Manhattan-New York

In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.Martin Mitchel of CTG

The dollar fell to its lowest level since August 2008. The British economy may be out of recession already. Goldman Sachs has apologised for its role in the financial crisis. And Bernie Madoff’s vintage 18-carat gold Rolex Monoblocco watch fetched $65,000 at auction. 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 said the Federal Reserve is monitoring currency markets ‘closely’ and will conduct policy that will ‘help ensure that the dollar is strong’. However, his comments saw the dollar fall to its lowest level since August 2008.
  • The U.K.’s public debt added a further £11.4bn in October to reach £86.9bn for the fiscal year to date, against just £84.7bn in the whole of the preceding fiscal year.
  • Andrew Sentence, a member of the Bank of England’s monetary policy committee believes the British economy is out of recession already, despite official data showing a contraction in the third quarter. He said ‘there is enough positive evidence elsewhere to suggest that recovery is getting under way, though it is fragile and in its early stages’.
  • The U.K. consumer price index was 1.5% in October, against just 1.1% in September. The retail price index also rose to minus 0.8% from minus 1.4% a month earlier.

Mergers and Acquisitions

  • The supervisory boards of Volkswagen and Porsche approved the contracts that will see VW takeover Porsche. They also agreed to a €25.8bn three-year investment programme.
  • Hershey and Ferrero revealed that they were weighing up whether to launch a counterbid for Cadbury. Cadbury is fighting off a £9.9bn hostile offer from Kraft.
  • Cisco Systems raised its offer for Norwegian teleconferencing company Tandberg. It increased the per share price from NKr153.5 to NKr170, increasing the total bid from $3bn to about $3.4bn.
  • Canon launched a €1.32bn takeover offer for Dutch printer and copier maker Océ. The recommended offer of €8.60 per ordinary Océ share is a 70% premium to its closing price before the announcement and 137% premium to the average share price over the last twelve months. Canon was advised by Mizuho Securities. ING advised Océ and Lazard advised Océ’s supervisory board.
  • The private equity industry showed signs of life. In the U.K., the privately owned discount clothing chain Matalan began an auction process. The estimated price tag is £1.5bn and private equity firms TPG, Blackstone, Warburg Pincus, BC Partners and Advent International all submitted indicative bids. If the chain realises the £1.5bn price tag, it will amount to more than 10 times ebitda of £145m in the year to the end of Feb 2009.
  • In the U.S., Blackstone is set to buy Birds Eye Foods in a $1.3bn deal that will see the firm merged with the Blackstone-owned Pinnacle Foods. The deal is to be funded with $300m of equity and $1bn of debt.

Financial Institutions

  • UBS chief executive Oswald Grubel announced a new strategic plan that includes a profit target of 15% to 20% return on equity.
  • Lazard appointed Kenneth Jacobs as chairman, replacing Bruce Wasserstein who unexpectedly died last month. Mr Jacobs joined Lazard in 1988.
  • Goldman Sachs apologised for its role in the financial crisis and pledged $500m over 5 years to be invested in business education, technical assistance and venture capital to help 10,000 small businesses across the U.S.
  • JPMorgan Chase is to take ownership of Cazenove. After entering into a partnership deal 5 years ago, JPMorgan will buy the 50% of the joint venture it does not already own in a £940m deal.
  • The Dutch government plans to inject a further €4.4bn of capital into ABN Amro and Fortis Bank Nederland. The government nationalised the Dutch assets after the collapse of Fortis a year ago, and has already provided just under €24bn of capital.

Credit

  • Ohio’s attorney general is suing the big three U.S. credit rating agencies (S&P, Moody’s and Fitch) on behalf of five Ohio public employee retirement and pension funds. The lawsuit claims that the ratings agencies provided unjustified and inflated ratings for mortgage-backed securities. The ‘improper’ ratings are estimated to have cost the funds more than $457m. Most lawsuits against the ratings agencies have failed because the ratings are an ‘opinion’, and therefore protected as free speech.
  • General Electric priced the first Islamic bond to be issued by a western industrial company. The sukuk issue raised $500m dollars in five year bonds priced to yield 175 basis points over U.S. Treasuries.
  • Qatar raised $7bn in a bond issue that had an order book of around $27bn. The issue included maturities of 5 years, 10 years and 30 years. The 5 year issue raised $3.5bn and will yield 185 basis points over comparable Treasuries. The 10 year bond raised $2.5bn and will yield 195bp over Treasuries. The 30 year bond raised $1bn and will yield 215bp above Treasuries. The joint lead managers for the sale were Barclays Capital, Credit Suisse, Goldman Sachs, JPMorgan and Qatar National Bank.
  • Developers Diversified Realty, an Ohio-based owner of shopping malls, sold $400m in commercial mortgage backed securities. Underwritten by Goldman Sachs, the triple A first tranche raised $323.5m and was priced to yield 3.8%. The second tranche was double-A rated and will yield 5.75%, and the third A-rated tranche will yield 6.25%.
  • General Motors reported a loss in its first quarter since emerging from bankruptcy. The quarterly loss was $1.15bn after-tax, but GM still said it would begin repaying the outstanding $6.7bn of U.S. government and $1.4bn of Canadian loans next month.
  • Jaguar Land Rover secured a £170m working capital facility from GE Capital that will allow it to raise money for its finished vehicles long before they even reach dealers’ showrooms. The asset-backed distribution facility finance will be drawn down as soon as vehicles roll off JLR’s production lines, and runs for an initial 5 year period.

Other

  • The European Commission agreed to give Oracle more time to develop its arguments as the Commission considers whether to approve Oracle’s merger with Sun Microsystems. The merger has already been approved by U.S. antitrust authorities.
  • The European Commission has decided to delay the introduction of new accounting rules on how banks and other financial institutions value their assets. The commission will consider the new rules once the IASB has published the full standard, including rules on hedge accounting and liabilities, due in late 2010.
  • Equity research house AlphaValue believes that Europe’s largest 430 listed companies are underestimating their collective pension scheme deficits by €300bn. The underestimate is a combination of an insufficient projected rate of future salary increases (on average 3.6% per year) and an excessive discount rate for converting the value of future obligations to current prices (on average 5.57% per year).
  • Singapore exchange SGX that is about to launch a ‘dark pool’ in conjunction with Chi-X, said that regulators should distinguish between dark pools that are exchange-led and those that are broker-led. SGX head of market development said that exchange-led dark pools are much more transparent than the ‘opaque internalised models’ of the brokers.
  • An auction of 200 or so of Bernard Madoff’s possessions raised about $1m that will go towards the victims of his fraud. The highest bids included $70,000 for a pair of Mrs Madoff’s diamond earrings and $65,000 for Mr Madoff’s vintage 18-carat gold Rolex Monoblocco watch.

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

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