British Airways and Spain’s Iberia are in talks to create the world’s third-largest airline and inject some “long-overdue” consolidation in the industry, in the words of BA CEO Willie Walsh.

Where would a combined BA-Iberia leave American Airlines, which was in talks to form a transatlantic alliance with the two airlines? Would a BA-Iberia merger scuttle American’s chances at an alliance?

The argument for forming an alliance and seeking an antitrust waiver was that the “Open Skies” agreement — which frees up restrictions on carriers flying between the United States and Europe — is set to increase transatlantic competition among airlines. That’s a harder pitch to sell if a BA/Iberian merger, creating Europe’s largest airline, shrinks the number of major players in the market.

Getting regulatory approval for the alliance was uncertain to begin with. An immunized alliance between American, the largest U.S. airline, BA, Europe’s third-largest carrier, and Iberia, Spain’s largest airline and the biggest operator of flights to Latin American player, would create the most extensive network between Europe and the Americas.

To make things even more complicated, British Airways has 40 percent of takeoff and landing slots at Heathrow, by far the largest share of any airline. In 2006, BA and American held over half the capacity between Southeast England and the United States between them.

In the past, BA and American have tried to form an alliance and failed. U.S. antitrust authorities  asked the carriers to give up some slots at Heathrow if they wanted approval, but the airlines did not want to part with the slots. Times have certainly changed since — fuel prices have skyrocketed and the economy has weakened — but the same requirements for Heathrow would likely apply again.

What’s American to do? U.S. airlines have lost more than $35 billion in the past few years. Delta Air Lines and Northwest Airlines have agreed to merge, creating a formidable competitor as the world’s largest airline. And United and Continental have also agreed to a plan of global co-operation .

If BA and Iberian are off the table, an alliance with another carrier could be American’s best shot at surviving this downturn. US Airway, we’re looking at you.

Deutsche Bank’s latest writedown comes with a reality check - the global credit crisis it had largely fought off is still snarling away. The top German bank’s $3.6 billion in fresh writedowns come with a reversal of optimism from CEO Josef Ackermann. “We remain cautious for the remainder of 2008,” he said as his bank became one of the world’s top crisis casualties. As late as November, Ackermann had been suggesting no further writedowns would be necessary, and had stood by a 2008 pretax profit goal of 8.4 billion euros. Now, with no indication that the books are completely cleaned of toxic paper, further write-offs seem a lot less unlikely and that full-year profit goal is going quietly by the wayside.

Japan’s TDK Corp said it plans to buy German electronic parts manufacturer Epcos for $1.9 billion in cash, as it pursues growth overseas and seeks to expand sales of industrial-use components. TDK said in a statement it would launch a friendly tender offer for all shares of Frankfurt-listed Epcos, offering 17.85 euros ($27.81) per share, a 29 percent premium to the closing price on Wednesday and valuing the deal at 1.2 billion euros. TDK said the offer would begin at the end of August. The acquisition is expected to boost TDK’s global market share of capacitors and inductors just as price falls hit earnings at rivals such as Murata Manufacturing and Kyocera, analysts said.

Global lender HSBC is likely to stand firm on its $6.3 billion bid to buy Korea Exchange Bank from U.S. private equity firm Lone Star as a formal deadline looms, cheered by a more accommodating South Korean government. The long-running deal, mired in outstanding legal issues, is seen as a test of whether South Korea is genuine in its pledge to open its financial sector wider to international investors. A successful deal would be the biggest cross-border move in South Korea’s banking sector and catapult HSBC into the ranks of the country’s top local banks.

Other deals of the day:

* Swedish media company Modern Times Group said it had signed a deal to buy Nova TV Bulgaria for 620 million euros ($966 million) in cash, expanding its reach in eastern Europe.

* Serbia is to go ahead with the sale of up to 51 percent of JAT Airways valuing the flag-carrier at about 100 million euros ($156.2 million), said the country’s privatization agency.

* Finland’s Atria has agreed to buy loss-making pigs-to-pizza group Campomos in Russia from Spanish Campofrio Alimentacion for 75 million euros ($116.9 million), it said.

