If you are a giant Swiss bank, the one business you are supposed to do better than just about anyone is private banking. So news that UBS is considering selling Paine Webber, the heart of its U.S. wealth management business, which it bought for $10 billion nearly eight years ago, hasn’t gone down well at all. The stock sank more than 4 percent on the news. Though the name of Paine Webber disappeared from Wall St, the operations have remained more-or-less intact, making it relatively easy to hive off, analysts say. Senior bankers say the business could be an attractive buy for Bank of America or Morgan Stanley.

France Telecom has pulled its long-odds, $40 billion bid for TeliaSonera. The French suitor was restricted by its financial targets and Sweden, a big TeliaSonera shareholder, would have held out for a better price. TeliaSonera shares dropped 13 percent to 43.30 Swedish crowns, while France Telecom shares jumped 7.3 percent. The two companies held talks but TeliaSonera said the terms did not improve significantly and France Telecom said the deal-breaker was money.

Deutsche Bank launched its first special purpose acquisition company focused on Germany, Switzerland and Austria, a venture led by three high-profile executives. Germany1 Acquisition will be headed by co-Chairmen Thomas Middelhoff, chief executive of retailer Arcandor, and Roland Berger, founder of the strategy consultancy bearing his name. Florian Lahnstein, a former investment banker at Bear Stearns and UBS, is chief executive. Germany1 aims to raise 275 million euros ($432.9 million) in an offering of shares and warrants, said Deutsche Bank, which is the sole IPO bookrunner.

Other deals of the day:

* Global steel giants ArcelorMittal and POSCO have separately bought stakes in Macarthur Coal, potentially blocking each other from taking over the Australian mining company as steelmakers rush to secure stable coal supplies.

* New Zealand rural services firm PGG Wrightson said it would pay NZ$220 million ($167 million) for a 50 percent stake in meat producer Silver Fern Farms, sending its shares lower.

* Tele2 said it was selling its Polish operation to Polish phone group Netia for 300 million Swedish crowns ($50 million).

* Irish oil and gas explorer Petroceltic said that Spanish power company Iberdrola had agreed to buy a 22.64 percent stake in it for $55 million.

* New Zealand retail investment company Hellaby Holdings said it would sell its poorly-performing BBQ factory business and forecast a fall in operating earnings. The company said it would sell the business to Auckland-based private equity firm Capital Group. No price was disclosed.

* China State Shipbuilding Corp, the country’s largest ship-building group, has put its Wenchong Shipyard up for sale on the Beijing Equity Exchange for 3.04 billion yuan ($443 million), according to the exchange’s website (http://www.cbex.com.cn/).

* Del Monte Foods agreed to sell its seafood business including tuna brand StarKist to South Korean food group Dongwon for $363 million, creating the world’s top canned tuna firm.

* New Zealand dairy cooperative Fonterra and National Foods are working together on a possible joint bid for Australia’s Dairy Farmers, the dairy producer said.

* Bear Stearns Asset Management will sell its 50 percent stake in Migdal Capital Markets to a subsidiary of Migdal Insurance & Financial Holdings for $70 million, the Israeli insurer said.

* Commercial International Bank, Egypt’s largest publicly traded lender by value, said it had agreed to buy the remaining 49.9 percent of its investment banking subsidiary CI Capital. It already owns 50.1 percent.

* Indian discount food and grocery retailer Subhiksha is acquiring a majority stake in Chennai-based Blue Green Constructions and Investments, and expects to merge the two firms and list the combined entity shortly.

Yahoo shares have fallen 20 percent since talks with Microsoft broke up, and some shareholders are blaming big egos for the failure.

Robert Hagstrom, a portfolio manager at Legg Mason Capital Management, the third-biggest institutional shareholder of Yahoo, said the only way to try to catch up with Google is to put Microsoft and Yahoo together:

I thought the dynamic was great. Unfortunately, personalities got involved, egos got involved and that I think disrupted negotiations. I was shocked, shocked that Microsoft walked away.
Microsoft's problem is that 80 percent of its business is going to go away one day... Microsoft has to figure a way to get a lot of eyeballs. Well, who's got the most eyeballs after Google? Yahoo. I didn't see why this couldn't go together.

