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In Case You Missed It: Business News Round-up

Martin Mitchel of CTGContributed 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

  • UK mobile phone company Vodafone is exploring a bid for T-Mobile UK despite the risk of it being blocked by regulators. The combination of the two companies would control 40% of mobile phone revenues in the UK. Deutsche Telecom, T-Mobile’s owner has appointed JPMorgan to advise on its strategic options.
  • Apparently Spain’s Telefonica is also looking at bidding for T-Mobile UK. Telefonica already owns the UK’s O2 – which could lose its top position in the UK mobile phone market if Vodafone buys T-Mobile UK.
  • UK bus and rail operator National Express has rejected an unsolicited bid from its rival FirstGroup. However, National Express remains weakened as the UK government is going to re-nationalize the East Coast rail franchise – National Express entered into a contract to pay the UK government £1.4bn to run the franchise and struggled to make the commitment balance the revenue generated.
  • Anglo American, the mining company preparing a detailed response to a merger proposal from Xstrata, is sounding out potential investors for its Brazilian ore assets. Bahrain’s Gulf Industrial Investment Company and Japan’s Sojitz are thought to be interested.
  • Private equity house Candover has received a number of approaches for Ontex, its Belgian based diaper maker. Ontex was purchased six years ago for €1bn and needed a loan refinancing two years ago to reduce its debt burden from more than €700m.
  • The tussle between Volkswagen and Porsche intensified when Porsche rejected a bid from VW worth up to €4bn for a 49% stake. The rejection was for two reasons – because it would lead to the need to renegotiate a €10.75bn credit facility and because it had been sent to the wrong address! It was sent to Porsche’s chairman rather than the executive board. Porsche continues to struggle under debts of €9bn after its attempt to take over Volkswagen, and it is attempting to raise fresh capital from the Qatar Investment Authority, amongst others.
  • US regional airline Republic Airways moved to purchase troubled peers Frontier Airlines and Midwest Airlines. Republic has bid $109m for Frontier, which is currently in bankruptcy protection and $31m to buy Midwest from private equity owners TPG.
  • The China National Petroleum Corp is in talks to acquire YPF, the Argentinean oil company currently owned by Spain’s Repsol YPF.
  • US electricity producer Exelon increased its hostile all stock bid for NRG Energy by 12% to approximately $7.5bn. Exelon said the increase reflected the identification of another $1.5bn in cost savings.

