With more write-downs looming, analysts have been expecting big Wall Street firms to head back to the wealth pools of Asia and the Middle East. So the Observer’s weekend report that Merrill Lynch is talking again with these sovereign funds could help answer the remaining question: who’s next. Given it is New Year’s eve, Merrill would be a pretty good bet. Its announcement last Monday that it was selling up to $6.2 billion in shares to Singapore’s Temasek and asset manager Davis Selected Advisers came on Christmas eve. The Observer article says Chief Executive John Thain has kept all his lieutenants holed up through the holiday season. 
    
Oil and gas exploration company Delta Petroleum said investor Kirk Kerkorian’s Tracinda Corp will buy a 35 percent stake for $684 million. Delta said Tracinda will buy 36 million shares at $19 apiece, a premium of about 23 percent to the stock’s Friday closing price, and get the equivalent board representation.
    
Alitalia has been exploited by politicians for too long, a top Italian politician told daily newspaper Corriere della Sera. Economy minister Tommaso Padoa-Schioppa said he was defending the government’s decision last week to approve Alitalia pursuing talks with Air France-KLM.  

Fresh from taking a $4.5 billion stake in diversified manufacturer Marmon, Warren Buffett’s Berkshire Hathaway has returned to its insurance stronghold with the purchase of ING’s Dutch reinsurance unit for about 300 million euros ($435.2 million) and plans, unveiled in the Wall Street Journal, to set up a municipal bond insurer. The new bond insurer, Hathaway Assurance Corp is set to start operating today in New York state, and guarantee the bonds that cities, counties and states use to finance public works, the report said, quoting Buffett from an interview.  The new fund poses a competitive challenge to bond insurers MBIA and Ambac, which have been struggling with the turmoil in the credit market. 

Bank of America has taken a significant step forward in China, with a $615 million leasing joint venture with China Construction Bank. The venture, the first in the sector, will focus on leasing equipment and facilities to China’s power generation and transmission and rail industries. The venture aims to eventually extend and obtain loans, sell leased items, and offer consulting, among other services.

Morgan Stanley has paid $217 million for a 10 percent stake in Petrovietnam Finance Corp, the financial arm of Vietnam’s state oil firm, ahead of an expected stock market listing early next year. The company is a de facto bank for oil monopoly Petrovietnam and finances energy sector projects. 
    
Sallie Mae, the largest U.S. educational lending company, said it sold $1 billion of convertible securities and $2 billion of common stock, raising more money than it had expected, to pay off bad derivatives bets.

Alitalia shares fell more than 3 percent in their first day of trading since the loss-making airline’s board backed Air France-KLM’s takeover bid, which valued the airline at about half where it currently trades in the market.

The center-left Italian government, which holds a 49.9 percent stake in the carrier, is due to decide by mid-January whether it, too, prefers Air France over tiny rival Air One, which has begun a frantic lobbying campaign to keep Alitalia in Italian hands.

Russian bank VTB has agreed to sell its 5 percent stake in European aerospace company EADS for about $1.43 billion to Russia’s Bank of Development, according to a source close to the Bank of Development board.   The price represents a premium of around 7 percent. Kohlberg Kravis Roberts has proposed to buy South Korean car part maker Mando Corp for $1.3 billion after years of stalled talks, according to the Korea Economic Daily.

Italian merchant bank Mediobanca has agreed to buy most of Linea from two banks in a cash deal that valued the consumer credit business at 405 million euros ($587.5 million). Mediobanca said its Compass unit would buy 96 percent of the business from Banco Popolare and Banca Popolare di Vicenza. Each bank owns 47.96 percent of Linea.

Berkshire Hathaway says its $4.5 billion swoop for manufacturing and services group Marmon Holdings Inc. is the biggest non-insurance deal it has done. Privately held Marmon, with an international association of more than 125 businesses in sectors including wire and cable, transportation services and industrial products, looks like a sensible fit for Warren Buffett, whose stable of interests ranges from insurance to media to metals. One wonders what the next Berkshire Hathaway CEO will have to do to make a mark on the Megalopolis that Warren built. 
    
Investor Christopher Davis, whose firm is buying $1.2 billion of stock in Merrill Lynch & Co Inc at a substantial discount, is known as a long-term value player who sometimes does years of research before making a portfolio decision. About 35 percent of Davis’ holdings are in financial services companies. Kenneth C. Feinberg, a co-portfolio manager for Davis, said his company contacted Merrill Lynch about two weeks ago, inquiring if it would be interested in getting an outside investor.
    