As our mutual funds reporter Muralikumar Anantharaman reports from Morningstar's annual investment conference in Chicago, Hagstrom is not sure if he will support activist investor Carl Icahn's proxy to oust Yahoo CEO Jerry Yang.

Yang turned down Microsoft CEO Steve Ballmer's $33-per-share offer for the company he co-founded:

It's going to be so interesting a year from now, either Ballmer will look like the fool or Jerry will look like the fool, if Jerry is not fired by Icahn if he gets the board. But somebody made the wrong decision. Steve either made the wrong decision walking away or Jerry made the wrong decision not to sell. And their careers will be defined by that in the next 12 months.
Jerry owes me $33. Steve says it wasn't worth it. We'll find out.

Brian Rogers, chairman of the board and chief investment officer at T. Rowe Price Group, said they were happy with the deal Microsoft proposed:

A normal outcome would have been a slight sweetener to the original Microsoft bid. You raise it by $2 and everybody kisses and makes up and hugs. And that's not an uncommon outcome in these circumstances.
The return of one of the founders of Yahoo to running the company after the turmoil they had a couple of years ago probably was a big barrier to that. Because whenever you have the kind of legendary founder returning, it becomes a different dynamic.
I think in hindsight, one wonders if there could have been a reasonable compromise found between Yahoo and Microsoft if some of the personalities weren't the way they were.

In a sign of how desperate investors are for Microsoft to come back to the negotiating table, Yahoo's reorganization announced on Thursday didn't manage to save the stock in a down market -- but blog rumors on Tuesday that talks were back on sent Yahoo shares up 15 percent.

As Hagstrom put it

What a soap opera! You can't write a better soap opera than Yahoo, Microsoft.

(Photo: Amazon)

Check out signs of possible acrimony in InBev's takeover bid for Anheuser-Busch.

Could InBev be bringing a new flavor -- Hostile Light -- to the beer wars as it pushes forward with its $46.3 billion takeover bid for the maker of Budweiser?

On Thursday, InBev reiterated its preference for a friendly combination that would create the world's biggest brewer but filed suit to establish that Anheuser's shareholders could remove their entire board, possibly setting the state for a more contentious battle.

Anheuser, which rejected InBev's bid on Thursday, said on Friday that it will challenge its would-be acquirer's lawsuit over the board removal.

Still, some say the door is open to a friendly deal. Stay tuned.

Also in the basket:

Anheuser-Busch sees year profit above Wall Street views

U.S. consumer confidence falls in June

Lovefest with SUVs is over, thanks to high fuel prices

(Photo: Anheuser-Busch)

Once upon a time, bank analysts were uniformly upbeat on investment banks. “Sell” ratings were nearly unheard of, and potholes in balance sheets were never as big as the huge, routine earnings beats. Now, with Goldman Sachs’s sector u-turn perhaps at the apex, there is plenty of mud to go around. Today’s hit list includes Barclays, the recipient of 4.5 billion pounds in balance-sheet aid this week. Citigroup says Britain’s third-biggest bank may need to raise a further 9 billion pounds and could take more significant write-downs. Lehman Brothers analyst Roger Freeman took aim at Merrill Lynch, saying the big broker will probably see $5.4 billion of write-downs in the second quarter, mainly from its exposure to monolines. Freeman raised his write-down view by $3 billion for Merrill, making his estimate the highest among Wall Street analysts.

Merger activity in the United States dropped 29 percent in the second quarter, faring better than the 40 percent global slump, as corporations filled the void left by buyout firms and targeted big consumer brands such as Anheuser-Busch and Wrigley. “Strategic buyers see an opportunity here due to the absence of the financial buyers. For the last 24 months, prior to the downturn, strategic buyers were getting outbid by financial buyers. That’s not happening now,” said Bob Filek, a partner with PricewaterhouseCoopers’ transaction services. During the first half of the year, private equity deal volume dropped 85 percent in the U.S. and 76 percent globally, according to Thomson Reuters data.

