By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Contestants live under constant threat of eviction on “Big Brother”, Endemol’s flagship television show. Creditors have found turfing out the company’s owners much harder.

After years of wrangling, hedge funds which bought the TV producer’s loans on the cheap are set to take sizeable stakes through a debt restructuring. That makes Endemol a textbook example of what the distressed-debt specialists which are pouring capital and manpower into Europe call a “loan-to-own” deal. But it’s also a case study in how difficult these victories can be.

Endemol offers three main lessons. First, a big firm’s many owners and lenders may pull in different directions, which can slow down or block deals outright. Some banks might balk at accepting shares in a debt swap. Endemol has three owners – Goldman Sachs, Silvio Berlusconi’s Mediaset, and co-founder John de Mol – and three main banks: Barclays, Royal Bank of Scotland and the Lehman Brothers estate. Despite protracted negotiations, neither Mediaset nor Barclays back the current deal, a person familiar with the matter said.

A second lesson is that boom-year buyouts weren’t just overleveraged. They often also came with loose loan agreements that leave owners lots of wiggle room to avoid a default. It took court threats to stop Endemol buying back its own debt on the cheap in order to flatter its loan covenants.

The third lesson is that private equity owners – in this case Goldman – can fight hard to avoid a default, even when logic may dictate they should just walk away. That’s because losing a banner investment is a reputational as well as financial blow.

It’s too early to say how well Centerbridge, Apollo, and the other hedge funds that will soon part-own Endemol have done. The restructuring may clear the way for a sale to a media group such as Time Warner. But for now the funds will become shareholders in an unlisted company. Only when they sell out will it be possible to say for sure whether the wrangling was worth it. Either way, future evictions are unlikely to be much easier.

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

When it comes to carving up M&A fees, bankers rule. That’s the revelation from new UK rules that force buyers of listed companies to disclose how much they pay their armies of advisers. It’s too early to judge whether the new regime, probably the world’s most transparent, will force down takeover fees. But the initial data provides hard evidence of just how much banks benefit.

Since the rules changed in September 2011, there have been only a handful of sizeable takeovers. In the case of Colfax’s takeover of engineering group Charter in October, and Theo Mueller’s recent purchase of dairy firm Robert Wiseman, bankers out-billed lawyers by a factor of seven or eight.

Half of the 106.4 million pounds in fees from Colfax-Charter went on financing, and another 35 percent on financial and broking advice. Lawyers took home just 11 percent of the total. In the Mueller-Wiseman deal, where the financing was simpler, 75 percent of the fees were for M&A advice.

True, lawyers did a bit better out of a third deal: Canaccord’s purchase of broker Collins Stewart. Perhaps that reflects knottier legal issues in financial services transactions. But even then, legal fees were just a fifth of the total. In all three deals, other advisers were little more than a rounding error: for example, public relations firms carved out just 1 percent of the total.

It’s not surprising that banks take the lion’s share. In Britain at least, they play a far bigger role in crafting deals than their nearest rivals, the lawyers. Banks also have multiple ways to rack up big bills: they can charge for M&A advice, for liaising with shareholders, and for financing.

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Tesco badly needs to regain investor trust after Thursday’s trading update wiped 5 billion pounds from its market value. Allowing a senior executive to offload shares days earlier may not have broken any rules. But this tin-eared move hardly helps the grocer’s cause.

Noel “Bob” Robbins, a company veteran who became UK chief operating officer in March, sold 50,000 Tesco shares on Jan. 4. The sale came near the end of the grocer’s crucial Christmas trading period and netted Robbins just over 202,000 pounds. Eight days later Tesco roiled the market with worse-than-expected UK seasonal sales, coupled with a profit warning for the year to come. It was a proper shocker from a company long seen as one of UK Plc’s most trusty standbys. Sold today, Robbins’ shares would fetch 40,000 pounds less. Outside investors will be forgiven for feeling exasperation.

