New York Attorney General Andrew Cuomo is barking loudly at execs of American International Group, threatening “significant legal ramifications” if they take bonuses for a job well done at the bailed-out insurance behemoth. Expect him to start bearing his legal teeth soon: fines, legal costs, penalties …
 
“Please inform my office as soon as possible what AIG plans to do with respect to executive bonuses and pay raises this year,” Cuomo wrote in a letter to the company’s chief executive, Edward Liddy. “As you know, I believe AIG’s decision has significant legal ramifications.”
 
So there’s the threat. Now what?
 
Remember Dick Grasso? The state of New York sued the former head of the NYSE over his nearly $200 million pay package. Grasso said he would give back $48 million in deferred pay if he got an apology. Four years later, it’s still not clear just how much he has been forced to give up.
 
In 2004, Grasso’s sin was a sign of the times. The supply of corporate largess far outstripped demand for outrage as the credit and housing booms made us giddy. Now, with taxpayers coughing up $700 billion in relief for the financial sector and around $150 billion being thrown into the black hole at AIG’s credit default swaps department, law enforcement can be expected to take on this compensation creature with a sharper set of teeth. Smelling their own blood, chiefs at Goldman Sachs and UBS have sworn off bonuses.
 
Deals of the Day:
 
* Struggling British sweets-to-CDs retailer Woolworths is in early-stage talks to sell its high-street business for what one industry source said was likely to be for a nominal sum.
 
* UniCredit’s Bank Austria is close to selling for 1.2 billion euros ($1.5 billion) profit-sharing rights in a vehicle that owns stakes in Austrian industrial firms, the Der Standard daily reported. 
 
* United Internet has dropped its bid for rival freenet’s DSL broadband business, the company said. 
 
* China’s Bank of Communications wants to invest $100 million in Taiwan’s Taishin Financial, as China and Taiwan work on a deal to boost investment between their financial sectors, media reported. 
* Western Mining said it plans to purchase a 39 percent stake in Xining Special Steel Group from its parent for 1.1 billion yuan ($161.2 million).

(PHOTO CREDIT: Brendand McDermid/Reuters)

Given the magnitude of the crisis hitting the financial markets and Detroit, all of the Big Three automakers may not — or perhaps should not — survive, according to Bank of America Corp’s top executive.

Bank of America’s CEO Kenneth Lewis said he would support a bailout for the U.S. auto industry if the American public backed one, but some conditions must be met. 

“The first thing would be that they (the U.S. automakers) acknowledge that there is one too many auto companies and that consolidation needs to take place,” he told reporters at a Detroit Economic Club event.

Lewis didn’t specify which automaker was “one too many,” although closely held Chrysler is the smallest of the three and is widely seen as the weakest. GM had been in talks to acquire Chrysler, but those talks have been put on ice for now as the car companies have gone to Washington , hat in hand.

“‘I’m just trying to make sure the (U.S. auto) industry survives,” he added, but stressed that any bailout package must be based on viability and sustainability to make the three U.S. automakers competitive against their German and Asian rivals.

Executives from General Motors Corp, Ford Motor Co and Chrysler LLC — which is owned by private equity firm Cerberus Capital Management LP — pleaded their cases for an industry bailout at a Senate Banking Committee hearing.

GM and Chrysler, in particular, are bleeding cash and questions have been raised about their ability to survive without an infusion of government aid. The industry has been battered by soaring gasoline prices, the credit crisis and economic slowdown. In the past 12 months, GM shares have lost 90 percent of their value and Ford is down more than 80 percent.

Lewis, whose own bank’s shares have tumbled some 64 percent this year, had few words of comfort for the industry. He said he believes the U.S. economy will get worse before it gets better. Trying to survive a financial crisis of this magnitude is like “trying to defend against a tsunami with a thimble,” he said.
         
(Full disclosure: the reporter has relatives who work for GM)

Relations are unsurprisingly icy between Exelon and NRG Energy. After all, Exelon has launched a hostile bid to buy independent power company NRG and plans an attempt to add several members to the company’s board next year.

But one could be forgiven for not immediately picking up on the fact that, in a letter sent yesterday, NRG had agreed with Exelon’s interpretation on whether it could it could try to expand NRG’s board and fill the newly created positions.

“I know of nothing requiring NRG to provide its interpretation of its Charter in response to an inquiry of this type,” wrote NRG Deputy General Counsel Tanuja Dehne.

“It seems plain that your letter constitutes an effort to manufacture an issue for litigation. Rather than wasting time and resources on manufactured issues, NRG prefers to maintain its focus on maximizing shareholder value.”

Nevertheless, Dehne did provide Exelon with that interpretation, writing that NRG believes its charter does give shareholders the right to expand the board and elect new board members.

Whether the Exelon hand-picked directors would be on speaking terms with their NRG management colleagues is another question entirely.

Veteran dealmaker Joseph Perella, speaking at a forum on business risk hosted by insurance market Lloyd’s of London on Tuesday, said there is no overnight cure for the global economic crisis. 

And if a deep recession sets in things could get worse before they get better.

