In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.

The eurozone emerged from recession in the third quarter. U.S. senator Chris Dodd proposed consolidating the four agencies that inspect banks into a single regulator. The London Stock Exchange suffers an embarrassing technical outage. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

The eurozone emerged from recession with third quarter GDP figures showing a 0.45% expansion for the zone as a whole. Within the zone, Germany grew 0.7% and Italy grew 0.6% whilst France disappointed with just 0.3% growth.
The president of the Federal Reserve Bank of San Francisco anticipates the U.S. facing a slow and protracted L-shaped recovery with only a gradual upward tilt.
The Bank of England has upgraded its forecasts for U.K. growth over the next two years. The Bank is forecasting growth of 2.1% for 2010 (up from 1.9%) and 4% in 2011 (up from 3%). However, optimistic figures were counter-balanced by pessimistic rhetoric – such as that the ‘small movements in quarterly growth rates will not alter the extent of the challenges now facing the economy, such is the scale of the fall in output over the past 18 months.’

Mergers and Acquisitions

After 16 months British Airways and Iberia finally agreed the terms of their merger. BA shareholders will have 55% of the merged entity and Iberia shareholders the remaining 45%. The binding memorandum of understanding expects the merger to be completed in late 2010 and to generate annual savings of about €400m.
Kraft formalised its indicative offer for Cadbury just 4 hours before the U.K.’s Takeover Panel ‘put up or shut up’ deadline. Kraft is offering 300p in cash and 0.2589 new Kraft shares for each Cadbury share. The offer values each Cadbury share at 717p – described as ‘derisory’ and rejected by the Cadbury board. The formal offer triggers the Panel’s 60-day takeover timetable. Kraft is being advised by Lazard, Centerview Partners, Citigroup and Deutsche Bank. Cadbury is being advised by Goldman Sachs, Morgan Stanley and UBS.Up to 14% of Cadbury’s share register is estimated to be controlled by hedge funds betting that Kraft will increase its offer. The biggest holding is New York’s Paulson & Co, with 2.54% of the U.K. confectioner.
French insurer Axa and Australia’s AMP launched an unsolicited bid for the 46.1% of Axa Asia Pacific that is not already owned by Axa. The joint bid is worth about A$11bn (U.S.$10.2).
U.K. retailer Tesco is to set up a £100m joint venture with a group of Asian investors to build 3 large shopping centres in China. Each mall will have a Tesco hypermarket as its anchor tenant.
International cable group Liberty Global agreed a €3.5bn deal to buy Unitymedia, Germany’s second-largest cable company. The finance will come from €2.5bn of debt in the form of junk bonds, plus €1bn from equity. Unitymedia was advised by UBS and Morgan Stanley, Liberty was advised by Goldman Sachs.
News Corp agreed to sell its stake in index provider Stoxx for $309m. The one-third stake will be sold to Deutsche Borse and SIX Group.

Financial Institutions

The U.K.’s Lloyds Banking Group is facing such strong demand for its contingent convertible bonds that it will now raise up to £9bn rather than £7.5bn. The so-called CoCos, added to the rights issue that is set to raise £13.5bn, means that Lloyds will raise a total of £22.5bn of fresh capital.
The U.K.’s HSBC and Barclays both reported robust third quarter results. HSBC said the third quarter pre-tax profits would be significantly ahead of last year. Barclays reported £1.6bn of pre-tax profits and resumed paying a dividend.
HSBC tower in Canary Wharf is about to be sold for the third time in two years. After being bought from HSBC by Spanish property company Metrovacesa for £1.1bn in 2007, the company then sold it back for £840m. Now it is set to be sold to South Korea’s National Pension Service for £733m in cash.
Goldman Sachs chief executive Lloyd Blankfein said his firm pays more to its staff than other financial firms because Goldman staff are more productive.
Hedge fund BlueCrest Capital, that currently employs 300 people in London is planning to relocate 50 staff to Geneva.
Clive Capital, the world’s largest commodity hedge fund, is closing its doors to new investors. The London-based fund has $3.5bn of assets, has returned 17% this year and 74% since inception after fees.
China Minsheng Bank is aiming to raise $4.68bn in Hong Kong’s largest IPO this year. The bank plans to sell 3.32bn shares, or 15% of its enlarged share capital to raise as much as $4.1bn, plus an additional 498m shares taking the total to $4.68bn under a greenshoe option if the share offering is oversubscribed.

Credit

Fitch said that of all the AAA sovereign debt issuers (the U.S., Germany, France and the U.K.), the U.K. was most in danger of losing its rating because it needed ‘the largest budget adjustment’.
Kazakhstan is to launch its first international bond in a decade. It plans to issue about $500m in dollar-denominated securities early next year.
European paper manufacturer Smurfit Kappa launched a €500m bond issue to strengthen its finances. With net debt standing at more than €3bn, the bond issue will be used to pay down senior bank debt and push out the maturity profile of Smurfit’s borrowings.
Central Huijin Investment, a subsidiary of China’s sovereign wealth fund, is set to sell bonds and raise as much as Rmb80bn ($11.7bn). The money raised will be used to inject capital into state-owned banks Export-Import Bank of China and China Export and Credit Insurance Corp.

Other

U.S. senator Chris Dodd proposed consolidating the four agencies that inspect banks into a single regulator. Under the plan the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve would be U.K. dissolved and become the ‘Financial Institutions Regulatory Administration’. A second regulator would take on the role of consumer protection called the ‘Consumer Financial Protection Agency’.
In a blow to U.S. prosecutors, two Bear Stearns hedge fund managers accused of misleading investors were found innocent of all charges.
Intel agreed to pay $1.25bn to settle a private antitrust law suit from rival Advanced Micro Devices. As part of the settlement, Intel has agreed not to engage in some of the practices it was accused of, such as promising discounts to PC makers only if they refuse to buy chips from AMD or hold back the launch of machines carrying AMD products.
European Commission officials have concluded that the International Accounting Standards Board’s proposals for financial institutions need in-depth analysis before being adopted. The IASB had fast-tracked changes in response to the G20’s calls to have them implemented by the end of 2009, but the European Commission’s plan is to consider adoption in the new year.
Financial recruitment specialist Morgan McKinley reported that new job vacancies in the City of London rose by 15% last month to the highest level this year.
U.K. newspaper publisher Trinity Mirror announced plans to close its final salary pension scheme. Its pension deficit has grown from £37m in 2001 to £275m in June this year, in spite of additional contributions of £259m by the company in the intervening period.
A technical problem at the London Stock Exchange halted trading of nearly 300 U.K. stocks, including the LSE, for the last hour and a half of a trading day. The outage is an embarrassment to the LSE, coming at a time when the exchange is trying to improve its technology and compete with rivals like BATS Europe and Chi-X.

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