgage-related and monoline-backed assets into a new fund run by two of its former bankers. The fund – Protium – has borrowed $12.6bn from Barclays to fund the deal that will see the bank receive interest of $3.9bn over 10 years. Barclays is effectively swapping mark-to-market assets for a $12.6bn loan to Protium, replacing earnings volatility with a stable stream of interest income. C12 – the US asset manager that will run Protium – will receive a $40m annual management fee to administer the assets.
• Standard Chartered Bank is to sponsor Liverpool Football Club in an £80m, four year deal. Standard Chartered will replace Carlsberg on Liverpool shirts.

Credit

• The US credit derivatives benchmark for investment grade corporate risk traded below 100 basis points for the first time since May 2008. The US CDX IG had approached 300 bps last December.
• Germany raised $4bn in only its second foreign currency bond since 1945. The three-year deal saw demand rise above $10bn, attracting particularly strong demand from US investors. The issue was managed by Bank of America Merrill Lynch, Citigroup, Deutsche Bank and HSBC.
• American Airlines struck a series of financing deals to raise $2.9bn in cash. The major deals were a sale and leaseback deal for aircraft with GE Capital Aviation Services raising $1.6bn and an advanced sale of AAdvantage frequent flyer miles to credit card partner Citigroup that raised $1bn.
• Burton Foods, the UK maker of biscuits including Jammie Dodgers and Wagon Wheels, has been taken over by its lenders in a debt restructuring deal. Private equity owner Duke Street Capital will hand over control to lenders including Canadian Imperial Bank of Commerce in the debt-for-equity swap.

Other

• The IPO market in Hong Kong saw two companies raising a total of $3.5bn. Sinopharm, China’s biggest pharmaceuticals distributor raised $1.2bn, was priced at the top of its price range and saw the institutional part of the offering oversubscribed 40 times and the retail portion oversubscribed 500 times. Engineering group Metalurgical Corp raised $2.3bn, was priced at the lower end of its range, its institutional tranche was more than 10 times covered and its retail tranche more than 200 times oversubscribed.
• The falls in the stock market capitalisation in Iceland mean that it has been dropped from the FTSE equity indices. Funds with assets under management worth $3,000bn use the FTSE indices to make decisions on the investments they hold.
• A report by recruiters Morgan McKinley showed City of London job vacancies up by 18 per cent in August – normally a quiet time due to summer holidays. However, despite the month on month rise, there were still 39 per cent fewer new job opportunities coming on to the market than a year earlier.
• The BBC is considering a partial flotation of its commercial arm, BBC Worldwide. BBC Worldwide markets BBC programmes, magazines and merchandise around the world. Last year BBC Worldwide earned £102.6 before interest, tax and amortisation.
• The London Stock Exchange is close to announcing the acquisition of a Sri Lankan technology company, Millennium IT that will boost its capacity from a current 20,000 messages per second, to 1m per second. Rival Chi-X Europe can currently handle 225,000 messages per second and Nasdaq OMX’s Inet platform can handle more than 1m per second.
• UK online retailer Ocado is preparing for an IPO that is likely to raise £500m to £600m. Ocado is hiring a new finance director with more than 20 years investment banking experience.
• The pension deficit of the UK largest 250 listed companies has ballooned from £6bn in June 2008 to £12bn in June 2009 according to a report by Pension Capital Strategies and Cazenove.
• The SEC’s call to Bank of America to pay a fine of $33m to settle allegations that it had misled shareholders last year before its acquired Merrill Lynch may not proceed. Rather than the usual rubber stamp from a judge, US District Judge Jed Rakoff decided to throw out the settlement and ordered a trial on the basis that the fine will fall on the shareholders of Bank of America – effectively forcing them to pay the penalty for actions by the bank’s executives and lawyers.
• Hedge fund Citadel and exchange operator the CME Group abandoned their efforts to set up a trading platform for the $27,000bn over-the-counter credit default swap market. After a year long effort, neither CDS dealers nor their customers had warmed to the notion of trading on an exchange rather than bilaterally.

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