A couple more European banks have increased their China exposure. Deutsche Bank signed a deal with Shanxi Securities to set up an investment banking venture, a source with knowledge of the deal said on Friday. Deutsche planned to take 33 percent of the envisioned Beijing venture, the most allowed. Beijing this year re-opened its coveted but shuttered securities industry to foreign firms after a hiatus of more than a year to let local players merge and strengthen. Several banks, including BNP Paribas, have since expressed an interest in setting up local ventures. Chinese stock markets have shed nearly half their value this year, but foreign banks remain keen on securing a foothold there with an eye on the longer term. Royal Bank of Scotland has won approval from Chinese regulators to buy a nearly 20 percent stake in Suzhou Trust as it expands in corporate banking and wealth management services in China, sources with direct knowledge of the situation said. Suzhou Trust is a mid-sized trust and investment firm.

Other deals of the day:

* French insurer Groupama said it had bought Turkish insurers Guven Sigorta and Guven Hayat for 350 million lira ($287 million) from the TTKMB association of agricultural credit cooperatives.

* Telstra, Australia’s largest telephone firm, expects strong revenue and profit growth at its newly acquired Chinese online advertising websites.

* Mexico’s KOF, the world’s second-largest bottler of Coca-Cola drinks, said it acquired Brazilian soda maker and brewer Refrigerantes Minas Gerais Ltda for $364.1 million.

* New Zealand dairy cooperative Fonterra and National Foods have had talks about a possible joint bid for Australia’s Dairy Farmers, which is valued at up to A$1 billion ($961.5 million), a source familiar with the situation said.

* Russian mid-sized bank InvestTorgBank said its Russian owners had sold just under 40 percent of the bank in two stakes for a total of 5 billion roubles ($213 million).

* Australian-listed miner Herald Resources advised its shareholders to decide themselves on which of two rival takeover bids to accept.

Anheuser-Busch is set to reject InBev’s $46.3 billion takeover offer, a source tells Reuters. After a few weeks of stonewalling by the company and posturing by Missouri politicians, is that really such a surprise? The company’s defensive strategy will hinge on restructuring  the workforce and spinning off non-core assets like the SeaWorld theme parks, but as DealZone’s David Jones notes, those same strategies have already been offered up by InBev as a justification for its bid. Might as well crack open a few icy cold Budweisers — looks like this is going to take a while to sort out.

Fortis shareholders might also be in need of a Stella six-pack, as the Belgian-Dutch financial services group announced plans to shore up its finances with measures worth more than 8 billion euros ($12.54 billion), including issuing new shares, hitting its stock on dilution worries. Fortis will issue 1.5 billion euros in new shares plus up to 2 billion euros of non-dilutive preference shares, save 1.3 billion euros by not paying an interim 2008 dividend, and will also sell non-core assets and sell and lease back real estate. “We believe that 2008 will be a difficult year for our industry and we do not expect an improvement in the economic environment soon,” said CEO Jean-Paul Votron. “The measures announced today will help Fortis navigate through the current challenging market circumstances.”

Goldman analyst William Tanona has pulled a page from the Meredith Whitney playbook, questioning the viability of the Citibank’s dividend, predicting $8.9 billion in second-quarter writedowns, and adding its stock to the “conviction sell” list. He also said that the bank may have to issue common stock or sell assets to raise capital because regulators may forbid it from issuing more preferred or convertible securities. Citi shares were down 3.7 percent in pre-open trading.

Other deals of the day:

* BT Group is to acquire German IT services specialists Stemmer GmbH and SND GmbH.

* Swedish telecom operator Tele2 divests Tele2 luxembourg and Tele2 liechtenstein to Belgian telecom operator Belgacom for approximately SEK 2 billion.

* World number one bearings maker SKF said it had signed a deal to buy U.S.-based Peer Bearing Co for an undisclosed sum.

* Oriola-KD Oyj said it has increased its holding in Kronans Droghandel, based in Sweden from 85.62 percent to 98.13 percent.

 * Singapore’s United Overseas Bank said it will pay 780 million yuan ($114 million) for a 15.38 percent stake in China’s Evergrowing Bank.

* German chemical maker Lanxess said it planned to acquire two inorganic pigments production facilities from a previous Chinese partner, marking its first acquisition in China. 

* Tyson Foods said it is selling its Canadian beef operation to XL Foods, a Canadian-owned beef processing company, for C$107 million.

* Russian metals giant OAO Severstal agreed to acquire U.S. steel company Esmark after increasing its previous offer, which had been rejected, the companies said.

* Hedge fund SAC Capital reported that it owns a 5.3 percent stake in the common stock of Take-Two Interactive Software, publisher of the blockbuster ‘Grand Theft Auto’ video game.

