February’s M&A figures predictably stayed on their dismal track, with announced deals down 49 percent to $157 billion from $310 billion during the first two months 2007, according to Dealogic.

But there was one surprise in the numbers — Moelis & Co, which rainmaker Ken Moelis founded after leaving UBS last year, ranks fifth in U.S. advisory so far this year. That puts the nascent firm above JPMorgan, Merrill Lynch — and UBS.

Of course it’s only two months into the year and Moelis’ ranking is due to advising on a single deal, Microsoft and Yahoo. But new names on static league tables are significant. 

It’s way too early to tell — but with the credit crunch hampering bulge bracket banks, could deals this year be won more on advice than balance sheets or underwriting?

Below are the U.S. advisor rankings by volume from Dealogic.

Billionaire investor Wilbur Ross has squared off with billionaire investor Warren Buffett with a $1 billion investment in bond insurer Assured Guaranty. Buffett has been actively exploring high-grade opportunities bond insurance, and Ross has been open about his plans to get into the struggling sector. Ross told CNBC he chose Assured over rival bond insurers MBIA Inc and Ambac Financial Group Inc because Assured was in better shape. “This is opportunity capital rather than damage-curing capital,” Ross said, adding that it was pretty clear he and Buffett were now playing in the same sandbox. Ross said he remains in discussions with other bond insurers.

A dissident investor group led by Harbinger Capital Partners has nominated a slate of four directors to the board of New York Times Co, Harbinger said in a federal filing. The investor group, which includes hedge fund Harbinger and investment firm Firebrand Partners, has nominated the candidates as part of a plan to push the company to shed noncore assets and reallocate capital to build up its digital businesses. “Harbinger … believes that the future of The New York Times depends on the willingness of its management and board of directors to take bold action to adapt to the changing media landscape,” the group said in a filing with the U.S. Securities and Exchange Commission.

Banque Populaire says it is in exclusive talks to buy 400 bank branches from HSBC France, mainly in the south of the country, for 2.1 billion euros ($3.17 billion). Credit Industriel & Commercial and BNP were the other participants in a final round of bidding, according to an industry source. HSBC had been rumored to be selling the regional banks for some time and the move is further evidence of its shift towards emerging markets.

Sprint Nextel’s earnings may have been weak, but its conviction to keep its long-distance network remains strong.

Sprint’s former Chief Executive Gary Forsee had resisted selling the long-distance business, despite continued calls from analysts for a sale of the unit after he spun off the company’s local telephone business.

On Thursday, Forsee’s replacement Dan Hesse sounded even more attached to the business. While he would not rule out a sale of the unit, he said there were many reasons why Sprint should hold on to it.

“People forget when you talk about a wireless network, it’s primarily wireline. The backbone is a core part of the network.” Hesse said, adding that the wireline network was important to helping Sprint support high-speed data services.

“If somebody came with an incredible number of zeros behind a check or what have you, we’re always open to it, but it would be, number one — a huge distraction — and, number two — for the variety of reasons I’ve described, it’s a tremendous asset for this company,” he said.

Hesse also noted that his biggest rivals Verizon and AT&T had both bought long-distance networks.

AT&T has a “a backbone network because they know it’s crucial to their wireless business.” he said. “Verizon bought a backbone network because it’s crucial to their wireless business and it’s also crucial to competing in the enterprise segment which is the most valuable segment in the market.”

Although some investors have previously said that Sprint’s weak financial position, management changes and customer losses might make it vulnerable to a buyout, Morgan Stanley analyst Simon Flannery said in a research report “we do not believe that Sprint is likely to be acquired.”

Sprint posted a $29.45 billion quarterly loss due to a huge goodwill write-off, forecast deepening customer losses and ended dividend payments for the foreseeable future. Fitch Ratings cut its rating on the No. 3 U.S. wireless telephone company to junk status. Shares of Sprint fell to a five-year low and closed at $8.09, down 86 cents, or 9.6 percent.

(PHOTO: Dan Hesse, from Sprint website)
(Reporting by Sinead Carew and Jesssica Hall)

With more traditional offerings sitting out today’s choppy markets, some of the hottest recent IPOs have been from so-called blank check companies. These special purpose acquisition companies, or SPACs, float shares to fund acquisitions — a strategy that looks promising as credit woes sideline more leveraged buyers like private equity.

But popularity may come at a price: bigger SPACs mean big investors like hedge funds can crater a deal by witholding support — potentially at the expense of the SPAC sponsor. 

If a SPAC doesn’t get a deal done, shareholder money is returned by the sponsor — so there’s always a chance sponsors will buy out naysayers at a premium to get the deal done. For the hedge funds that’s a low risk proposition — for sponsors it’s increasingly anything but. That’s why market sources say some sponsors are starting to think twice about going ahead with SPAC plans.

