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

U.S. unemployment rose higher than expected, while the weakening of sterling against the U.S. dollar has strengthened Kraft’s position in the takeover of Cadbury. Six U.K. recruitment companies were fined a total of £39.7m for price-fixing by the Office of Fair Trading. 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 week ended with disappointing news on U.S. jobs. The number of workers on U.S. payrolls dropped by a worse-than-expected 263,000 in September, with unemployment hitting 9.8%. In the two years since the recession began, the number of people out of work in America has risen by 7.6m to 15.1m.
  • The Japanese yen rose to an eight-month high against the U.S. dollar as Japan’s finance minister indicated that Tokyo would not intervene to stem the currency’s rise.
  • The S&P Case-Shiller index of house prices in 20 big U.S. cities rose by 1.6% in July from June, its biggest increase in four years.
  • U.S. financial regulators are working on rules aimed to help banks avoid the sudden funding withdrawals suffered by Bear Stearns and Lehman Brothers. The rules will prevent banks from being overly dependent on short-term financing using a variety of ratios.
  • A report from International Financial Services London suggests that London’s position as the world’s number two city for hedge funds is beginning to slip, probably as a result of the EU’s draft alternative investment manager directive. New York is still the leader, and Swiss cities of Zurich and Geneva are gaining in popularity.

Mergers and Acquisitions

  • The London Stock Exchange is in exclusive talks to buy the Turquoise trading platform. Turquoise was launched just a year ago to compete against the exchange. The shareholders of Turquoise are all major customers of the LSE – Credit Suisse, Morgan Stanley, Goldman Sachs, Citigroup, UBS, SocGen, BNP Paribas and Deutsche Bank.
  • Bank of America agreed to sell the long-term asset management business of Columbia Management to Ameriprise Financial for about $1bn. The business managed about $165bn at the end of June.
  • Australia’s Macquarie Group is buying US-based boutique bank Fox-Pitt Kelton Cochran Caronia Waller. Macquarie will pay $130m in cash for the equity and assume $16.7m of long term debt to gain control of the banking and insurance sector specialist.
  • Cisco announced a $3bn cash offer for Tandberg, a Norwegian video-conferencing company.
  • German airline Lufthansa is to take full control of BMI British Midland by buying a 20% stake from Scandanavian carrier SAS. Lufthansa will pay SAS £38m for half the stake and will also relinquish certain rights codified in an agreement between the shareholders in 1999.
  • Chicago-based pharmaceuticals company Abbott agreed a €4.5bn purchase of the drugs arm of Belgium’s Solvay Group. Barclays Capital advised Abbott on the deal.
  • Johnson & Johnson, the world’s largest health products group by market capitalisation, agreed to pay around €302m for an 18% stake in a Netherlands-based biotechnology firm, Crucell. Crucell has development rights on a flu vaccine.
  • Xerox made a $5.6bn cash and stock offer for Affiliated Computer Services, a leader in back-office outsourcing. The offer value was equivalent to a 34% premium on the closing price of ACS before the deal was announced.
  • The weakening of sterling against the U.S. dollar has strengthened Kraft’s position in the takeover of Cadbury. Kraft’s indicative offer for Cadbury was initially valued at £10.2bn on September 7th. However, despite a fall in Kraft’s share price of 5%, the value of the bid has only slipped to £9.9bn. Later in the week, the UK’s Takeover Panel set a deadline of November 9th for Kraft to launch a formal offer for Cadbury. Cadbury had approached the panel with the ‘put up or shut up’ request that will mean that unless Kraft makes a formal offer by November 9th, it will not be allowed to bid for six months unless another bidder enters the fray.
  • The U.K. Takeover Panel has also issued a ‘put up or shut up’ requirement to Xstrata regarding its proposed merger with rival Anglo American. Xstrata has to make a formal offer or walk away for six months by October 20th. If it happens, the merger will create a mining group with a combined market capitalisation of $68bn.