Robbins is not a director of the company, but he is a member of its executive committee, and does count as a “person discharging managerial responsibilities” under UK listing rules. Such insiders must clear all share trades, usually with a board director or company secretary, and are largely barred from trading in the “close period” before a results announcement, and at other “prohibited” times when insider information is circulating.

Tesco says everything was above board: Robbins sold a small chunk of his stock for “necessary family expenditure” after obtaining usual approvals, and had no price-sensitive information. It notes the sale was not in a close period and contends that the market was more spooked by the outlook for profits and UK investment, to which Robbins was not party, than by actual sales data.

Fair enough. The share sale smacks more of cock-up than conspiracy. But even allowing for all these factors, the episode hurts. Three days before the end of a six-week Christmas trading period is a foolish moment for any retail operations chief to indulge in stock market activity, if only to avoid the risk of misinterpretation. Britain’s listing watchdog says directors should not just be clean in their dealings, but be seen to be clean. The grocer should have said no.

By Quentin Webb The author is a Reuters Breakingviews columnist. The opinions expressed are his own

Few companies embody the highs and lows of turbo-charged modern finance better than Ferretti. Once the luxury yachtmaker made a mint for private equity. Now a state-backed Chinese industrial conglomerate is buying it for at most a fifth of its peak value.

Ferretti’s financial journey launched in 1998. Previously family-owned, the firm became a small, wildly successful investment for a forerunner of Permira, the European buyout house. Turnover quadrupled in three years, and the backers made more than 50 times their money back in a 2000 flotation. That valued Ferretti at about 400 million euros including debt.

Two years later, luxury stocks were languishing. Another Permira fund bought Ferretti back, in an 833-million-euro deal. Ferretti gobbled up rivals, and sales soared yet higher, aided by the rise of the super-rich. Permira sold a majority to rival Candover in 2006. This “secondary buyout” valued Ferretti at 1.7 billion euros. Talk followed of a 3 billion euro flotation.

Then things went adrift. As the financial crisis set in, customers no longer felt filthy rich. High costs, plunging orders, and 1.1 billion euros of debt proved toxic for Ferretti. Candover lost control in 2009, hastening its own downfall.

Enter Shandong Heavy Industry Group-Weichai Group, which is taking control in a second restructuring. The lengthily named Chinese firm and Ferretti aren’t obvious bedfellows, but there is some logic. Shandong Heavy already makes marine engines. China is minting millionaires daily, and the only way is up for its tiddling yacht market.

The Chinese are paying 178 million euros for 75 percent of Ferretti’s equity and providing 116 million euros of new term debt, which implies an overall enterprise value of about 350 million euros. Major lenders RBS and Strategic Value Partners, a hedge fund, get the remaining equity for 25 million euros. Previous debt, totalling about 690 million euros, will be repaid at about 32 cents on the dollar, a person familiar with the matter says.

By Quentin Webb The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

JPMorgan may soon rank among Germany’s top cable-TV broadcasters. The U.S. investment bank committed to be a back-up buyer if regulators stop Liberty Global acquiring number three cable firm, Kabel Baden-Wuerttemberg. But if JPMorgan finds itself on the hook, that won’t automatically be the death knell for these unusual agreements.

The firm made the commitment in March before the euro zone crisis intensified. Its position now appears awkward. The Federal Cartel Office must decide by Dec. 15 whether Liberty, run by media tycoon John Malone, can combine KabelBW with the number two in German cable, Unitymedia. The watchdog worries the deal could disadvantage television stations, which pay to transmit programmes, and housing associations, which buy cable for whole apartment blocks.

Liberty has offered some remedies. But if these don’t suffice, JPMorgan has to shell out 910 million euros to buy KabelBW from EQT, the Swedish buyout firm it advised originally. Then it would have to re-auction the company. Taking on illiquid, leveraged buyout equity is the last thing a bank should want to do right now. But it’s not hard to see why JPMorgan agreed to help its client in this way. Its balance sheet wasn’t shot to pieces in the crisis, and it has obtained some safeguards. Liberty would help fund the purchase and has indemnified JPM against loss on any re-sale. What’s more, JPMorgan wouldn’t actually own KabelBW until early 2012 and would then class it as an asset held for sale. Effectively, JPM’s role is purely as a legal owner.