* Japanese drug maker Daiichi Sankyo is yet to receive Indian regulatory approval for an open offer for Ranbaxy Laboratories, and so will not launch it on Aug. 8 as previously planned.

* Indian plastic products maker Sintex Industries said its unit has acquired 90 percent in German auto component maker Geiger technik GMbH, at an enterprise value of 35.6 million euros.

Chemical maker Huntsman Corp’s second-quarter earnings have triggered a new round of sparring with its disgruntled suitor, Hexion Specialty Chemicals.

Hexion, a unit of Apollo Management, jumped on Huntsman’ssecond quarterresults, saying they showed that a material adverse change had occurred in Huntsman’s financial condition. Hexion has claimed the $6.5 billion purchase of chemicals maker Huntsman is no longer feasible and the combined company would be insolvent. The two companies have already filed lawsuits against each other.

Hexion said Huntsman’s EBITDA (earnings before interest, taxes, depreciation and amortization) had dropped 19 percent from prior year and its net debt — adjusted for asset sales — was more than 25 percent higher than a year ago.

“These results further demonstrate that Huntsman has suffered a material adverse effect which is the primary reason why the combined company would be insolvent if the transaction were to be completed based on the agreed capital structure,” Hexion said. “Huntsman has provided no information to support its assertion that the combined company would be solvent.”

For its part, Huntsman remained upbeat and said it had been “encouraged by the recent moderation in crude oil and natural gas prices” and it expected adjusted EBITDA in the second half of the year to be stronger than both the first half of this year and the second half of 2007.

Huntsman Chief Executive Peter Huntsman said he hopes litigation with Hexion will be resolved by mid-September, after an expedited hearing. The trial is scheduled to begin on September 8.

Stay tuned.

Drumroll, please: Almost two years after radio station and billboard company Clear Channel Communications began exploring strategic options, its $17.9 billion takeover finally closed on Wednesday.

The deal, slowed by legal battles in two states and negotiations to lower the purchase price, became a symbol of the buyout industry’s glory days and the subsequent struggles of the credit crunch.

Clear Channel had agreed to be acquired by private equity firms Thomas H. Lee Partners and Bain Capital Partners last year. The market quickly changed and credit to fund the acquisition became more costly and difficult to secure.

The buyout firms had agreed to buy Clear Channel for $39.20 per share, but were forced to file lawsuits in New York and Texas to ensure that a syndicate of six banks would still fund the deal. In May, the bank syndicate, the private equity buyers and Clear Channel struck a deal to lower the price to $36 per share.

And now Clear Channel’s stock will cease trading at the end of the day. Phew!

Sirius Satellite Radio and XM Satellite Radio also closed their merger this week after struggling for 526 days, or 17 months, to gain regulatory approval. The new Sirius XM Radio, with more than 18.5 million subscribers, is now the second-largest radio broadcaster after Clear Channel.

The next marathon wait? Shareholders of BCE Inc, the Canadian telecommunications company, must wait until Dec. 11 for the long-awaited $34.1 billion deal to close. Of course, that’s more than five months from now — who knows what could happen?

Two takes from the latest data on U.S. M&A activity so far: The Europeans are coming like never before — and buying their beer here — and the credit crunch has really taken the pizzazz out of the ‘p’ in private equity.

The latest numbers from Thomson Reuters show that so far in 2008, about one-third of U.S. targets were acquired by foreign companies, up from 19 percent in the same period last year.

The weak dollar and slumping stock prices of U.S. companies has created a window of opportunity for international buyers to snatch up American icons.

European companies accounted for more than one-fourth, or $196.9 billion, of U.S. target M&A volume, the highest year-to-date percentage ever, the data shows. The year-to-date volume of these transactions already exceeds full-year volumes of the last eight years.

With financing for large leveraged buyouts still scarce, private equity firms have been quieter. Globally, private equity-backed deals have plummeted, accounting for just 10 percent of total deal volume so far this year, compared to 24 percent in the same period last year.

