“I would have done a quarter instead of a half because it signals we’re in deep doodoo.” — Robert Toll, (pictured left) the CEO of luxury home builder Toll Brothers on the Fed’s half-point rate cut. 
    
“I do think there’s an element of a bailout here and the bottom line is that we run the risk that global investors recognize that the Fed has more or less abandoned its fight against inflation.” — William Sullivan, chief economist, JVB Financial Group, Boca Raton, Florida. 
     
“I don’t think the worst is over. I think there are still some bombs out there.” — Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas. 
    
“It will probably stop the bleeding, but the question is whether it will provide the impetus the economy needs.” — Bill Zollars, chief executive of YRC Worldwide Inc, North America’s largest trucking company. 
    
“The ongoing credit crunch has likely taken away the punch bowl from the jumbo LBO party at least for the medium term.” — proxy advisory service Institutional Shareholder Services in a report in which it supported a buyout offer for U.S. radio station operator Clear Channel Communications Inc, reversing a previous recommendation.

“Barring any unforeseen circumstances, we feel that the worst of this credit correction is behind us.” — Lehman CFO Chris O’Meara after the investment bank reported better-than-expected quarterly results.

Compiled by Martin Howell 

(Photo, Reuters file)

** The Fed effect was short lived for battered UK mortgage lender Northern Rock, which fell as much 20 percent on rumors of a cut-price takeover bid. Traders cited speculation of opportunistic cut-price bids for Northern Rock from mortgage bank HBOS or from Lloyds TSB, with possible offers rumored at 200 pence a share or below. The stock was trading around 277 pence, down around 10 percent, around midday in London. 

** Accredited Home Lenders Holding has knocked 22 percent off its price for acquirer Lone Star. Accredited has agreed to an  $11.75 per share buyout — well below the original $15.10 deal price, but a far cry from the $8.50 Lone Star was offering under a revised proposal. As part of the agreement, Accredited said it would drop a lawsuit against the private equity fund. The acquisition remains structured as an all-cash tender offer. Lone Star also agreed to provide financing of $49 million to Accredited, of which about $34 million will be used to pay down outstanding debt.
    
** Morgan Stanley is taking a nibble at China’s red-hot wealth management sector. The U.S. investment bank is buying a stake in China’s Jutian Fund Management, according to sources close to the situation. A Jutian official declined to say how big a stake Morgan Stanley would take or how much it would pay, but said Morgan Stanley would be joined by a Chinese firm as a co-investor. Jutian manages three mutual funds, including two equities funds and one money market fund, with total assets under management of around 500 million yuan or $66.55 million.
        
** Clothing company Kellwood Co says it received an unsolicited bid from Sun Capital Securities Group to acquire all of its outstanding shares for $21 per share, in a deal worth about $543.7 million. The offer represents about a 38 percent premium to Tuesday’s closing price of $15.17. The company’s brands include Baby Phat and Nautica.     
 
** Time Warner will “look hard” in the next 12 to 18 months at possibly selling its AOL dial-up Internet access business after doing so in Europe. Some Wall Street analysts have argued Time Warner is worth more broken apart than together. AOL now offers most of its services for free to focus on boosting advertising sales both on AOL.com and across the Web through its third-party online advertising networks.
    
** The Fed’s 50-basis-point rate cut should improve banks’ lending margins and give them breathing space to deal with the fallout from the subprime mortgage crisis. Some bankers expect lower rates to revive some of the mergers and acquisitions idled by a global credit squeeze if investor confidence gets a sufficient boost.
 
** The Deal Journal presents a collection of comments from private equity heavyweight Wilbur Ross, who it says has become the de facto spokesman of the credit meltdown. 
 
** Financing concerns have clouded acquisitions of Genesco, PHH and Sallie Mae, but very few mergers actually collapse on Wall Street. A review of mergers in 2006 by law firm Nixon Peabody found that contracts have become increasingly specific and have narrowed a buyer’s ability to walk away from deals. 
    
** Clothing company Warnaco Group says it plans to sell most of its swimwear brands, including Anne Cole, Cole of California and Catalina, keeping only the Calvin Klein and Speedo labels. The clothing company, which also raised its full-year earnings outlook, said it is exploring strategic options for its Lejaby business of swimwear and lingerie.
    
    
    

While large-cap private equity firms are licking their wounds, a brighter picture has emerged from another section of the M&A community: the midmarket.

