Anglo American hasn't yet received a formal bid from Xstrata. But the miner's interim results read very much like a defence document.
    The highlights alone give a pretty good idea of what chief executive Cynthia Carroll and new chairman John Parker will focus on if Xstrata does eventually pounce.
    Anglo's case hinges on four things.
    First, that its plan to cut $2 billion of costs by 2011 is ahead of target. Second, that it is getting on top of its $11 billion net debt, and third, that progress is being made in restructuring its problem child Anglo Platinum <AMSJ.J>. Lastly, Anglo acknowledges that it is an objective to reinstate the dividend.
    Added to these elements, lest they appeared to have too defensive a flavour, is the promise of growth, largely through its Minas-Rio iron ore project in Brazil and its Los Bronces copper development.
    Of these, cost savings are a crucial point of contention in the Xstrata debate, with the rival miner's chief executive Mick Davis confident he can squeeze a further $1 billion out of a combination with Anglo, taking the total to $3 billion.
    Anglo isn't making any promises beyond those already given but the tone of the language -- which includes talk of being ahead on "asset optimisation", procurement and job reductions -- hints that it may be able to find more savings on its own, without handing anything to Xstrata.
    So far the market seems largely happy to let Carroll stick to her plan -- highlighting Anglo's leading position in platinum, diamonds and iron ore alongside its cost cutting success. But investors might ask more searching questions in the event that Xstrata did come back offering a premium.

    The war between Continental and Schaeffler rumbles on. Karl-Thomas Neumann has got board assent for the capital increase he wants to pay down Continental's heavy debts, a hard-fought for move that is likely to dilute the company's largest shareholder Schaeffler.
    But it is only a partial victory for the chief executive of the German auto parts group -- and one that may yet turn out to be Pyrrhic. Neumann may yet be ejected from Conti for resisting Maria-Elisabeth Schaeffler and her right-hand man Juergen Geissinger (CEO of the privately-owned ball-bearing maker).
    Schaeffler has already seen off several former Conti bosses -- Manfred Wennemer left in August last year and CFO Alan Hippe has since quit. If it succeeds in pushing out Neumann and replacing him with its own candidate, Elmar Degenhart -- at a meeting scheduled for August 12 -- Schaeffler will then certainly push ahead with the sale of Conti's well-known rubber business as a way of reducing its 11 billion euro debt.
    Conti and Schaeffler have been deadlocked since the private group took a majority stake last year after an acrimonious takeover battle. Schaeffler's ability to exercise control is constrained by its own heavy borrowings, much of which are against Conti stock which has lost two-thirds of its value.
    Meanwhile, Conti is also labouring under massive borrowings, which its banks would like it to reduce. Both groups are at odds over how to reconcile their differing interests. Schaeffler, which has entered into a standstill agreement which prevents it from taking over Conti till 2012, does not want the target to issue more equity because it doesn't have the cash to follow its money. Nor does it want to merge with Conti because it fears the exchange ratio would be disadvantageous.
    What it would like is for Conti to sell assets to reduce its debt -- even though this is hardly an ideal moment to do this. Shares in Michelin <MICP.PA> are trading at less than half their mid-2007 peak, while Bridgestone <5108.T> shares are at just over half their level in May 2006 and Pirelli <PECI.MI> shares are less than a quarter of their peak.
    Neumann wanted Conti to raise 1.5 billion euros in fresh equity and then to merge with Schaeffler. The board has now consented to the first of these moves. However it remains to be seen if the banks will be queuing up to underwrite the issue, especially as Conti seems keen to issue it at a very narrow discount to the market price.
    If Conti goes ahead, and neither Schaeffler nor its allies follow their money, Schaeffler's direct stake could fall to 35 percent from 49.9 percent and its total stake (including shares held by its banks) to 63 percent from nearly 90 percent.
    What seems clear is that the key players in this deadlock are the banks to both companies. They may themselves have differing interests. Conti's bankers may not be keen on a change of management at the company, especially given the rapid changes which have already taken place at the top. And Schaeffler's bankers might not welcome capital increases at Conti that diluted their equity position.
    Debt has become an albatross around the necks of both companies, which only the banks are able to remove.

A web-based survey of more than 40 European institutional investors by investment bank Jefferies shows most -- 83 percent of those who responded -- are not expecting a re-opening of the IPO market in the UK and Continental Europe before the middle of 2010.

Only 23 percent of the analysts, portfolio managers and dealers surveyed reckon the IPO market will re-open by the end of this year.