The market for scandal-ridden finance merchandise keeps getting pricier.

Among the littany of Bear Stearns golf balls, teddy bears, and tote bags on eBay, one of the top price getters is a holiday card signed by recently indicted former Bear Stearns hedge fund manager Ralph Cioffi, with the bidding now at $81.

Cioffi, was arrested and arraigned on charges of conspiracy and securities fraud last week after a federal criminal probe into the collapse of two funds he oversaw.

The disintegration of Cioffi’s funds helped kick off the credit crisis last summer, but we’re stumped at what’s behind the high bid for the holiday card.

The eBay bidders seem to find it even more appealing than the business card of Samuel Israel III, the fugitive Bayou Group hedge fund manager who engineered the $2 trillion hedge fund industry’s most brazen and long-running fraud and most recently faked his suicide. Israel’s card sold for just $61 last week.

So how do you think Cioffi’s card became more valuable Sam Israel’s?

Pier 1 Imports Inc finally came to its senses and dropped its much-criticized bid for Cost Plus Inc, prompting a nearly 12-percent jump in its stock price and an upgrade by an analyst.

Shares of Pier 1 surged after the home furnishings company withdrew its bid, saying it was unlikely it would be able to acquire a majority interest in Cost Plus “at a price that would make sense” for shareholders.

D.A. Davidson upgraded Pier 1 to “buy” from “neutral” after the news. Since revealing its bid on June 9, Pier 1’s stock had plunged 23 percent through Tuesday.

“Management can now begin to move from defending an ill-timed and ill-orchestrated action to continuing to focus on its turnaround,” Raymond James analyst Budd Bugatch said in a research note. “More importantly, it can begin rebuilding its credibility that was unfortunately damaged by this affair.”

Pier 1’s $88.4 million all-stock bid was slammed by analysts who said it would distract Pier 1 as it was seeking to turn around its own business. The operator of Cost Plus World Markets rejected Pier 1’s proposal, saying it was not attractive financially or strategically.

D.A. Davidson upgraded Pier 1 to “buy” from “neutral” after Pier 1 withdrew its bid.

While the M&A market has seen a surge in big-brand strategic dealmaking — ranging from the merger of Mars and Wrigley, to Hewlett-Packard and EDS, and InBev’s bid for Anheuser-Busch — there have been a few flailing attempts, too.

“There are companies that are less-well positioned and less likely to prosper making unsolicited or hostile bids for even weaker companies. These are companies that are sucking wind that are just trying to buy revenues and amass something larger just to hang on,” said one head of mergers and acquisitions at a U.S. investment bank.

Now, when will Blockbuster Inc come to its senses and walk away from its offer for Circuit City Stores Inc? Shares of Blockbuster rose nearly 13 percent on Tuesday amid investor speculation that the movie rental company’s offer for Circuit City may be dropped. It rose another 3.8 percent on Wednesday.

Circuit City posted a wider-than-expected quarterly loss last week and said its cash position fell to $92.2 million from $364.1 million a year earlier. Yet, Circuit City investor Mark Wattles told Reuters on Tuesday that Circuit City has received buyout interest from several strategic and financial bidders and a sales agreement could be announced over the next month.

Investors seem to be hoping that Blockbuster isn’t one of them.

InBev NV hesitated on Wednesday to put an expiration date on its $46.3 billion offer for Anheuser-Busch Cos Inc, but hinted that its bid may not have an indefinite shelf life.

The Belgian brewer reminded Anheuser-Busch that “time is of the essence” for the offer and that it remains available to discuss its $65 per share offer. InBev said it had commitment letters for the deal’s financing from 10 banks, so it’s ready to pull the trigger on a deal at any time.

Without putting a definitive walk-away date on the offer, InBev kept its friendly demeanor. But the reminder makes clear that its interest in a cold Bud may not last forever.

Anheuser-Busch’s board of directors met last week to discuss the proposal, which would be the third-largest foreign takeover of a U.S. company ever. Yet, the maker of Budweiser and Michelob has yet to respond to the bid.

There’s only so long that Anheuser-Busch can utter the usual clichés that it will review the bid thoroughly and respond in due course before InBev, and even BUD shareholders, get impatient.