Moreover, a new KabelBW auction shouldn’t be hard. Private equity loves cable’s cashflows, and KabelBW is on a tear: EBITDA leapt 15 percent in the year to end-September. Former suitors like CVC would probably re-bid. A buyer could keep in place KabelBW’s capital structure, with its keenly priced junk bonds issued in March – financing impossible to obtain in today’s crisis-ravaged markets.

Liberty has done similar things before, getting banks to “warehouse” a Czech M&A target before regulatory approval. Such devices resolve a common M&A dilemma: the best fit between buyer and seller can lead to both the highest offer price, and the biggest risk regulators say no. Assuming JPM escapes a prolonged tangle, the “backstop” may not stop here.

By Quentin Webb The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Once again, banks in Europe have been left standing when the music stopped. In an echo of 2008, lenders backing private equity deals have found themselves with a big backlog of unsold loans. That bodes ill for future buyouts.

Private equity deals are usually financed by a handful of banks, which tide the borrower over until it can arrange permanent financing in the form of “senior” loans and riskier instruments such as high-yield bonds. But numerous banks, including Goldman Sachs and Morgan Stanley, were wrong-footed by the rapid escalation of the euro crisis. Lenders suddenly found there were few takers for the loans they wanted to syndicate, while the market for new junk bonds effectively closed.

Eleven European buyouts remain “hung” in this way, with total debt of nearly 5.2 billion euros, Thomson Reuters LPC data shows. That’s a fraction of the 80-billion-euro mountain that banks were left with four years ago. And it’s halved since August, as banks have pulled out the stops to shift deals.

But managing the backlog hasn’t been easy. Banks have increased interest rates to make the loans more attractive to buyers, and sold them on for as little as 91 percent of face value. Debt packages have been rejigged to reduce cash interest payments, or to replace junk bonds with costlier mezzanine finance.

In financial terms, the absolute hit looks modest for banks. So-called “flex” clauses allow them to pass on perhaps 1.5 percentage points of extra interest costs to the borrower. And underwriting fees, equivalent to maybe 3-4 percent of the financing package, effectively provide a cushion that can be absorbed before banks have to recognise a loss.

Still, banks are forced to set aside large chunks of scarce capital against the loans on their balance sheets. And writing off fees still hurts, particularly when the investment banking industry is suffering.

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Silvio Berlusconi’s media empire faces a painful adjustment to a new Italy. A stuttering domestic economy bodes ill for the advertising that’s the lifeblood of his television company, Mediaset. And his main private competitor, Rupert Murdoch’s Sky Italia, should benefit now that Italy’s lawmaker-in-chief isn’t a direct commercial rival.

Berlusconi owns 39 percent of Mediaset. As prime minister, he also effectively controlled state-backed rival Rai and held sway over the regulatory backdrop. But Mediaset is in trouble now: its shares have halved this year. As a mostly free-to-air broadcaster, it depends on advertising for more than 80 percent of domestic revenues. That’s always vulnerable in a weak economy; Brussels reckons Italy may grow just 0.1 percent next year.

Moreover, Sky may be able to take market share from Mediaset, which has more than 60 percent of all television advertising. That’s perhaps partly due to the Italian firm’s desirable viewer profile, and advertising limits placed on Rai. But some companies may also have felt it prudent to over-weight the premier’s company in their ad budgets.

Sky is probably stuck with some of the other obstacles Berlusconi’s government threw in its path, such as tax increases on pay-TV. But it might have a stronger hand now in other battles, for instance over an odd-looking “beauty contest” for digital-terrestrial frequencies. The satellite firm would love to look more like its bigger brother, Britain’s BSkyB, which boasts twice as many subscribers and much fatter margins.