URI, Cerberus saga–the update

For those following the United Rentals-Cerberus legal battle, the equipment rental company filed a motion for summary judgement last night, hoping a Delaware judge can quickly rule on the case.

To all interested parties, click here for a copy of the legal filing.

Daily Briefing: $5 Billion Only Goes So Far

SPRINT LOGO ON DOOR OF NEW YORK CITY STORE.What is $5 billion to Sprint? The number-three U.S. mobile network turned down a cash-infusion offer from South Korea’s SK Telecom and Providence Equity, which reportedly included former Chairman Tim Donahue coming in as CEO as part of the package. Stanford Group analyst Michael Nelson says Sprint has major problems, but liquidity is not one of them.  The New York Times has a copy of the letter sent to Sprint detailing the offer:

“We are prepared to invest $5.0 billion, and potentially substantially more, in new equity in Sprint Nextel to support Tim Donahue as the new Chief Executive Officer of the Company. The $5.0 billion investment would be in the form of a convertible preferred security on standard terms, including a conversion price of 20% above the current market and a non-cash dividend of 3-4%. In addition to our capital investment, we would anticipate being actively engaged at the Board level, with representatives of SKT and Providence joining the Board of Directors.”

JC Flowers is willing to revise its offer for ailing British bank Northern Rock and address two concerns the British government had with its initial proposal, according to a person close to the company. But the Treasury has not returned calls to discuss the issues since selecting a rival consortium led by Virgin Group last Monday, and JC Flowers would consider withdrawing if it can’t discuss the issues.

Breaking up deals – who pays?


Who pays when a deal goes sour isn’t an easy subject to resolve.  Over the past few years, as these figures from Factset MergerMetrics show, its been a one-way trend for leveraged buyouts – the private equity firm foots the bill.

Year               Percentage of go-privates with reverse fee
2004                21%
2005                17%
2006                49%
2007                76%

(These figures are where U.S. public companies are the targets.)

The credit turmoil could change things. Seen as an “opt-out” by buyout shops trying to get out of a deal, sellers are going to be a lot more nervous about agreeing to reverse-break-up fees, lawyers predict. The changing tide could see a resergence of the pre-boom deals which were structured with ordinary break-up fees and financing outs. 

Score one for HSBC, we think

HSBC decided to hire some heavy hitters to beef up its leveraged finance group in the last month or so, at a time when other banks began freezing loans to private equity firms.
Focusing on a financial sponsor/lev fin team during a credit crunch seemed questionable at the time. How many deals, after all, would buyout firms pull off in this environment? 
The other side of that argument is that private equity folks have around $1 trillion at their disposal, so they’ve got to spend their money somehow, even if it isn’t on Mega-LBOs promising massive fees to banks. Witness TPG’s purchase of Axcan Pharma on Thursday for $1.3 billion — hardly the $20 billion plus deals they chased only a few months back.
Who provided debt financing for the deal? HSBC. Bank of America was another lender, with both banks showing that they’re lending desks are open for business at a time when other banks like Citigroup and Merrill Lynch have all but shut theirs. 
HSBC and BofA now hope the loans don’t suffer the same fate as other LBOs that found scant buyers, leading to large write-downs across Wall Street. For now, HSBC is happy to be taking an underwriting fee while their banking brethren on Wall Street are twiddling their thumbs until bonus time.

Daily Briefing: E*Trade-off

etrade1.jpgE*Trade Financial Corp‘s $2.55 billion private equity cash infusion from investors led by Citadel Investment Group staves off strategic buyers who wanted to strip off everything but the brokerage business, according to the Wall Street Journal, which reported that two of the online broker’s primary rivals, TD Ameritrade Holding and Charles Schwab, considered buying the company. It said about 30 bidders made overtures to E*Trade, of which eight or so were taken seriously. Citadel has done well with distressed companies. It bought Amaranth Advisors, which went bust last year on a bad bet on oil. The Chicago Tribune reported last week that Citadel has returned a gain of 27 percent year to date in what’s shaping up to be the Chicago-based hedge fund’s second straight showing of double-digit returns. 
Is National Australia Bank paying too much for privately owned Great Western Bank? The $798 million bid to extend Australia’s biggest bank’s reach into the U.S. agricultural lending business appears to value Great Western at about 20 times 2008 earnings, which is seen as around double other regional lenders. In the largest foreign purchase yet for a Chinese insurer, Ping An Insurance bought a 4.2 percent stake in Dutch-Belgian financial services firm Fortis for $2.7 billion, making it Fortis’s top shareholder. And another hot deal in biofuels: VeraSun Energy is bidding for US BioEnergy to expand its ethanol capacity, in an all stock deal that values US BioEnergy at about $657 million. 

