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May 6, 2009
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Uncertainty principles

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Faced with a $34 billion hole uncovered in the stress test, Bank of America might have little choice but to dump its investment in China Construction Bank, China’s second-largest bank. That would give it about a quarter of the $34 billion of additional capital we are told it needs to fill a yawning gap in its foundation. A lock-up on a portion of the stake ends tomorrow, and the opportunity may be too good for embattled CEO Ken Lewis to pass up, though the bank has plenty of incentive to hold onto the stake.

Citigroup’s Keith Horowitz raised his price target on the bank, citing the end of uncertainty. He also says the total need at the 19 stress-tested banks will be $75 billion, with Bank of America accounting for the lion’s share.

May 4, 2009
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Pepsi Bottling says PepsiCo offer flat

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Pepsi Bottling has rejected PepsiCo’s $6 billion offer for it and its main bottling competitor as “grossly inadequate”. Given the two-headed nature of this best, don’t be surprised to hear the same story from PepsiAmericas. On a price-to-earnings basis, the offer values Pepsi Bottling at a 6 percent discount to PepsiCo, and PepsiAmericas at a 9 percent discount, according to JP Morgan analysts, and the 17 percent premium offered to both was greeted with little enthusiasm, particularly once the bottlers, and PepsiCo, beat forecasts with their first-quarter earnings.

As Jessica Hall has reported, an unusual condition requiring both bottlers agree may actually encourage the two to fight independently for the best price. Deutsche Bank analyst Marc Greenberg told her a 10 percent increase in the offer price would still create value for shareholders of the three companies involved, and UBS analyst Kaumil Gajrawala said the takeout premiums seemed small compared with the proposed benefits and synergies outlined. Gajrawala said the offers for Pepsi Bottling and PepsiAmericas could go as high as the mid-$30s and mid-$20s, respectively.

May 1, 2009
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Chrysler, an American Bankruptcy

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Chrysler’s private equity owners Cerberus, or at least their lawyers, will arrive at bankruptcy court in Manhattan later this morning. Yesterday, President Obama assured hand-wringing industrialists that the process would be quick and efficient and that Chrysler would emerge a leaner, meaner machine.

To some degree, one can look at the U.S. airline industry in the same light. But that industry, while “saved” through bankruptcy numerous times, is today a shadow of its former self, and remains haunted every so often by the threat of a return to that business mortuary for rebirth.

Apr 30, 2009
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GM bondholders haggle

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Under the bondholders’ deal, they would swap a 51-percent stake in a restructured company for $27 billion in debt, a person with knowledge of the plan tells Reuters Detroit Bureau Chief Kevin Krolicki. The deal would give the United Auto Workers union 41-percent in a new General Motors while the U.S. government would not receive an equity stake, according to the person who asked not to be named because the offer had not yet been submitted.

A committee representing GM bondholders will present the alternative plan to the White House task force overseeing the restructuring of GM and Chrysler later today, the person said. GM said this week it was moving ahead with a plan to offer existing bondholders a 10-percent ownership of the restructured automaker. Under the GM plan, the US government would own a combined 89-percent of the new company.

    • About Chris

      "Chris Kaufman has reported, written, edited and presented news in various media for Reuters since 1994. He is currently on assignment with the Special Reports team, based in New York."
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