Banco Itau, Brazil’s second-biggest private sector bank, is set to spend around a billion dollars to buy Spanish group BBVA’s private banking arm for Latin America, an unsourced newspaper reported. The deal could be officially announced in the coming days but it would have to be approved beforehand by the U.S. Federal Reserve, the newspaper said.

Christmas may have come a day early for Merrill Lynch. The mortgage-debt-wracked investment bank is selling up to $6.2 billion worth of discounted new stock to Singapore’s Temasek Holdings and Davis Selected Advisers. The deal makes Merrill the latest in a growing number of Wall Street firms to receive cash from sovereign wealth funds — following Morgan Stanley, Citigroup and UBS.

Merrill is also selling most of its Chicago-based capital lending business to General Electric’s commercial finance. GE Capital, which dominates the middle-market financing space, is set to buy Merrill Lynch Capital’s corporate finance, equipment finance, franchise, energy and healthcare finance units, which Merrill’s chief executive John Thain said would allow it to redeploy about $1.3 billion of capital. Merrill’s commercial real estate finance unit is not part of the transaction, which will add more than $10 billion in assets and $5 billion in commitments to GE Capital Commercial Finance’s base of $260 billion.  
    
Capgemini shares got a boost from a report that Indian software exporter Wipro would bid for the French computer consultancy firm. The Hindustan Times said Wipro was expected to bid for Capgemini by the end of January, citing unnamed sources. Shares in London-based media group Emap jumped briefly on speculative interest as some investors took the view that a counter-bidder may pitch for the company’s specialist publishing and conferences assets. In a surprise move on Friday, Emap said it had agreed to sell its specialist magazines and events business to privately owned Guardian Media Group and private equity firm Apax Partners for around 1 billion pounds ($1.98 billion). On Monday, the two groups said they had each bought 20.97 million Emap shares on Friday for a combined 19.4 percent stake. 
    

As they say, be careful what you wish for.

For years, Morgan Stanley investors prayed their elite, white shoe firm, which married beneath its station to Dean Witter in 1997, would get out of the credit card business and focus on banking and markets. Just like Goldman.
   
This summer John Mack heeded the call and spun off Discover. Now Morgan Stanley, looked more like Goldman. 

Now that Morgan is comparable to Goldman’s mix of businesses, investors can make those pesky comparisons.

That’s not exactly good news for Morgan.
   
Lately, the once-preeminent descendant of J. Pierpont Morgan himself is looking less like Goldman and more like, Heaven forbid, Bear Stearns: Trading woes, mortgage losses.
   
So as far as 2007 goes, there was no competition. Goldman earned $12 billion on $46 billion of revenue, both setting new records. Compensation soared to $20.2 billion, more than any bank ever paid.
   
By contrast, Morgan Stanley had negative revenue (huh?) and a net loss in the fourth quarter. Annual profit fell and for Mack, who instructed the firm two years ago to crank up its risk profile (like Goldman), there will be no Christmas bonus.
   
The difference was that a small handful of Goldman’s proprietary traders beat the heck out of Morgan’s handful of prop traders. Where as the Broad Street Bulls reaped some $4 billion by shorting subprime mortgages, Morgan Stanley, err, did not.
   
Morgan CFO Colm Kelleher walked analysts through how one desk of fixed income traders, under the watchful eye of rising star Zoe Cruz and other departed managers, looked brilliant in the first quarter but then lost a stunning $7.8 billion in a three month period.

Meanwhile, Goldman raked in the profits. Again. So as far as that comparison with Goldman is concerned, Morgan isn’t quite measuring up right now, credit card division or not. 

(Photo. John Mack. AP)
   

Ruling on the busted buyout of United Rentals by Cerberus, chancellor William Chandler III of Delaware’s Court of Chancery really shows off what an education in liberal arts can do. 

“In classical mythology, it took a demigod to subdue Cerberus, the beastly three-headed dog that guarded the gates of the underworld. In his twelfth and final labor, Heracles journeyed to Hades to battle, tame, and capture the monstrous creature,” Chandler points out in the ruling.

“In this case, plaintiff United Rentals, Inc. journeyed to Delaware to conquer a more modern obstacle that, rather than guards the gates to the afterlife, stands in the way of the consummation of a merger,” he continues.

Chandler, who majored in political science at the University of Delaware, also notes that in Hesiod’s Theogony, “Cerberus is characterized as a relentless, fifty-headed, flesh-eating, brazen-voiced hound.” Here’s hoping he rules next on Apollo.