The number of SPAC offerings last year nearly tripled from 2006 and topped $12 billion. So far this year shareholders have rejected deals at two SPACs, which typically give themselves 12 to 18 months to do a deal. With so many deals having to be done over the next few months, hedge funds should have ample opportunity to squeeze sponsors this year. Below is a table of dissolved SPACs from DealFlow Media.

While Carlyle Group co-founder David Rubenstein has said the private equity sector had fallen into the “purgatory age” to atone for past sins of success, Ripplewood Holdings CEO Tim Collins said on Thursday that the “golden age” was still to come.

Collins remained positive even though buyout volume has dropped 53 percent this year to $26.0 billion, down from $55.1 billion a year ago, according to research firm Dealogic. Financial sponsor deals accounted for 7 percent of total M&A volume this year, down from 11 percent a year ago.

“The golden age is when capital is scarce, courage is scarce and you can use your capital, not only to create extraordinary returns but to play a really important role in this transition period in the economy,” Collins said.

“I think it’s probably the environment over the next two or three years,” Collins said on the sidelines of the 11th Super Return private equity and venture capital conference in Munich.

What’s next?

“After the purgatory age, we’ll see the platinum age,” Rubenstein had said in January at the Wharton Private Equity and Venture Capital Conference. “The problems with financing and the problems explaining what we’re doing will go away…private equity is better than anything you can legally do with your money.”

(Additional reporting by Megan Davies)

The price may be right in Vale’s $90 billion bid for Xstrata, but a dispute over marketing rights held by Xstrata’s biggest shareholder is now threatening the deal. A source close to the situation says Swiss commodities trader Glencore wants to boost its lucrative large, long-term contracts to sell Xstrata’s mining output. “They’re a long way apart. If that’s not resolved, there really isn’t anything to talk about,” the source said. 
    
An Italian court has cleared the way for Alitalia to continue  exclusive sale talks with Air France-KLM, knocking down a request to suspend them by rival suitor Air One, according to a judicial source. Alitalia, which is losing more than million euros a day, hopes to hammer out a deal with the Franco-Dutch carrier by mid-March. But those plans have been complicated by the January collapse of the Italian government, which is selling its controlling stake in the airline.
    
Yahoo Inc has faced significant distraction from Microsoft Corp’s unsolicited takeover bid, the company warned investors in its annual report filed with U.S. regulators. The Silicon Valley Web pioneer said the cash-and-stock deal, now valued at $41.6 billion, may continue to prove a distraction for the company and its management. “The review and consideration of the Microsoft proposal (and any alternate proposals …) have been, and may continue to be, a significant distraction for our management and employees,” the company said in its report to the SEC. 

Credit Suisse has made inquiries into selling a share of its loans behind the pending $20 billion buyout of radio operator Clear Channel Communications Inc, according to a buyside source. The bank has called potential investors regarding a chunk of the loans and asked what price they would be interested in paying, the source said. A sale by Credit Suisse could bypass a formal syndication process in which lenders make a unified effort to distribute their loans. Credit Suisse previously broke ranks with another group of lenders by unilaterally offering a share of its loans backing the buyout of Harrah’s Entertainment Inc, according to media reports.

Some private equity players seem to have become so resigned to the “locust” label first given to them by a German politician in 2005 that they now take consolation from the fact that the furor over the recent buyout boom has taught their children what they do for a living.

“At least now my daughter tells people Daddy is a locust as opposed to before when she couldn’t say what I did for a living,” a German based buyout partner said.

When the conference started on Tuesday, a gaggle of protestors were outside the venue in Munich waving traffic signs emblazoned with a locust symbol.

The industry and its investors would seem to agree.

Asked in an electronic poll about the success of the industry’s efforts to improve its image in Europe, 62.9 percent of respondents chose the option “no impact - still locusts.” Another 21 percent decided that it had been “unsuccessful - worse than locusts,” while 15.3 percent plugged for “successful - better than locusts.” Only 0.8 percent deemed the efforts “very successful - no longer insects.”

Yet according to several of the more candid speakers at the event it’s not them, but bankers who are the bad guys.

Adding to harsh criticism of the banking industry from Alchemy Partners’ Jon Moulton, Terra Firma Capital Partners CEO Guy Hands compared some of them to the musical talent spotters he believes to have been over-empowered at EMI, the British music company he is currently trying to overhaul.

“The A&R (Artists and Repertoire) guy gets up very late in the day, he listens to a lot of music, he goes to clubs, he spends his time with artists and he has a knack about what will sell – sounds very similar to structured finance to me,” he told delegates.

He said investment banks would be seen in years to come as a classic case-study of a business making ever-increasing profits year after year even as their very success hid where the profits really came from.

He gave another music industry comparison: “To give you an example that is close to my heart, it reminds me of EMI and all the major record labels in the 1990s believing their success was due to their personal genius and ability to find and market new music, when in fact it was only due to the baby boom generation replacing their vinyl with CDs.”