Financial Institutions

  • Singapore’s sovereign wealth fund, the Government of Singapore Investment Corp (GIC) unveiled a 20% drop in the value of its portfolio in the year to March. The fund is estimated to manage more than $200bn and invested $10.7bn in Swiss bank UBS that is now worth only around $6.2bn.
  • France’s BNP Paribas is offering its shareholders a one-for-ten rights issue at a discount of around 29%. The move is set to raise €4.3bn and boost the bank’s capital ratios as recommended by the G20 gathering in Pittsburgh a week ago. The move follows similar announcements from Italy’s two biggest banks – UniCredit plans to raise up to €4bn through a rights issue, and Intesa Sanpaolo plans to raise €1.5bn via a bond issue and asset sales.
  • UBS is hoping to buy back the $23.5bn of toxic assets it has placed in the Swiss government’s ‘bad bank’ scheme. UBS’ chief executive described the cost of the scheme as ‘very expensive.’
  • Goldman Sachs has launched an aggressive recruitment drive to build its asset management business. The firm is looking to hire up to 200 staff across all regions. Goldman currently has $820bn under management.

Credit

  • The Hollywood studio Metro-Goldwyn-Mayer is exploring debt-for-equity swap with its lenders. The studio is heavily burdened with debt and must make a $250m payment by April 2010 on a revolving credit facility and pay off a term loan of $3.7bn by 2012. Its lenders have agreed to let the studio miss three interest payments while it works on restructuring.
  • Ford Motor sold an A$1bn (US$874m) motor loan portfolio to Macquarie Group.
  • Cash-strapped Ukrainian energy company Naftogaz failed to pay a maturing $500m eurobond. Naftogaz is proposing restructuring of its foreign debt.
  • CIT Group, the U.S. commercial lender will file for bankruptcy unless its bondholders agree to an exchange offer that will reduce the company’s $30bn of gross debt by between 30% and 40%.
  • Argentina is set to resume talks with the ‘Paris Club’ of nations over its $93bn of defaulted debts. The Paris Club is made up of 19 countries including Germany, Japan, the U.K. and France and a restructuring of the debts will be a necessary precursor to Argentina re-entering the international credit markets.
  • In advance of a series of U.S. Congressional hearing considering the influence of credit rating agencies and whether new regulation is required, short selling of shares in Moody’s Corp increased by 7%. Moody’s Corp shares fell 20% over the last week, whilst shares in McGraw Hill, the owner of Standard & Poor’s, also fell 12%.

Other

  • The FTSE 100 finished the quarter to September 30th with its best ever performance, rising 20.8%. The index was established in 1984.
  • The world’s largest inter-dealer broker, Icap released a trading statement showing average daily transaction volumes exceeded $2,300bn, of which about 60 per cent is voice brokered.
  • Six U.K. recruitment companies were fined a total of £39.7m for price-fixing by the Office of Fair Trading. The cartel included the UK’s largest recruiter Hays that was fined £30.4m. Hays will appeal against the fine.
  • In an attempt to shave microseconds from the time taken to execute orders, NYSE Euronext is allowing banks to co-locate their servers next to the electronic trading engines of the exchange. NYSE Euronext has already constructed a facility in Mahwah, New Jersey and is in the process of constructing another facility in Basildon, just outside London.
  • An investment by one of the companies controlled by Warren Buffett has propelled the owner of BYD, a Shenzen car and battery maker, to the top of China’s rich list. A ten per cent stake in the company was purchased by MidAmerican Energy a year ago for $230m. Since then the shares of BYD have risen more than sevenfold, making the Buffet stake worth more than $1.7bn and the BYD founder and chairman worth an estimated $5.1bn.
  • British companies will be allowed to list on the London Stock Exchange using a ‘light touch’ set of rules previously only available to overseas companies. From October 6th, U.K. companies will be able to access the two-tier listing system and choose between a ‘premium’ or less onerous ‘standard’ listing.
  • The court-appointed trustee seeking to recover money for the victims of Bernard Madoff’s fraudulent scheme plans to hit his two sons, brother and niece with lawsuits.

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

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