Deal spreads open wide

October 1, 2008


Shares of HBOS and Lloyds TSB got a boost this morning in London as it appeared Lloyds was less likely to try to renegotiate its takeover of HBOS. Standard Life Investments, a top investor in Lloyds and HBOS, supports the planned takeover under the original terms, a person close to the investment firm said, and analysts suggested political and regulatory pressure would force the deal through, despite its chunky discount to the indicated offer price.

BBC Business Editor Robert Peston writes:

So if you believe that the terms of the deal won’t and can’t be changed, the current HBOS share price is an opportunity to buy £10 notes for £6.60.

That looks too good to be true. And the normal investing rule is that if it looks too good to be true, then don’t touch it even if you’re in a radiation-proof suit.

DealZone postulated yesterday that other big deals could head the same way because of falling prices – think Bank of America’s bid for Merrill Lynch. HBOS’ and Lloyds’ share price puts that deal at a 31 percent discount to its original price tag, compared with a discount of 16 percent for the Merrill/BofA deal.

The ban on short sales in the U.S. is making it tough to gauge just how much doubt there really is about that deal, though its current discount – even after yesterday’s rally – would normally raise eyebrows. That ban is set to expire tomorrow, but can be extended if the SEC deems it necessary for a maximum of 30 days in total.

If the government sees itself as being in the business of salvaging takeovers of distressed banks, a position it bolstered by backing Citigroup’s takeover of Wachovia on Monday, might the SEC seek to keep the ban in place for more than a month?

Deals of the Day:

** Anglo-Swiss miner Xstrata Plc dropped immediate plans for a $10 billion bid for No. 3 platinum producer Lonmin Plc but set the scene for a later deal by scooping up Lonmin shares as they fell.

** Iceland’s troubled banking sector witnessed further upheaval as Straumur-Burdaras said it would pay 380 million euros ($537 million) to buy assets from Landsbanki .

** Hewlett-Packard Co has agreed to buy LeftHand Networks Inc, a network storage provider, for $360 million in cash.

** Video-game retailer GameStop said it will acquire French video-game retailer Micromania from private equity fund L Capital for $700 million, including debt, to gain a presence in France.

** Struggling Finnish technology firm Elektrobit said it had agreed to sell its WiMax baseband software assets to Nokia Siemens Networks [NSN.UL] as part of its new restructuring plan.

** Royal Dutch Shell is poised to take a large stake in its Russian partner company Sibir Energy before the end of this year, the Financial Times reported.

** British instruments and controls maker Spectris Plc is buying LDS Test & Measurement from SPX Corp for $102 million, on a debt and cash-free basis, the company said.

** Nidec Corp <6594.OS>, the world’s largest maker of tiny motors used in hard disk drives, said it would buy a majority of Fuji Electric Holdings’ <6504.T> industrial motor unit for nearly 10 billion yen ($94 million).

** Indian vaccines maker Panacea Biotec Ltd

will invest $13.1 million in U.S.-based PharmAthene Inc

for a near-20 percent stake, the firms said.

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