Indeed, private equity executives and bankers–large and small–say the midmarket is where it’s at these days. So does Grant Thorton, which says in a recent survey that 75 percent of mid-market companies expect to engage in international M&A at least once in the next 12 months.
                                                         

According to the survey, the U.S., Canada and U.K. are the markets most open to cross-border deals, with more than half of respondents saying North American companies were the most accommodating for international transactions.

As Bank of America Securities analyst Michael Hecht pointed out in a recent research note on Blackstone, that firm is finding that it can still get funding for deals up to $1 billion, but anything beyond that is a stretch. More than $10 billion? Fuggaddaboudit.

That means the already crowded mid-market private equity field is about to get a lot more crowded. That may appear to be bad on the surface, but Wall Street is looking to the mid-market as light at the end of this long dark tunnel that is the credit crunch. The Street is hoping that it’s the midmarket scene that gets the buyout frenzy going again. Buyout shops in the midmarket are hoping so too.

The Grant Thorton release offers the following quote from Giles McNamee, managing director at investment bank McNamee Lawrence & Co. “We’re continuing to see increasing amounts of cross-border M&A activity in the tech sector as undervalued assets at home find value overseas. There are nearly 30,000 software companies in the U.S. and Europe and the markets tend to focus on only a fraction of them. There is a vast field of undervalued and underappreciated software companies in the marketplace that offer plenty of M&A opportunity.” 

(Photo, Reuters file)

Proof that M&A fell off a cliff in the first two weeks of September came from data provider Dealogic on Monday night.

So far in September, announced U.S. mergers have reached a total of $27.4 billion, down 55 percent from about $61.5 billion for the same period last year.

The rest of the world held up better this month, with $88.7 billion of announced global deals through September 17, down 26 percent from $120.4 billion over the same period in 2006.

As the credit crunch puts the squeeze on funding and debt financing for numerous deals, the numbers could get even worse as deals fall apart.

Some transactions appear to be hanging by a thread.

On Monday, mortgage and vehicle fleet company PHH Corp, which agreed in March to be bought by General Electric Co and Blackstone Group LP for $1.8 billion, said its takeover could collapse because Blackstone faces a shortfall of up to $750 million in debt financing.
And last Friday, Finish Line Inc said Swiss bank UBS warned it may terminate its agreement to finance Finish Line’s $1.5 billion purchase of shoe and hat retailer Genesco Inc.

So far, however, global M&A activity still trumps 2006, with announced global deals at $3.74 trillion, up 46 percent from last year’s $2.56 trillion.

But what about the United States? It actually trails the advance of the global trend this year, with $1.32 trillion of announced transactions, up 29 percent from last year’s $1.02 trillion at the same stage.

** Standard Chartered is moving to beef up its private and correspondent banking services with a deal to buy American Express Bank for around $860 million in cash. The Asia-focused retail bank said it would pay Amex Bank’s net asset value at the time of completion, plus $300 million. At the end of June, that value stood at $860 million. American Express said separately it valued the transaction at $1.1 billion. Standard Chartered said it would finance the deal with internal resources and an ongoing debt funding program, is expected to create pretax cost savings of more than $100 million per year from 2009 onwards. The bank expects the deal to be accretive to earnings per shares in 2009, the first full year of ownership.

** More than a dozen parties, including some private equity firms, have expressed interest in Wendy’s International, according to the Wall Street Journal. Citing a person familiar with the the situation, the Journal said Wendy’s board was still considering a recapitalization or other change in strategy in addition to an outright sale of the fast-food company. Arby’s parent Triarc Companies, controlled by billionaire investor Nelson Peltz, is the only company that has publicly expressed interest in making a bid for Wendy’s. But any private equity interest is severly limited by the credit crunch.
    
** With the Fed expected to cut interest rates later today, the Deal Journal takes a look at what effects various moves would have on the deal-making market. It says rumors of November layoffs in the industry are growing louder. 

** Australian healthcare firms Symbion Health and Healthscope, searching for alternatives to a failed A$2.9 billion ($2.4 billion) takeover deal, plan to extend tie-up talks, according to a source close to the deal. Rival Primary Health Care last week voted its 20 percent stake in Symbion against the deal, scuppering Healthscope’s takeover proposal and prolonging the battle for valuable medical testing assets in Australia’s consolidating healthcare industry. Following the vote Healthscope and Symbion started fresh talks and had five days to come up with a new bid. The source said they will extend that period.