Seems the world is still split on what type of companies will be floated though:

"40% of respondents believe that classic growth stories, similar to the deals priced in the US with their tech themes, will be best received at the early part of the cycle. However, 46% believe that more defensive growth companies will dominate."

Some other interesting tidbits: A third of those polled said they would only buy shares in the IPO of a profitable company, half think GDP growth is a pre-cursor to IPO activity taking off again and liquidity is key, with an expected free float of at least $100 million the starting point.

All food for thought for anyone thinking of floating or spinning off a business. After all, it usually takes months to get them off the ground. 

    Rexam is delivering a nasty surprise to its shareholders, but the logic of its proposed rights issue is hard to fault.
    If trading turns out to be as bad as the board expects, then the penalty payments for refinancing its existing debt will far outweigh the cost and dilution of the issue.
    Broker Oriel Securities reckons the cost to Rexam if it loses its investment grade rating will be an extra 8 to 12 million pounds a year in interest payments.
    Businesses everywhere are rediscovering the joys of equity, as the way to stave off the dreaded downgrade. So far this year, shareholders have put up $119 billion, according to Thomson Reuters data, with $28 billion more due.
    Even cash-rich carmaker Volkswagen is reported to be considering issuing shares to bolster cash reserves and pre-empt any ratings downgrade relating to its merger with Porsche. Spanish utility Iberdrola and French construction groups Lafarge and Saint Gobain all took similar steps to bolster their ratings.
    Unfortunately, credit ratings agencies are so jumpy about regulators and the risks of legal action by investors that companies can't always bank on such moves working.
    Saint Gobain launched a rights issue, but still S&P cut it to BBB from BBB+. Lafarge did worse. Fitch not only cut its rating to BBB-, it added a "negative outlook".
    One reason ratings have increased in importance is that as banks have turned off the taps, companies have turned to the bond markets, allowing the agencies like Moody's Corp and McGraw-Hill's S&P to cash in.
    Experience has taught them caution, however, and the number of issues downgraded from investment grade to junk is on the rise. The threat of this -- with the higher cost of borrowing and reduced market access it brings -- is a powerful incentive to go to the shareholders. S&P has identified 75 issuers -- with $255 billion of debt -- in danger of losing their coveted investment grade.
    The unhappy experience of Rexam shareholders is likely to repeated many times as the debt crisis unwinds, but at least it's better than losing control of the business to its lenders.

Is Beijing trying to get its hands on the secret brewing recipe for Guinness?

China's sovereign wealth fund has bought a 1.1 percent stake -- worth around 240 million pounds -- in drinks group Diageo, which owns the legendary Irish stout.

China isn't yet among the top five markets for Guinness -- although Johnnie Walker whisky is apparently a favourite -- but the stout does already feature among Diageo's top brands in South East Asia and Japan.

Officials at China Investment Corp (CIC) probably felt like a stiff drink or a long pint of Guinness after the roasting the fund got for the performance of its investments in Blackstone and Morgan Stanley.

And while its investment in Diageo won't buy CIC the secret to the Guinness recipe, it should guarantee its officials a warm welcome when they visit the historic plant in Dublin.

The 1980s revival continues. Music fans have been flocking to see the Human League and Spandau Ballet on their reunion tours. Now M&A aficionados can savour their own mini revival. Yes, it's the return of the Pac-Man bid.
Two mid-sized British insurers, Friends Provident and Resolution have revived this gambit, named after a mind-bogglingly dull computer game where the objective is to eat your pursuers rather than be eaten yourself. In M&A, this involves the target of a bid approach (in this case, Friends) turning on the bidder and launching an offer itself.
In the case of Resolution there was a certain logic in so doing. Resolution is effectively a cash shell company, which has opaque governance. Its nil premium share for share approach offered little to Friends other than the chance to hand over 10 percent of the combined company's profits to Resolution's management. The proposed nil premium counterbid made little sense (other than to eliminate the 10 percent profit share). But it did at least tease out a slightly more generous bid proposal from Resolution.
Pac-Man defences are rare in M&A -- and for good reason. They're wholly unconvincing. If you get a bid for your company, and think that the combination has merit, squabbling over who bids for whom seems to miss the point. At worst it smacks of management self interest.
This is not the only reason there have been very few Pac-Man defences. The bigger problem is that they are uniformly unsuccessful. The target never actually gets to gobble up the predator. It is 10 years since Elf Aquitaine's desperate  attempt to see off an ultimately successful bid by fellow French oil major Total. The same year, British regional brewer Marston's also used the defence against a bid from Wolverhampton and Dudley Breweries. It too failed.
That doesn't stop it from rearing its ugly head from time to time. Pac-Man defences were raised as a possibility for Rio Tinto  to turn the tables on BHP Billiton and more recently as a means for Anglo American to round on Xstrata. But generally that's all it is: talk.
The Resolution-Friends situation is an unusual one. Resolution is a cash company that is desperate to do a deal, while Friends rejected a 150 pence per share bid from J.C. Flowers last year. There are particular reasons they have ended up in a sort of death embrace. So while the Spandaus may be back in favour, the Pac-Man bid is likely to remain consigned to the archive.