(Image credit: Hercules and Cerberus; UVM)

For those on Wall Street who asked “What is Warburg Pincus thinking?” when the firm announced a $1 billion investment into embattled bond insurer MBIA, that question got a lot more pertinent on Thursday.

Warburg’s deal was announced last week, when MBIA’s shares were getting slaughtered on its exposure to CDOs and subprime mortgage assets.

Then on Thursday, MBIA came out with a doozy: The world’s largest bond insurer said its exposure to CDOs, in fact, was a whooping $30.6 billion — an amount bigger than its entire net worth.

MBIA’s stock dropped another 27 percent — no surprise there, given the scope of the exposure. Its shares are now down more than 70 percent this year.

But from a private equity standpoint, the questions abound about Warburg’s investment plan in MBIA. Did Warburg know about this exposure at the time of the deal? Can it back out of the offer? Didn’t they listen to Bill Ackman’s detailed presentation a few weeks ago on his compelling thesis that certain bond insurers, namely MBIA, will essentially be bankrupt by early next year? Warburg declined to comment on Thursday.

Deal Journal points out that so far, on paper, Warburg is losing $20 million a day on its MBIA agreement.

Granted, the key word there being paper, as the deal hasn’t closed yet so nothing’s really been bought or sold yet.

But let’s give Warburg the benefit of the doubt here for a minute. The firm is well respected across Wall Street, and it’s not your average private equity shop. In addition to large-scale buyouts like the big guys, Warburg does venture-style investing, growth investing, recaps and other non-traditional deals. So of all the big buyout shops out there, Warburg may be the one most likely to sit on this investment for a while, assuming that when the deal does close in January-ish, they’ll be buying at the bottom.

Looking at MBIA’s financials and its stock performance lately, that doesn’t exactly seem like a safe bet.

The Michigan court order temporarily halting the Manor Care buyout is here. A hearing on the matter, which Reuters reported first on Thursday, is scheduled for 10:00 AM EST on Friday.

Update: In a subsequent hearing, a Michigan judge lifted the halt to the deal, which is expected to close on Friday.

Singapore is reportedly closing in on a $5 billion chunk of  Merrill Lynch. The Wall Street Journal reports state investor Temasek would provide the capital infusion, citing a person familiar with the matter. Merrill’s board has given preliminary approval for the investment, but pricing, timing and regulatory issues would still need to be negotiated, it said. Two weeks ago UBS  accepted a $9.75 billion investment from the Government of Singapore Investment Corporation, and earlier this week, China Investment Corp agreed to pump $5 billion into Morgan Stanley. Citigroup agreed last month to sell a 4.9 percent stake to Abu Dhabi for $7.5 billion. It will be interesting to see whether Merrill, with its $27.2 billion of exposure to subprime mortgages and collateralized debt obligations, ends up paying more than Morgan Stanley and Citi, whose deals are costing the banks roughly the same amount given tenor of the mandatory convertibles, the sizes of the infusions and the rates. 
 
Strategic deals keep picking up the pace ahead of what is usually a quiet holiday period. Philips Electronics NV is buying medical products company Respironics Inc for 3.6 billion euros ($5.2 billion), its biggest ever acquisition. At $66 per share, the Dutch electronics maker is paying a 24 percent premium to its closing price of $53.11 on Thursday. Philips is on the move in the U.S. medical technology space, having picked up medical systems company Visicu earlier this week for $430 million
     
Private equity may be hibernating in the U.S., but there are signs of life abroad. Japanese private equity fund Advantage Partners is launching a bid for Tokyo Star Bank worth up to 252 billion yen ($2.2 billion), allowing U.S. investment fund Lone Star to cash out of its 68 percent stake in the lender. The premium is only 2.3 percent to Tokyo Star’s Friday closing price, but just the fact that the deal appears to be getting done is something of a relief. Lenders had balked at the 410,000 yen per share Advantage had been talking about. Japan’s financial regulator still has to OK the deal.
    
Chief Executive Robert Nardelli told Chrysler employees the company is headed for a substantial loss this year and is scrambling to sell assets to raise cash, the Wall Street Journal reports. Cerberus Capital Management LP took over the automaker four months ago and put Nardelli, the famously, expensively ousted CEO of Home Depot, in to drive the turnaround. “Someone asked me, ‘Are we bankrupt?’” Mr. Nardelli said at the meeting. “Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with.” The Journal notes “Cerberus is often viewed as among the shrewdest of the private-equity groups reshaping America’s industrial landscape. But the Chrysler acquisition is turning into a case study of how deals made during the recently ended boom are going sour.”