Financial Institutions

  • Botswana-listed Imara Asset Management is trying to raise money for its Zimbabwe Value Fund as the Zimbabwean government scraps its worthless banknotes and dollarizes the economy. Inflation has now turned negative after peaking at several billion percent.
  • Bernard Madoff was given the maximum sentence in the New York courts to serve 150 years for running his $65bn Ponzi scheme. Mr. Madoff apologised to his victims before sentencing – after admitting to leaving a ‘legacy of shame’ and having to live with it for the rest of his life, he said to his victims ‘I’m sorry, I know that doesn’t help you’.
  • The UK’s largest private sector retirement fund, the BT Group Pension Scheme is to sharply reduce its future investments in equities. The scheme’s funding was only sufficient to pay about 57% of promised benefits at the end of 2008.
  • The parent company of Kookmin Bank, South Korea’s largest lender has dropped four foreign investment banks as advisers to a $2bn capital raising following a dispute over fees. According to the company, Bank of America Merrill Lynch, Credit Suisse, JPMorgan and Citigroup have made ‘excessive’ demands for fees for the forthcoming rights offering. Instead Goldman Sachs and Morgan Stanley are set to be appointed.
  • It looks likely that Sir Win Bischoff is to be appointed chairman of the UK’s Lloyds Banking Group, the combination of Lloyds TSB and HBOS that is 43.5% owned by the UK government. Sir Win stepped down from the chairmanship of Citigroup in February and is reported to be the favoured candidate of UK Financial Investments, the body that manages the UK government’s bank stakes. However, the EU’s competition commissioner appears to be of the view that both Lloyds Banking Group and Royal Bank of Scotland, the two major recipients of UK government aid, need to be broken up to meet the EU antitrust rules. Lloyds has a 30% share of Britain’s current account customers and RBS dominates the market for lending to small businesses in the UK.
  • Morgan Stanley is joining forces with its biggest shareholder Mitsubishi UFJ Financial Group in a corporate lending venture. Morgan Stanley and MUFG will pool lending resources in the US, in the hope that it will enable the deeper relationship with large US clients to improve the chances of Morgan Stanley winning investment banking business. Morgan Stanley hopes its partner’s big balance sheet will help it compete with rivals such as JPMorgan Chase and Citigroup. Goldman Sachs has a similar arrangement with Sumitomo Mitsui.
  • Bank of America may have to sell its asset management unit, Columbia Management in two pieces as it struggles to raise the $3bn it is looking for. After potential bidder Blackrock sealed the deal to buy Barclays Global Investors and eliminated itself from the auction, bids are thought to have come in at close to $2bn. In order to boost the sale proceeds, BofA is thought to be considering selling off Columbia’s large money market funds operation separately from the rest of the business. BofA is also attempting to sell First Republic, its private bank and mortgage lender for $600m to $800m, with private equity firms the most likely buyers.
  • Pressure from investors has forced Royal Bank of Scotland’s chief executive Stephen Hester to defer part of his controversial £9.6m pay package. Shares worth £3.4m that could have been taken after three years will now not be sold by Mr. Hester for at least a further 2 years. The change is aimed at convincing investors he is most interested in the bank’s long term future.
  • Royal Bank of Scotland’s sale of its unwanted Asian assets appears to be nearing completion. Standard Chartered and ANZ have entered exclusive negotiations to buy separate portions of the assets. It is thought that Standard Chartered will acquire the Chinese, Indian and Malaysian assets. ANZ will buy the assets in Hong Kong, Taiwan, Singapore, Vietnam and Indonesia. The total sale proceeds are expected to be between $1bn and $1.5bn. RBS is being advised by Morgan Stanley, ANZ is being advised by Credit Suisse and Standard Chartered by UBS.

Credit

  • Troubled carmaker General Motors is trying to end the objections against its bankruptcy that is the first stage for a ‘new’ GM to emerge. About 750 objections have been lodged with the courts and GM has appealed to the judge to reject them since there is no ‘viable alternative transaction’.
  • Meanwhile, General Motors’ planned sale of its European Opel/Vauxhall business to preferred bidder Magna International has hit obstacles over access to GM’s global technologies. Rival bidders RHJ International and China’s Beijing Automotive Industry Corp have both submitted new offers.
    Eurozone annual inflation turned negative for the first time as consumer prices in the 16-country eurozone were 0.1% lower in June than in June 2008. A similar picture exists in the US where consumer prices were 1.3% lower in May than a year earlier. However, the eurozone does not describe this as deflation – deflation is defined as a protracted period when prices fall.
  • The state of California has printed about 30,000 IOUs that it will send to people instead of giving them their tax rebates unless a last minute budget agreement can be reached. Like a number of other US states, California is grappling with a ballooning deficit exacerbated by the recession and collapsing property values. Governor Arnold Schwarzenegger has urged banks to accept the IOUs that are set to carry an interest rate of 3.75%.

Other

  • VisaNet, the Brazilian affiliate of Visa, raised $4.3bn in the world’s largest IPO this year so far. After being almost 10 times subscribed, the shares rose 15% on their first day of trading on the Sao Paulo exchange.
  • Global manufacturing data is suggesting that the worldwide recession is about to end. Stuart Green, global economist at HSBC said ‘a spell in the financial wilderness now looks less likely for the major economies’.
  • The board at UK soccer club Arsenal are considering a proposal from Russian steel magnate and 25% shareholder Alisher Usmanov for a rights issue to raise between £75m and £150m to help the club deal with its £320m debt and fund transfer activity.
  • A rogue oil trader at the world’s largest over the counter oil brokerage, PVM Oil Associates is being blamed for a spike in trading and price in the early hours of Tuesday. The price jumped more than $2 per barrel to $73.50 as more than 16m barrels changed hands in an hour, instead of the usual 500,000 barrels. PVM said it was ‘the victim of unauthorised trading’.
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