This week's Thomson Reuters Investment Banking Scorecard shows bankruptcy-related M&A at a five year high.

There were five bankruptcy-related M&A deals announced during the week, including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million. 

So far this year there have been 173 bankruptcy-related deals, the highest level since the same period of 2004 when there were 202.

During 2009 the most bankruptcy-related M&A deals have occurred in the industrials sector with 23 percent, followed by the media and entertainment sector with 16 percent. 

In terms of geography, U.S. targets represent 83 deals or 48 percent of the total of bankruptcy M&A.

This is hardly surprising given the speed with which some of the biggest bankruptcies have happened in the U.S. -- with a little help from section 363 easing rapid asset sales at GM and Chrysler.

The rest of the world probably has some catching up to do.

The Times says Anglo American shareholders have rejected rival Xstrata's merger approach.

"All of Anglo's leading institutional investors are understood to have turned down Xstrata's nil-premium merger of equals," the paper says.

No great surprise perhaps given the initial market response -- which saw the Anglo premium widen over its rival mining group.

What is clear from the Anglo share price is that Xstrata's approach -- whether or not ultimately successful -- has jolted Anglo's shareholders into action, increasing the pressure on Anglo's management to up its game and reveal its hidden gems.

This dusting down process may already be underway, although Michael Rawlinson at Liberium thinks it is probably too little, too late.

Rawlinson's view:

• We have yet to find an Anglo shareholder that is happy with how Anglo is being run and has absolute faith that the ambitious cost savings targets can be achieved under the current management team.
• Again, we have yet to find a shareholder who believes Anglo’s high exposures to SA and its difficult politics is a good thing and that diversification of risk away from this as bad.
• Parallels between the merger of the once loathed and underperforming BHPB with aggressive newcomer Billiton have particular resonance in our view. We recall BHP shareholders initially resented the offer terms for the merger – but 8 years on it is clear the cultural renewal afforded by the sector defining deal has created a stand out industry leader

One of the Anglo businesses which could do with a bit of a polish is diamond producer De Beers, in which Anglo has a 45 percent stake.

De Beers tells Reuters correspondent Eric Onstad that while its first half and full year profits will be lower, they will not be negative.

The world's top diamond producer has slashed output by 90 percent in the first quarter and is cutting operating and capital costs by $1.5 billion this year, but sees signs of recovery in the market.

But De Beers is only a small part of the story and Anglo shareholders will have a much harder decision to make if Xstrata does come back with a better offer.

Back to Liberium's Rawlinson:

"We would regard the principal of a take-over has been established in the market and it is a pricing issue as to whether it can be done. This is a clear change from where we were a week ago."

And are conservation groups moving into the business of giving investment advice?

It seems an unlikely path for environmentalists to take, but this WWF commissioned report warning that failure to take carbon risk into account could knock pension fund returns raises some interesting points.

"Carbon Risks in UK Equity Funds" by Mercer and Trucost "outlines how fund manager complacency on corporate carbon performance could put pension fund assets at risk as carbon-intensive companies face rising carbon costs and their company valuations fall in the short-term in anticipation of future carbon risk".

The report argues that fund managers "could dramatically reduce the carbon footprints of their funds through stock selection without the need to alter sector weightings or their overall investment strategy".

It also encourages them to engage with companies in their portfolios and calls on them to support mandatory reporting requirements for corporate greenhouse gas emissions.

The research says climate change is of "little importance in fund managers' investment decisions", with the main reason cited for this "a lack of confidence in government policies to address greenhouse gas emissions".

WWF wants fund managers to see there are financial incentives for pension funds and other institutional investors to consider carbon risk. If nothing else, it has learned to speak their language.