Money for Nothing

May 21, 2008

ubs.jpgUBS said it made a huge loan to Blackrock so that the U.S. asset manager could buy $15 billion of distressed assets from the Swiss bank, easing the strain on UBS’s balance sheet, but not freeing it from the risk. This must have been a tough one for UBS’s credit department to swallow. Citigroup took a similar tack to offload subprime assets. UBS said it had provided 75 percent of the funding used by Blackrock to buy the portfolio. Blackrock raised $3.75 billion in equity from investors to pay for the rest of the package, UBS said. UBS’s stock was down about 4 percent, but traders said that was because of concerns the bank may have to increase the size of its rights issue.

Time Warner and Time Warner Cable said their boards agreed to split the companies, giving Time Warner $9.25 billion from a special dividend that it will use towards paying down debt. As part of the deal, Time Warner’s stake in the cable operator rises to 85.2 percent from 84 percent. The Wall Street Journal says Time Warner will slash its $34.6 billion debt load, by two-thirds. Time Warner Cable now has a more hefty debt load, borrowing to pay the dividend.

Dutch office supplier Corporate Express is said to be bolstering its defenses against a hostile Staples bid with a deal to buy French rival Lyreco for 1.4 billion euros ($2.2 billion) that the companies say would make it the biggest office supplier in Europe, but is spooking investors. Corporate Express shares fell almost 9 percent. Lyreco says the combined company would better weather weaker economic conditions and demand. “Volume and size helps in this business,” he told reporters. Staples formally launched its 1.5 billion euro unsolicited bid for Corporate Express on Monday, which the company rejected as too low.

Third Point, a $5.7 billion hedge fund headed by activist Dan Loeb, has recently accumulated a stake of over 5 million shares in Yahoo and is supporting investor Carl Icahn’s proxy battle, a source familiar with the matter said. Meanwhile, Microsoft‘s CEO Steve Ballmer, arguably the best source on Microsoft’s intentions, said in Israel, the software giant is not looking to bid to buy all of Yahoo but is in talks about other types of deals with the U.S. No. 2 search engine. “We are not bidding to buy Yahoo,” Ballmer said. “Yet, we are trying to have discussions about deals with Yahoo that might create value, but not a whole acquisition of the company.” A person familiar with the discussions told Reuters earlier this week that Microsoft has made an alternative offer, proposing to buy Yahoo’s search business and take a minority stake in the Web firm.

Insurer Allianz is in talks about the future of its Dresdner Bank unit and sees a real chance for banking consolidation in Germany, its chief executive said in remarks that boosted German bank shares. “Discussions are currently taking place, although these have not yet reached the stage where I should like to report on them today,” Michael Diekmann said in the text of a speech prepared for the group’s annual shareholder meeting. Allianz is splitting Dresdner Bank into two legally separate business segments, one for private and corporate clients and one for its Dresdner Kleinwort investment banking activities, which it aims to complete by the end of the year at the latest. The move, announced earlier this year to prepare Dresdner to play a role in German banking consolidation, has spurred speculation about possible tie-ups among the country’s commercial banks, long hampered by tiny market shares at home that have undermined their ability to compete abroad.

Other deals of the day:

* ArcelorMittal, the world’s top steel maker, is in talks with Australia’s Macarthur Coal after buying a 15 percent stake in the company, setting up a possible bidding war for the A$4.4 billion group and pushing its shares up 14 percent.

* QBE Insurance dropped its A$8.7 billion ($8.4 billion) bid proposal for rival Insurance Australia Group after IAG rejected it as too low, triggering an 8 percent slide in IAG’s shares.

* Funtastic, an Australian toy and homewares distributor, said it had received a bid proposal from a consortium led by private equity group Archer Capital, valuing the group at about A$132.4 million ($127.3 million).

* Venezuela’s leftist government has entered Bolivia’s financial market through the acquisition of micro-lender Prodem, a top official at Prodem said.

* Bank of Nova Scotia said it was expanding its business in Peru by buying all of Grupo Altas Cumbres‘ Peruvian operation, Banco del Trabajo, for an undisclosed sum.

* A group led by U.S. investment firm Aetos Capital is struggling to get funding to buy Japanese property developer Daito Trust Construction, financial sources told Reuters.

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