“The question of the day reamains where is the bottom,” said Perella, who founded corporate advisory firm Perella Weinberg Partners after  nearly 40 years in the banking industry.

In a severe recession, the benchmark Standard & Poor’s 500 Index could drop another 30 percent to 600, he said. So far this year, the S&P has fallen 42 percent, closing at 850.75 on Monday.

Declining stock markets would necessarily impact individual stocks. Perella said in the early 1970s he saw some companies valued as cheaply as four times earnings. He does not predict valuations will hit that rock bottom, but falling to a stock price of ten times earnings was feasible.

What is not realistic, he said, is average Wall Street expectations for 15 percent growth in earnings next year.

One more bit of “bah humbug.” Corporate default rates have yet to hit recession levels,  said Perella,  and he predicts more private equity deals will have to be restructured.

That last bit might not be so bad if you are in Perella’s business. Perella Weinberg has a restructuring group that has seen business surge in recent months.

InBev NV successfully closed its $52 billion acquisition of Budweiser brewer Anheuser-Busch, but other suitors have not been so lucky.

InBev managed to close the deal after the banks fulfilled the funding, giving it a $45 billion loan and a $9.8 billion loan bridging to an equity issue that the company plans to launch before the end of the year. 

The company, which became the world’s largest brewer, will be renamed Anheuser-Busch InBev and boast brands ranging from Budweiser, Beck’s, Michelob and Stella Artois.

The deal closed despite several obstacles along the way. InBev’s unsolicited offer initially faced a political and union backlash against the foreign takeover of an American icon, and endured arbitration proceedings by Anheuser-Busch partner Grupo Modelo.

Other deals have suffered a more dismal fate, with each day seeming to spark another busted deal.

On Tuesday, chipmakers ON Semiconductor and Microchip Technology dropped their $2.3 billion unsolicited bid for Atmel Corp. Microchip, however, said it may look at other options for acquiring Atmel. 

Late Monday, ire ore pellet maker Cliffs Natural Resources ended its plan to acquire coal miner Alpha Natural and agreed to pay $70 million to settle litigation. Meanwhile, Chip equipment maker Applied Materials and private equity firm Francisco Partners on Friday said they have walked away from an approach to buy key units of Dutch rival ASM International.

The rate of failed deals has hit a record high level amid a lack of available credit, volatile equity markets and concerns about the global economic crisis. One-third of the U.S. deals announced in 2008 have been withdrawn or failed to closed, according to data from UBS AG.

Now that InBev-BUD has closed, the other mega-deal left over from the pre-doom days of global financial crisis is the takeover of Canadian telecommunications company BCE Inc. That deal is expected to close Dec 11.

Toronto-Dominion Bank, one of the banks funding the BCE deal, last week said it remained committed to funding the transaction.  TD Securities, a unit of TD Bank, is among the banks that have agreed to finance the deal alongside Citigroup, Deutsche Bank and Royal Bank of Scotland.

“We’re…old fashioned,” Toronto-Dominion Chief Executive Ed Clark said at the Reuters Global Finance Summit.  “When we say ‘We’re going to do a deal,’ we say, ‘We’ll do a deal.’ You can’t say, ‘Well it was a good idea at the time, but I don’t like it anymore’.”

Back in July, when Microsoft walked away from Yahoo, conspiracy theorists surmised that the software giant would eventually come back to bid again at half the price. The Chief Yahoo - that’s the title Jerry Yang is reclaiming after saying last night he would step down as CEO - is no longer in a position to block a deal, so it’s fair to assume Microsoft and its bulging mound of cash could return for another bite. 
 
Yang has been talking with the board, which includes activist investor Carl Icahn, about stepping down since before Google pulled out of a search advertising deal with his company earlier this month, according to a person familiar with the talks. 
 
Yahoo’s share price jumped after the news on Yang. That could just be relief that he is going, or it could be renewed hope of a deal. So a dealmaker could take the reins of the Internet company, which has already seen great swaths of its brain trust flee in the months since the initial Microsoft bid failed. 
 
A source said the process of finding a successor to Yang could take anywhere from four to 12 weeks, and analysts have suggested a star-studded cast of candidates, including former AOL chief Jon Miller, News Corp President and Chief Operating Officer Peter Chernin, former eBay Chief Executive Meg Whitman, former Yahoo COO Dan Rosensweig, and Yahoo President Sue Decker.
 

Will Microsoft formally announce an offer for Yahoo?

Deals of the day:
* French warplane maker Dassault Aviation is in exclusive talks with Alcatel-Lucent to buy the telecoms equipment maker’s 20.8 percent stake in radar maker Thales for about 1.52 billion euros ($1.92 billion).
 
* Britain’s Carphone Warehouse may split off its telecoms arm to focus on its retail venture with U.S. group Best Buy, it said as it warned of tough trading. 
 
* British publishing and exhibitions group United Business Media, which abandoned a planned merger with UK peer Informa earlier this year, said it was buying Xinhua PR Newswire, China’s largest corporate announcement service, for $6 million in cash.