** Private equity titans are finding little sympathy from pension funds in their efforts to stave off higher taxes, and a recent study buyout firms can earn even more money from fees than from selling on restructured assets, has not helped their case. Pending legislation would raise taxes on “carried interest” — profits on the sale of assets — at private investment funds to 35 percent from 15 percent.

(Picture: Reuters)

No bitterness then from Warner Music boss Edgar Bronfiman (left) for not snagging British rival EMI.

Bronfman said at The Deal’s “Convergence 2.0″ conference that the best thing that could happen for Warner Music would be for EMI’s acquisition by rival bidder Terra Firma to be “wildly successful”.

Warner, majority controlled by private equity firms, earlier this year decided not to outbid Terra Firma for the asset and some analysts theorized at the time that Bronfman wanted EMI a lot more than Warner’s backers did. For a look at the chronolgy of the saga click here.

Bronfman’s argument for wishing success on his arch-rival was that the industry would rise as a whole should the company do well. 

Of course, the other argument that could be put forward is that a less successful future for EMI could put the assets back in play.

Bronfman on Monday took the spiritied approach of wishing Terra Firma boss Guy Hands and the EMI team a “tremendous amount of success”.

Meanwhile, the repurcussions of EMI going to Terra Firma, and Warner’s depressed share price, have raised speculation about whether Warner will want to remain a public company. Bronfman, unsurprisingly, didn’t want to discuss that issue with Reuters when pursued out of the conference building…

(Photo. Edgar Bronfman, Reuters file)

Leo Hindery hasn’t been making a lot of friends in the private equity industry, lately. Hindery, a media industry veteran and managing partner at InterMedia Partners, appeared at a Congressional hearing on carried interest on Sept. 6 and proceeded to bash the theory that higher taxes will hurt the industry. The hearing followed two bills that aim to raise the tax on profits–carried interest–at certain private investment funds to up to 35 percent from 15 percent, and a separate proposal–dubbed the “Blackstone bill”–that would more than double corporate taxes on private equity firms that go public.

When asked–tongue in cheek–at The Deal’s “Convergence 2.0″ conference in New York on Monday if he’d received any hate mail from Blackstone CEO Stephen Schwarzman, Hindery’s response was, “No, but he did call me.” Hindery did not elaborate on the conversation. But he did offer more thoughts on why private equity firms deserve to have their profits taxed at the ordinary income rate of 35 percent.

“No aspect of my income…would cause me to lose money,” Hindery said at the Deal’s event on Monday. What he was referring to was the policy embedded in the U.S. tax code that applies the capital gains tax to owners who take entrepreneurial risks. Hindery argues that because private equity firms are investing someone else’s money, it’s hardly an entrepreneurial risk. Even if the fund does poorly, the private equity manager can live off the management fee.

Hindery pointed out that when the capital gains tax was cut to 15 percent from 20 percent, you didn’t see a rush of private equity firms lowering their management fees.

(Photo. Leo Hindery, Motherjones.com)

“Why buy a bank whose business model is broken?” — Arturo de Frias, chief banking analyst at Dresdner Kleinwort, on the difficulty of finding a buyer for Britain’s troubled mortgage lender Northern Rock.
    
“We are going to see bad deals that have been done that are not publicly known as bad deals yet, we will have scandals, reputations will decline and people are going to be left with a bad taste in their mouths.” — Michael C. Jensen, professor emeritus at the Harvard Business School, in the Sunday Business section of the New York Times.
    
“We are disappointed, unimpressed and studying our options.” — statement from MetroPCS Communications after Leap Wireless International rejected its unsolicited takeover bid.
    
“These companies have very poor disclosure. Even if they report good numbers, there still may be concern that the numbers aren’t believable because it’s mark-to-model.” James Ellman, portfolio manager at hedge fund Seacliff Capital in San Francisco, commenting on this week’s earnings from four major investment banks.
    
“I don’t like to buy bonds that go down.” — Dan Fuss, vice chairman at Loomis Sayles in Boston, who helps oversee $77 billion in fixed-income assets, on why he hasn’t bought any of this year’s $1-billion-plus junk-bond LBO issues. 
    