(Reporting by Eleanor Wason)
(Photo: Reuters)

Merger talks between U.S. carriers Delta Air Lines Inc and Northwest Airlines Corp may be off course. A deal between the two remains elusive, Delta’s  Chief Executive Officer Richard Anderson said in a memo to employees, adding the airline “has a strong stand-alone plan.” Industry and other sources have said the two were close to a merger agreement but that labor issues were holding up a formal proposal. Industry consultant Mike Boyd said the Delta memo “underscores again” that neither airline needs to do a merger. The two airlines came out of bankruptcy protection last year with lower costs and cash on hand.

Cash was on the mind of Marcel Ospel, chairman of Swiss bank UBS. Ospel told an extraordinary shareholders’ meeting that it was “absolutely necessary” for shareholders to back a 13 billion Swiss franc ($11.94) capital injection from Singapore and an unidentified Middle East investor. The chairman was braving investor fury after UBS chalked up $18 billion in charges following disastrous investments in U.S. subprime mortgages.

Dubai, however, has no problem with cash, expect perhaps with how to spend it. Sovereign wealth fund Investment Corporation of Dubai (ICD) has made a conditional offer for Spain’s Colonial, valuing the struggling real estate firm at 3.03 billion euros ($4.56 billion). And yes, it’s a cash offer. ICD said it would offer 1.85 euros a share to shareholders to gain control of at least 50.1 percent of the firm, or 2.25 euros in “financial instruments”. The offer represents an 8.8 percent premium to Colonial’s closing price of 1.70 euros on Tuesday. Former chairman Luis Portillo and the Nozaleda family, who together own about 52 percent of the company, had already agreed to sell their stock to the $82 billion fund in the event of a bid.

With all this money flying around, are things looking up in the buyout business? Carlyle Group founder and managing director David Rubenstein said private equity had not reached the “high-water mark” and would emerge stronger from the global economic downturn. In the summer, the subprime loans turmoil brought an abrupt halt to a buyout boom that broke deal records. Although leverage might not be back for quite awhile, Rubenstein told the 11th Super Return private equity and venture capital conference in Munich that, for now, buyout firms would pursue investments in emerging markets, make minority investments in developed markets and commit more capital to distressed companies.

Numbers don’t lie. It’s the worst year for M&A since 2003.

Merger volume in the U.S. has totaled $149.9 billion so far this year, down 38 percent from the same period last year, according to research firm Dealogic. That’s the worst year-to-date merger volume since 2003.

U.S.-targeted deals accounted for just 35 percent of global volume this year, down from 45 percent last year. So much for all those pundits who said the weak dollar would attract foreign buyers to the U.S.

The average size of deals is shrinking, too. The average deal totaled $2.1 billion this year, down 37 percent from $3.4 billion in the same period last year, Dealogic said.

The top U.S. deals this year include Microsoft’s $44.6 billion bid for Yahoo, CME Group’s $11.1 billion bid for NYMEX and Oracle’s deal with BEA Systems, Dealogic said.

Tech stocks are plummeting, bankers are warning venture-backed companies away from IPOs, and many are convinced that we’re heading into a recession. But start-up companies, the little babies of Silicon Valley, have no cause for fear, because the tech grand-daddies — Microsoft, Cisco, IBM — continue to be bullish about dealmaking.

Their capacity for huge acquisitions, like Microsoft’s bear-hug offer for Yahoo, may be limited, but these cash-rich tech titans love to buy lots of small companies that take them to new markets or make sense for their corporate strategies. At a Redwood City venture capital conference today, executives from across the tech spectrum, including Microsoft, Cisco, News Corp’s Fox Interactive Media (which owns MySpace) and McAfee, said they remain gung-ho on acquiring start-up companies. The worsening economy hasn’t changed their attitude, it seems — two months ago, at another VC conference, they said the same thing.

Cisco dealmaker Rob Salvagno said the company has made between 10 and 15 acquisitions every year for the past few years, and he doesn’t see that changing this year. They’re going to keep up their hunt for the coolest start-ups in international markets as well, he told the crowd.

Fox Interactive Media’s Jack Kennedy said they were more opportunistic about buying companies, but are energetically prowling for “game-changers”.

And if you thought Microsoft’s eyes were trained solely on Yahoo, think again. Dan’l Lewin, Microsoft’s head of emerging business development, said the company will do “a lot more of what we’ve been doing,” which is, picking up about 20 companies a year.

Separately, Ebay’s M&A chief Lorraine McDonough in a chat with Reuters, said the Web auction giant has the ”financial flexibility” – meaning about $2.4 billion in free cash flow — to pursue attractive opportunities this year.  Ebay, best known for its buyouts of PayPal and Skype, will continue making targeted acquisitions, she has said before. For start-ups, obviously things are still green in the Valley.