But amid the broad slowdown of deal activity, consumer staples companies, which include deals like InBev’s offer for Anheuser-Busch and Mars buy of Wrigley, stood out. The deal volume in that sector so far this year has surpassed the figure from the year-ago period, the data shows.

Clearly, that’s something to chew over, err, drink about, umm, have a smoke over …

(Photo credit: Reuters)

A U.S. appeals court decision to revive antitrust proceedings against Whole Foods Market’s takeover of rival Wild Oats may be too little too late to resurrect the organic market, but that might not be the point. S&P points out that Wild Oats is being quickly digested. The appeals court rejected Whole Foods’ argument that the FTC appeal is irrelevant because the agency does not have the authority to undo a completed merger. Federal courts “have the power to grant relief on the FTC’s complaint, despite the merger’s having taken place, …” the court said. Howard University law professor Andrew Gavil said the ruling could be important for the FTC as it sets a precedent strengthening the agency’s hand in seeking a preliminary injunction in future cases. The reversal drew a sharp dissent from one of the three judges on the panel, Appeals Court Judge Brett Kavanaugh, who accused his colleagues of trying to “unring the bell.”

German ball-bearing firm Schaeffler launched a hostile $18 billion bid for tire-to-brakes firm Continental in what would be the biggest takeover so far this year in Europe. It’s been a nasty business so far, with the two companies sparring publicly. Schaeffler appears to be more interested in picking up stakes privately, as its offer is about 3 percent below where the share is trading. Schaeffler has about 36 percent of Continental’s stock.

A unit of Dubai sovereign wealth fund Investment Corporation Dubai has teamed up with private equity group Blackstone and others to buy British media group Informa, the Financial Times reported. A consortium of private equity groups Providence Equity Partners, Carlyle and Hellman & Friedman have been in talks to buy Informa for about 3.2 billion pounds ($6.4 billion). The FT said Dubai World Trade Centre, one of the biggest events organizers in the Middle East, is seeking to buy Informa’s IIR conference and events division. Blackstone and other private equity groups, possibly including Permira, would keep Informa’s Taylor & Francis academic publishing division, while seeking trade buyers for other units, such as the Datamonitor business information arm, the paper said.

German chemical group BASF is considering taking over U.S. rival W. R. Grace & Co, the Financial Times Deutschland said, citing middle management and banking sources. As well as assessing Grace, which has $3.1 billion in annual turnover, BASF will also be looking closely at the strategy, company structure and business development of U.S. group Rockwood and Germany’s Cognis with a view to acquisitions, the paper said. All three potential targets have been given project names, a sign that they are being considered seriously for takeover, the report said.

Other deals of the day:

* Czech financial group PPF officially withdrew its 950 crown per share bid for Czech generic drug maker Zentiva, it said.

* Belgian biotech company ThromboGenics said that a group of private investors based in Belgium had together acquired an 8 percent stake in the company.

* Sweden’s Assa Abloy, the world’s largest lock maker, said it had bought Korean door firm Cheil for an undisclosed sum.

* Indian drug maker Lupin said it acquired Hormosan Pharma, a German sales and marketing company of generic drugs.

* Spanish publishing group Zeta said it had turned down an offer by Alfonso Gallardo, the Spanish steel group, to acquire a majority stake in the company.

Republic Services Inc’s move to adopt a poison pill to ward off unwanted suitor Waste Management Inc typifies the recent jump in such defensive tactics by companies under attack.

Republic, the third-largest U.S. trash hauler, adopted a poison pill, or shareholder rights plan, on Monday to thwart “disruptive and coercive” acquisition tactics. Republic had agreed to acquire Allied Waste Industries for $6 billion, but now faces an unsolicited $6.2 billion bid from Waste Management.

Republic’s shareholder rights plan has a 10 percent trigger, or 20 percent in the case of investors who already own 10 percent of the company’s stock. Republic carved out an exception for Cascade Investment LLC, Microsoft Chief Executive Bill Gates’ investment vehicle, and the Bill & Melinda Gates Foundation Trust. Cascade and the Trust already own 15 percent of Republic stock and have permission to acquire up to 20 percent of Republic.