Bill Ackman on charity, reading

ackman.jpgNice guy, that Bill Ackman.

Speaking at a value investor conference in New York, hedge fund hell raiser William Ackman pummelled the bond insurer industry and predicted that MBIA was headed for catastrophe. 
After excoriating the sector, Ackman the Activist founder of Pershing Capital, showed his “nice side.” Having already made a boat load of money on his short position on bond insurers, Ackman made a pledge.

From now on, the profits he makes from the decline in bond insurers will be donated to his charitable foundation, he said. Ackman is of course aware that a meltdown in bond insurers would hurt mom and pop, as the insurers back a big chunk of municipal bonds. But he’s pretty sure that the insurance subsidiaries will be saved, in the event of a blow up, while the holding companies are what he expects to go under.

When an audience member asked him about his investment in Borders, Ackman gave the following explanation for his angle:

Daily Briefing: Bank of Citi?

From Carol Reed’s “The Third Man”The Wall Street Journal has a page-one thriller about a mysterious Bank of America investment banker approaching Citi, though it has more in the way of denial and why a deal wouldn’t fly than detail on the chops of this power broker.

The German state of Lower Saxony threw a spanner in the works for investors hoping Porsche might rev up stock purchases of Volkswagen, saying will not sell its holding of around 20 percent in Volkswagen as long as the state premier is around. The CEO of Porsche, VW’s biggest shareholder, said ties with the politician were “not great”. 

Japan’s Nikkei business daily reports a group of investors led by brokerage Nomura Holdings has submitted a $2.7 billion bid for Ashikaga Bank, an insolvent regional bank nationalized in 2003. The paper says the bid is short of a rival’s offer from a group of regional lenders led by Bank of Yokohama.

For E*Trade, nil could be the new way to value an asset

etrade1.JPGInvestors are waiting to see if E*Trade will pursue a strategic alternative, such as a deal or sale of some assets, after large losses in its mortgage business.

But buyers are getting bogged down in the problem of how to value E*Trade’s banking business, after mortgage woes have grown, according to a Monday article in the Wall Street Journal.

Fox-Pitt Kelton analyst David Trone has a solution– pay nil for E*Trade’s banking arm, and and the deal could still pay dividends for the buyer, and be a better deal than shareholders have now.

Sovereign funds on the prowl


Sovereign funds have roughly $2.5 trillion in need of a home. That’s been flooding to U.S. banking assets from Citigroup to Bear Stearns to Apollo.

That’s only going to continue as the funds, controlled by foreign governments in places such as the Middle East and China, and overflowing from a surge in crude prices, look to put their cash to work.

The funds are hardly keeping mum about their intentions.

DIFC Investments, an agency that pools some of the Dubai (pictured above) government’s biggest holdings, said last week it was looking to buy into troubled U.S. financial services companies. Istithmar, Dubai’s state-owned private equity firm, said in September it was considering buying into two U.S. companies hit by exposure to subprime mortgages.

Daily Briefing: Citi in the Sand

abu-dhabi.jpgAt a junky 11 percent coupon, the Citi sale of $7.5 billion in preferred mandatory convertibles to Abu Dhabi‘s $650 billion sovereign wealth fund is looking like a very sweet deal for the world’s biggest sovereign wealth fund. Royal Bank of Scotland analysts said in a note Citi was paying a high price for the funds, for which the lender is pretty desperate given its $6.8 billion in third-quarter writedowns and the potential for another $11 billion in the fourth quarter. 

Health insurer Cigna Corp said it would buy the health-care unit of Great-West Life & Annuity Insurance for about $1.5 billion. A group led by TPG and British Airways withdrew its 3.4 billion euro ($5.1 billion) takeover bid for Spanish airline Iberia, blaming a less-than-friendly turn in negotiations. 

Australia’s Healthscope scrapped a A$2.8 billion ($2.4 billion) bid for Symbion Health assets after an unfavorable tax ruling opened the way for rival bidder Primary Health Care. The European Commission suspended its review of plans by IBM to buy Swedish business software firm Telelogic AB for about 5.2 billion Swedish crowns, or $833 million. Suspensions come when the EU wants additional information to conduct its competition review. Industry experts say BHP‘s proposed bid for rival Rio Tinto and the rise of emerging market players, particularly China, will force further consolidation in metals and mining. The New York Times reports Rio seems to be signaling it is receptive to suitors, though it has rejected BHP’s overtures.