If you thought being a Citigroup director is tough in these times, imagine what it would be like to be a Citi director and an advisor to President-elect Barack Obama’s transition team.

Three of Citi’s 15 directors — Time Warner Chairman Richard Parsons, Xerox CEO Anne Mulcahy, and former Treasury Secretary Robert Rubin - are also members of Obama’s transition economic advisory board.

It’s hard to say which is more difficult: Helping Obama figure out how to bring the economy out of its worst crisis since the Great Depression or overseeing the No. 2 U.S. bank as it combats mounting debt losses and sagging economies worldwide. As if that were not enough, Parsons and Mulcahy also have their own not-so-small companies to look after.

Either these directors are very good at delegating, or like Citi, they never sleep.

(Photo credit: Carlos Barria, Reuters)

The term “zombie” has been bandied about by commentators at distressed companies with growing frequency lately, at the risk of becoming the latest cliché in the business world’s vernacular.

So what exactly is a zombie?

According to Forbes Digital’s online financial dictionary Investopedia, Zombies are companies that:

“continue to operate even though they are insolvent or near bankruptcy. Most analysts expect zombie companies to be unable to meet their financial obligations.”

Sound familiar? It should, given how many formerly blue chip companies from AIG and General Motors, have been acting like the Walking Dead, turning to the government, tin cup in hand, and asking whether it can spare tens a few trillion dimes to help them stay afloat. That has prompted more and more commentators to wonder whether these supplicants can or should be saved at all.

A quick scan of the Factiva news article database shows how quickly the term has found traction in our lexicon, particularly since mid September when the financial crisis exploded.
Here are some examples of where the term has popped up lately:

In Monday’s “Heard on the Street” in the Wall Street Journal:
“If the government fails to address oversupply, the result could be zombie companies — or even a zombie economy along the lines of Japan during the 1990s.”

In today’s Lex column in the Financial Times:
“Detroit is burning cash in the belief Washington will ply it with more. Sustaining zombies on life support is no way to build a healthy economy or promote free trade in a recession.”

In an October blog by Harvard economics prof and former chairman of President Bush’s Council of Economic Advisers Greg Mankiw :
“The government does not want to put taxpayer money into “zombie” firms that are in fact deeply insolvent but have not yet recognized it.”

The moment that brought the most laughter at the Asian Venture Capital Journal conference in Hong Kong last week was when TPG’s David Bonderman explained the difference between a hedge fund investor relationship and a private equity investor relationship. He was trying to illustrate the point that while hedge funds are liquidating portfolios to pay back investors with a short term lock up, private equity firms can buy up those portfolios because they’re not getting hassled by investors. Their investors are, as they say, in it for the long haul. Let Bonderman explain it:

Click here the audio clip. As memory serves, the kissing sound was accompanied by a hugging motion.

“Private equity all has long term lock ups. So you may like our performance, you may not like our performance, but you’re my partner for the next 12 years (makes a smooching, kissy sound here). At a hedge fund, you’re my partner for the next 45 days until you can give me notice and get the
hell out. So you have a situation where a trillion dollars have come out of hedge funds, which is a third of all the capital they had, and virtually no money coming out of private equity.”

Lion Nathan, Australia’s second-largest brewer, has launched a US$4.9 billion bid for soft drinks group Coca-Cola Amatil, which is 30 percent-owned by the Atlanta-based soft-drink giant. The offer took the market by surprise. 
 
Like many other Coke affiliates around the world, Coca-Cola Amatil has been seen as a buyer, not a target, in this period of consolidation in the drinks business. It missed out on buying Frucor from Danone and is eyeing the Australian Schweppes business of Britain’s Cadbury. Coke itself bought a Chinese juice company in September.
 
Lion Nathan, which is 46 percent-owned by Japan’s Kirin Brewery, would end up with 60 percent of Australia’s soft drinks market if it buys Coca-Cola Amatil. Kirin said it would kick in US$2.4 billion in the form of a share purchase in Lion Nathan to help fund the deal. If Coke bring out the big guns, it’s hard to see how Kirin would be able to take on the top dog of pop. Kirin’s market cap is about a tenth of Coke’s US$104 billion. 
 
Investors seemed to sense the cash-and-stock bid might be a bit fizzy. The deal, pitched at a 25 percent premium to Coca-Cola Amatil’s share price, sent the target’s shares up to a record high. But the shares ultimately traded below the offer after Coca-Cola Amatil said the bid had material weaknesses and looked cheap compared with other recent transactions.
 
 
Deals of the day:
 
* China Banking Corp said it wants to buy the consumer banking arm of Philippine American Life and General Insurance Co (Philamlife), the local unit of American International Group and the country’s largest insurer.
 
* Three international insurers and an international bank are interested in acquiring a stake in the takaful unit of MNRB Holdings, the Malaysian Reserve reported. 
 
* Indonesian conglomerate Sinar Mas Group will acquire an up to 70 percent stake in PT Bank Century, the bank said.  

(PHOTO CREDIT: REUTERS/Will Burgess)