In recent years, the adoption of poison pills has been on the decline as shareholder activists have pushed for more open corporate governance practices at public companies. Only 85 poision pills were adopted in 2007, down from 298 in 2001, according to research firm FactSet SharkRepellent. So far this year, there have been 54 poison pills adopted.

Yet, when you look at companies that are under attack, the use of poison pills has surged, FactSet SharkRepellent said.

Of the 31 first-time users of a poison pill this year, 12 companies, or 39 percent, have been “in play” or under attack, like Republic. In 2007, the rate of “in play” poison pill adoptions was 24 percent, up from 20 percent in 2006. In 2001, the rate was less than 3 percent, FactSet SharkRepellent said.

Even with the new poison pill, Republic remains vulnerable to an unwanted deal, since it has an annually elected board of directors and shareholders can take action through written consent.

The company has a “Bullet Proof Rating” of 4.25, on a scale of 0-10, with 10 being the strongest defenses, according to research firm FactSet SharkRepellent. The mean Bullet Proof Rating for the Standard & Poors 500 Index is 3.67.

Waste Management said on Tuesday it hoped to buy Republic through a friendly, negotiated deal, but it did not rule out a hostile move. Waste Management said it was too early to speculate, but “we certainly hope that the path it will take is one where we can cooperate.”

The marathon satellite merger for Sirius and XM is finally complete. (Check out the new "Sirius XM Radio" logo, above, provided by Sirius.)

That means new channel options, new pricing options, new radios -- eventually.

We want to know if you care. Does the prospect of having Oprah and Howard Stern on your radio make you want to sign up for satellite radio? Will you start paying for the service once the free subscription in your new car runs out? Does the thought of the upcoming professional football season mean it's time to pick up a satellite radio?

We'd like to know.

PE Hub’s Connie Loizos has an interview with Craig Cooper, who recently joined the VC firm founded by Israeli billionaire and media mogul Haim Saban:

Saban Capital quietly entered the business of venture capital a few months ago, adding an early-stage digital media practice to his seven-year-old, L.A.-based investment company, Saban Capital Group. For the uninitiated, Saban is a former television producer whose Saban Entertainment company gave the world, for better or worse, “Mighty Morphin Power Rangers” in the ‘90s [Editor's note: Saban also wrote the "Inspector Gadget" theme song].

Cooper hasn’t pulled the trigger on any investments yet. But in a short phone conversation, we talked a bit about Richard Yen, who joined Cooper in June from Blueprint Ventures; we discussed his focus on digital media and consumer wireless startups; and he explained why he’s cut back on his daily dose of TechCrunch.First, how did you meet Haim Saban?

I was a partner in the Softbank Tech Fund when we were first raising it in 2004, and Haim was an investor, and I got to know him very well. We started talking in the middle of 2007 about his position in LA and his capital.

Was that a long conversation? Fortune magazine estimates his net worth is more than $2 billion. How much is he giving you to invest?

We have an allocation that we don’t publicly disclose, but we have a lot of dry powder.

What’s your role within the broader firm?

Well, we’re investing in companies on a standalone basis, but also looking across all of Saban’s investments in the context of how what we do might drive larger private equity deals. Facebook was a tiny startup just a few years ago, if you remember. So it’s very much a cross-platform intelligence-based platform that we’re trying to build.

What amounts are you looking to put to work?

I was Israel last month looking at early-stage deals in the range of $100,000 to $500,000; we’ll also look at deals that are between $10 million and $20 million. Because we don’t have any LPs telling us what to invest, we have a lot of flexibility.

Who’s “we”? Will Saban himself need approve every deal you want to do?

It’s effectively a group decision. We have an investment committee that includes Haim, [Saban Capital Group COO] Adam Chesnoff, and myself, and we run the practice like a traditional investment firm. We have weekly meetings and the whole team contributes into deals. So the private equity guys tells us what they’re seeing and we tell them what we’re seeing; we think that approach gives us a better overview of what’s happening across the spectrum.