“Our M&A section is really busy right now. The deals are flowing in. And it’s not just the number of deals, there are a fair amount of big deals, including those above 100 billion yen.” — Nomura Executive Vice President Hiromi Yamaji, who heads Nomura’s global investment banking team.
    
“It is becoming increasingly difficult for a stand-alone technology company to prosper, especially in light of the very strong competitors in the area. It might almost be dangerous to continue to stand alone.” — billionaire investor Carl Icahn after increasing his stake in BEA Systems to 8.5 percent and urging the company’s board to put the business software maker up for sale.
    
(Compiled by Martin Howell) 
   

** With its stock sliding and depositors lining up to withdraw their savings, pressure is rising for a sale of British bank Northern Rock. Britain’s fifth-biggest mortgage lender was rescued with emergency Bank of England funding on Friday. It says there is no need for investors or customers to panic and insists it is solvent. Fears have mounted that a run of withdrawals will exacerbate the lender’s funding problems and force a fire sale of the business. 
    
** Irish building materials firm CRH is talking with Cemex about buying up to $4.5 billion of the Mexican company’s U.S. and European assets. CRH said it could raise debt to finance the transaction. Acquisitive CRH, which said last month it was looking at buying Anglo American’s Tarmac business, will acquire Cemex operations in Florida and Arizona. Cemex was obliged to sell the assets because of its acquisition of Australian building materials group Rinker Group earlier this year. CRH said it had already bought four U.S. companies this month for a total cash consideration of $350 million. Last year, it acquired Ashland Paving and Construction for $1.3 billion.    

** Leap Wireless International spurned an unsolicited bid from larger rival MetroPCS Communications on Sunday. At Friday’s closing price, the deal valued Leap at around $4.7 billion. Leap said the deal was not in the best interests of the company and its shareholders. “Your proposal fails to take into account Leap’s robust growth prospects,” Leap President and Chief Executive S. Douglas Hutcheson said. MetroPCS responded by saying: “We are disappointed, unimpressed and studying our options.” 
 
** Aerospace and defense company ITT said it would buy defense electronics EDO for about $1.6 billion, or $56 per share in cash, which represents a 9 percent premium over EDO’s Friday closing price. ITT said its earnings would not be affected in 2008, and would be helped thereafter. EDO designs defense electronic and communications systems, aircraft armament systems and other products. Among ITT’s businesses are water treatment equipment and air traffic technology.
 
** Deutsche Telekom mobile phone division T-Mobile USA plans to buy SunCom Wireless Holdings for about $1.6 billion. It said it would also take on about $800 million SunCom debt and that it saw synergies from the transaction of about $1 billion. SunCom shareholders get $27 per share, a 22.7 percent premium to Friday’s closing price. SunCom operates in the southeastern United States and in the Caribbean. It had more than 1.1 million customers by the end of June, and had revenue of $242.5 million in the second quarter.
 
** Telecoms company Paetec Holding is buying privately held McLeodUSA for $492 million. Paetec expects the deal to boost its business to an equivalent of 3.4 million access lines and 17,000 miles of fiber-optic routes.         
 
** Shares of Business Objects rose as much as 9.2 percent following a weekend newspaper report that the Franco-American software group was for sale and had retained Goldman Sachs as advisers. Analysts were skeptical a deal would get done in the currently jittery market. Le Figaro reported that German software group SAP was best positioned to acquire Business Objects and could enter into exclusive talks in the coming weeks.
    

Late on Friday, CNBC reported that Frank Quattrone was spotted in the Midtown Manhattan Offices of Invemed Securities, a brokerage firm run by Ken Langone. Langone reportedly met with Quattrone and former New York Stock Exchange Chairman Richard Grasso. The three later had lunch, CNBC said.

We know that Langone and Grasso like to meet over meatballs, but what was Quattrone doing there?
   
When CNBC inquired about a possible joint venture, Langone sent a statement to the business news outlet. According to a “Breaking News” email sent by CNBC, the statement said: “When we’re ready to announce our joint venture (CNBC) will be the first to know.”  
   
“They had lunch together,” Quattrone spokesman Bob Chlopak said to Reuters when we called about this (C’mon it’s late Friday and it’s slow right now). “The topic of discussion was probably food.”  Chlopak told Reuters that Quattrone also  instructed him to “tell any reporter who calls they’ll be the first to know when there is a new venture.”
 
(With reporting by Joseph Giannone)

(Photo. Frank Quattrone leaving Federal court in New York. Reuters.)