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In Case You Missed It: News Round-up

martin.jpgContributed 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

  • The expected deal for Barclays to sell its ETF business, iShares to private equity firm CVC Capital Partners was completed. The $4.2bn deal is the UK’s biggest private equity deal for almost 2 years. Barclays is providing a $3.1bn loan to CVC to facilitate the deal. The agreement is also subject to a ‘go shop’ provision that would allow another bidder to make a higher offer for iShares in the next 45 days if Barclays pays CVC a $175m break fee.

  • Rio Tinto, the Anglo-Australian miner has a back-up plan for its deal with Chinese mining group Chinalco. The deal that involves Rio raising $19,5bn by issuing $12.3bn of convertible bonds, plus a $7.2bn asset sale to Chinalco is facing threats from Australian regulators and some shareholders. The back-up is a rights issue of about $10bn, with plans already drawn up with underwriters JPMorgan Cazenove and Credit Suisse.

  • Innocent, the smoothie drinks group is selling a minority stake to Coca Cola for £30m. The money will be used to fund European expansion.

  • Microsoft and Yahoo have restarted talks about forging an internet partnership that will provide a credible challenge to the increasing influence of Google. Talks are at ‘a very early stage.’

Financial Institutions

  • US Treasury secretary Tim Geithner warned that the US government would consider ousting board members at American banks as a condition of giving them ‘exceptional’ assistance in the future.

  • The take-up for the £12.5bn rights offer from HSBC – the largest rights offer in UK corporate history was 96.6%. The leftover stock was placed in the market by the underwriters, led by JPMorgan Cazenove and Goldman Sachs. The underwriting banks shared fees of 2.75% of the issue, around £340m, and Goldman and JPMorgan Cazenove may be eligible for a further 0.5% success fee. Now that the HSBC issue is complete, the banks involved have the capacity to underwrite more of what is expected to be a bumper year for rights issues.

  • A report suggested that banks that have better survived the ‘credit crunch’ such as Deutsche Bank, Credit Suisse and Rothschild are heavily ‘poaching’ senior staff and teams from weaker and government-supported rivals. A snapshot showed that since the collapse of Lehman in September 2008, the following numbers of senior bankers recruited and moved elsewhere in debt and equity capital markets and M&A: Rothschild recruited 9, moved 0; Credit Suisse recruited 6, moved 1; Deutsche Bank recruited 12, moved 4; Lazard recruited 4, moved 0; Citigroup recruited 11, moved 3; Goldman Sachs recruited 5, moved 2; Morgan Stanley recruited 1, moved 3; UBS recruited 0, moved 6; Nomura/Lehman recruited 5, moved 21; Bank of America/Merrill Lynch recruited 0, moved 10

  • Government-controlled UK bank Royal Bank of Scotland announced plans to cut 9,000 jobs across the world, half of which will be in the UK. The cuts will be made in the so-called manufacturing division that includes areas like IT, call centres, group purchasing and managing group property.

  • The French courts have seized Bernard Madoff’s $7m yacht ‘Bull’ on the French Riviera. The court granted the request by French investment firm Meeschaert that is suing to get some of its clients’ money back that was invested in Madoff’s Ponzi scheme.

  • The US court-appointed trustee leading the effort to reimburse the victims of the Madoff scheme began to ‘claw back’ from investors that received money from Madoff funds in the 90 days before the Ponzi scheme was discovered. Irving Picard filed a lawsuit to recover $150m paid to an investor based in the British Virgin Islands weeks before the scheme came to light.

  • A survey by recruitment consultant Napier Scott showed bonuses collapsing in London. The average fall is 62%, with structured credit the worst asset class with bonuses falling 86%. Private bankers suffered least, with senior staff generally maintaining their compensation levels.

  • The EU is looking into the legality of billions of euros of aid given to Fortis Bank’s Dutch banking unit and its recently-acquired ABN Amro unit by the Dutch authorities. The commission suspects the aid was not limited to the minimum necessary and may have created undue distortions of competition.

  • Goldman Sachs is finalising plans to raise billions of dollars in the capital markets to enable it to repay the $10bn of US government funds that it received last year. The expected stock offer could come as soon as next week.

Credit

  • The UK’s Globe Pub Company has defaulted on a £257m asset-backed loan. The bondholders, via their trustee Bank of New York Mellon, now have to decide on the next steps and 25% of them could force an administrator to be appointed for the company. Globe Pub Company breached a covenant that requires the group’s ebitda to remain at or above 1.25 times the cost of servicing its debt.

  • Ford Motor will cut its debt by almost 40% through a debt-for-equity swap. 88% of the holders of Ford’s senior convertible notes amounting to $3.4bn have accepted the shares and cash offer.

  • UK housebuilder Taylor Wimpey has reached a refinancing agreement with its key creditors. After 9 months of negotiations and arrangement fees of £60m, creditors will take warrants allowing them to buy 5% of the shares and, as long as Taylor Woodrow raises £350m from shareholders and reduces its debt facilities by £150m, then the interest rate will be 6.5%. However, if it fails to raise the equity funds, the interest rate will be a hefty 10.5%.

  • Germany’s family owned car manufacturer Karmann filed for bankruptcy. The company was best known for building the legendary Volkswagen Karmann Ghia and its sole remaining contract to build Daimler’s Mercedes Benz CLK convertible is scheduled to end in mid-May. Rothschild has for 18 months been advising Karmann about finding a buyer for the business.

Other

  • The author of ‘The Black Swan: The Impact of the Highly Improbable’, Nassim Nicholas Taleb penned an article outlining the principles for a ‘Black Swan-proof world’. The principles essentially summarise the financial crisis and potential problems of the response by governments. They included the following:

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail;

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. It is irresponsible and foolish to put our trust in the ability of experts such as regulators, government officials and central bankers to get us out of this mess.

4. Do not let someone making an ‘incentive’ bonus manage a nuclear plant – or your financial risks. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Do not give children sticks of dynamite, even if they come with a warning. Complex derivatives need to be banned, because nobody understands them and few are rational enough to know it.

6. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is denial.

  • A ‘big bang’ for the credit default swaps market began as the International Swaps and Derivatives Association introduced a new protocol establishing uniform procedures for settling contracts where the reference entity goes into default. The protocol is aimed at facilitating the migration of CDS trades to a central counterparty.

  • The Securities and Exchange Commission in the US is considering reintroducing the so-called ‘uptick rule’ that limits the circumstances when short-selling of equities is allowed. The rule prevents stocks from being shorted unless the last movement (tick) in their price was up. The rule is designed to stop short sellers from driving down share prices and was scrapped in July 2007.

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

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