Are you primarily targeting the LA area as you look to invest in digital media and wireless startups?

Our initial focus is on the San Francisco-San Diego corridor. But we’re going to be looking internationally. The U.K. and European markets are big for the rest of Saban Capital, and we have strong links into Israel as well. In fact, we’re hosting a tour of 15 Israeli companies that are coming through LA this fall, and some of our strategic partners will come and meet those companies. There’s a lot incubation over there - and some very unique ideas.

There are two of you and 10 guys on the private equity side. Will that even out over time?

We’ll certainly look to scale the group as we scale our invsestments. Hopefully we’ll have enough deals that we’ll need to bring on additional resources, but we haven’t contemplated that yet.

Where are you getting your deal flow? Who do you see most down in LA?

I’m doing a lot with [former AOL CEO] Jon Miller, but I was also here in LA for Softbank. And historically, because of my wireless background, I’ve had big deal flow through that channel. There are only a few people in terms of digital media in LA who see most of the deals and I’m probably one of them. That said, if someone is raising money, that’s a flag for me. I’m looking for independent opportunities that I can develop.

You don’t want to see entrepreneurs who are raising money?

I want to invest in companies that I find, whether they are raising money or not. There’s so much clutter in our economy. Everyone is jumping on digital media. Look at our principal news sources: mocoNews, TechCrunch. There’s no competitive advantage anymore except to break out of the pack and actively identify deals that you think are promising. Otherwise, I’m just reading TechCrunch and calling the same guys that everyone else is.

How are you finding these companies that aren’t soliciting funding?
I read 50 to 100 magazines a week. I’m continually hunting for information about new opportunities. I just pride myself on finding things that no one else has identified. I cold call a lot of people.

Read the full interview here

Analysts are applauding Merrill Lynch’s attempt to cut its losses and raise more capital, but investors may be forgiven if they take the company’s remarks with several large grains of sodium chloride. CEO John Thain repeatedly insisted that Merrill was well-capitalized over the last eight months, yet the bank still had to go back for another $8.5 billion.

Below are a selection of comments by Thain and other executives, in reverse chronological order.

“Right now we believe that we are in a very comfortable spot in terms of our capital.” (July 17, 2008 — Thain on a conference call after posting Merrill’s second-quarter results)

“Today on a pro forma basis we have about $44 billion of equity capital, which actually isn’t very much below the all-time high that Merrill ever had. And our philosophy about this is that we are well-capitalized. We’re comfortable with our capital position. We, like everyone else, are deleveraging our balance sheet.” (June 11, 2008 — Thain on a conference call hosted by Deutsche Bank)

“John Thain has been very clear that we have sufficient capital and don’t have a need to raise additional common equity for the foreseeable future. When we raised this capital in January, we had a lot of demand so we went beyond what we needed.” (May 12, 2008 — Merrill President Greg Fleming in an interview with the Times of London)

“We deliberately raised more capital than we lost last year … we believe that will allow us to not have to go back to the equity market in the foreseeable future.” (April 8, 2008 — Thain to reporters in Tokyo, as reported by Reuters)

“In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don’t need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I’m sure we have enough capital.” (April 4, 2008 — Thain in an interview with Japan’s Nihon Keizai Shimbun)

“We have more capital than we need, so we can say to the market that we don’t need more injections. We can confirm that we have tackled the problem.” (March 16, 2008 — Thain in an interview with Spain’s El Pais newspaper)

“…Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market.” (March 8, 2008 — Thain in an interview with France’s Le Figaro newspaper)

“We’re very confident that we have the capital base now that we need to go forward in 2008.” (January 18, 2008 — Thain as quoted by the New York Times).

“…These transactions make certain that Merrill is well-capitalized.” (January 15, 2008 — Thain in a statement after selling $6.6 billion of preferred shares to a group that included Japanese and Kuwaiti investors)

“One of my first priorities at Merrill Lynch was to strengthen the firm’s balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital.” (December 24, 2007 — Thain in a statement when Merrill announced a $6.2 billion capital raising)

(Reporting by Martin Howell)