Although Anheuser-Busch has few takeover defenses to thwart a hostile bid, it may be difficult for InBev to bring the heat to the all-American beer, with politicians putting in their two cents and the possibility of union and employee resistance. Will it risk a hostile offer or look for another target?

Warren Buffett, who owns about 5 percent Anheuser-Busch, said the takeover saga remains an “interesting spectator sport.” For now, at least.

InBev has timed its $46.3 billion bid for Budweiser brewer Anheuser-Busch well. Anheuser's shares have gone nowhere for five years, Chief Executive August Busch IV is not the leader his father was, while InBev is buoyed by strong revenues from Brazil, where the real is riding high.

That probably explains the wall of silence from the Budweiser brewer's home town of St Louis. What does it do to fight off the $65 a share bid -- sack its chief executive, sell
off its non-core assets or look for a friendly white knight?

The Busch family has had influence over the group well beyond its small 3.5 percent stake. But with hard cash on the table, hedge funds moving in and investment guru Warren Buffett sitting on 5 percent, the family no longer pulls all the strings.

It could move to sell off its SeaWorld entertainment parks and its packaging non-core assets for $4 billion, but the Stella Artois and Beck's Belgian-Brazilian brewer InBev has already said it will do that anyway if its bid is successful.

And finding a friend? Well, SABMiller already owns U.S. No 2 brewer Miller, Diageo doesn't want a massive gamble on the U.S. economy and beer market, and Heineken simply can not afford it so soon after swallowing half of Scottish and Newcastle.

InBev may well have to pay a few dollars more to win, but with half its earnings coming from Brazil and the real on a roll, it is confident it can get the financing -- credit crunch or no credit crunch.

Time for a Bud?

InBev thinks so.

Investors buying freshly diluted equity has become something of a refrain in Europe. Barclays raised 4.5 billion pounds ($8.8 billion) from investors including Qatar and Japan’s Sumitomo Mitsui to rebuild capital and pursue growth. That drove the London bank’s shares up more than 5 percent. Existing shareholders will get a chance to buy up to 4 billion pounds of shares at a discount, with outside “anchor” investors underwriting the fundraising. The fact that the capital raising was well-flagged and successfully completed was enough to encourage buyers.

Also rising 5 percent were shares of UBS, as the New York Post reported the Swiss banking giant has hired Lazard to conduct a strategic review, lending a touch more credence to the talk that the bank is looking to split its wealth management and investment banking businesses. UBS’s share could also be reacting to the Barclays news, which shows that sovereign wealth funds haven’t gone into hiding.

Qatar, which on Tuesday agreed to sell 25 percent of its stock market to NYSE Euronext, is in talks with London and German stock exchanges about new partnerships, according to Al Arabiya Television. Qatar, the world’s biggest exporter of liquefied natural gas, agreed to sell a stake in the Doha Securities Market for $250 million in a bid to become the booming region’s financial hub. “Qatar is in talks with the London Stock Exchange and the bourse in Germany to build new strategic partnerships,” Al Arabiya Television reported, citing Hussein al-Abdullah, executive board member for the $60 billion Qatar Investment Authority.

Other deals of the day:

* Dalian Port plans to buy an 18.9 percent stake in Jinzhou Port for about 1.91 billion yuan ($278 million) to become its second-biggest shareholder and a strategic partner, Jinzhou Port said.

* Chinese steel mills are seeking to buy an equity stake in Australian iron ore prospector Brockman Resources, Managing Director Wayne Richards said, adding that his firm was open to an approach.

* Idea Cellular, India’s fifth-largest mobile operator, said it would buy Spice Group’s 40.8 percent stake in another mobile firm, Spice Communications, at 77.3 rupees per share.

* Sweden’s Assa Abloy said it had bought Rockwood Manufacturing, a maker of door hardware in the United States, for an undisclosed sum.

* China’s Changsha Zoomlion Industry Science and Technology Development said it had won a joint bid with Goldman Sachs and two other investors to buy Italy’s Compagnia Italiana Forme Acciaio SpA, or Cifa, for 271 million euros ($421.9 million).

* Progress Software Corp said it will buy IONA Technologies PLC , a software integration technology company, for $106 million.

* Southeast Asia’s largest property developer CapitaLand said it had paid S$250 million ($183 million) for 62 percent of a retail mall in Malaysia.