If the global recession wasn’t enough, with its idled auto factories and demand dwindling from the construction to the ship-building industries, the world’s steelmakers are facing the kind of consolidation that could well be a transformative event for the business.

Coal giant Xstrata aims to buy Anglo American for $68 billion in a tie-up between two of the biggest iron ore suppliers, creating the second-largest producer of steel-making coals. The move follows joint-venture plans from ore suppliers BHP Billiton and Rio Tinto and is seen as a big threat to steelmakers’ ability to exert any control over falling prices. Expect plenty of opposition from governments about too much pricing power residing in too few hands.

But the deal has other obstacles as well. Xstrata is offering effectively no premium to Anglo shareholders, which is producing loud squawks of outrage from investors. Perhaps by the time this one gets ironed out, the global recovery will be in full swing.

The Xstrata/Anglo deal is probalby going to be all the rage at the annual Steel Survival Strategies conference, which kicks off in New York on Tuesday with executives from U.S. Steel, ArcelorMittal and AK Stee expected to speak.

(From Sarah Young at Acquisitions Monthly)

This week has seen policy-makers on both sides of the Atlantic contemplate the future of the banking industry.

Yesterday, Switzerland’s central bank joined the discussion. It is one country that truly knows the meaning of too big to fail – the combined assets of Credit Suisse and UBS were last year equivalent to six times Swiss GDP.

The restructuring and M&A activity that would come about should regulators introduce restrictions on the size of banks, or push for the division of investment and retail banking, must have deal advisers’ eyes watering with the thought of the fees that would be up for grabs.

But enforced disentangling of enormous banking groups seems somewhat improbable, or at least a long way off, so for now advisers will have to content themselves with the prospect of heightened disposal activity by banks.

It’s no secret that banks such as Lloyds Banking Group and RBS will consider selling off assets in the coming years to satisfy the conditions of the UK government’s investment – to boost capital and free up lending capacity – in both institutions.

After taking on HBOS, Lloyds has an enormous range of assets that it could divest. Already in the frame is fund management business Insight, previously part of HBOS.

There’s no doubt that there is, and will in the future continue to be, appetite for the assets banks want to offload. There isn’t a buyout firm in sight that isn’t beefing up its financial services team.

Chinese banks, too, could want to acquire some assets. Buying in specific expertise in the investment banking or private banking space would certainly appeal to them.

Asian appetite for European financial assets was shown last month when Japanese investment bank Daiwa Securities SMBC bought the corporate finance unit of merchant bank Close Brothers.

But this deal and the BGI sale are rare agreements in today’s market. As with other sectors, before a wave of M&A in financial services can kick off, there needs to be some accord on price.

As one sector banker said recently: “Price is the biggest inhibitor. At the moment no-one knows what anything is worth.”

Unnerved by sagging markets, storied private equity firm Kohlberg Kravis Roberts appears to be thinking of putting off its New York listing. The original plan was to buy its Amsterdam-listed fund and parlay it into a New York-listed entity.

Now, having watched Blackstone’s stock tumble a gut-wrenching 68 percent since it went public two years ago, we hear KKR is leaning toward buying out the Dutch fund, known as KPE, but putting off the NYSE listing.

Separating the two plans would give KKR, co-founded by “buyout king” Henry Kravis (pictured left), the option of buying its Amsterdam-listed fund without the pressure of having to list at a difficult time to go public. The company could later decide to list under a different method if it desired, Megan Davies reports.

The IPO market is so sickly that it twitches and jumps at the tiniest tech deals, and private equity has been in an equally soporific hibernation. But Mr. Kravis may want to take another look at Blackstone’s stock. Since hitting a March low under $4, it has more than doubled and hit a high above $14 in May.

Imagine the jolt the IPO market would get from a big, juicy KKR listing. Probably just a shade less dramatic than the boost to the egos at KKR if the firm was credited with engineering the pivot point of the financial markets recovery.

The rise in Blackstone shares since March could signal strong appetite for private equity stock, which is still a somewhat rare commodity and may command a reasonable premium. It may also imply investors see green shoots rising for leverage from the muck of markets soaked with liquidity. Then again, it could just be the sound of a dead cat bouncing down Wall Street.

Christopher Kaufman; DealZone Editor

The rumours just won’t go away.

Rumour number one: the Kuwaiti-backed Zain telecommunications group has effectively put its African operations up for sale with a reported price tag of US$12 billion.

Rumour number two: Zain is in talks with France’s Vivendi about doing a deal.

Zain has even posted on its website some of those news reports stating that its African business is under the hammer, effectively advertising a sale.

“I think we will know [about it] very quickly,” one source close to the parties said.

But it would be a surprise move, indeed, for the Kuwaitis to push ahead with such a transaction right now.

Only a few months ago, Zain’s chief executive Saad al-Barrak told the media that he had earmarked US$5 billinon for new acquisitions up until 2011 and that he wanted to beef up the company’s African operations.

Already, Zain is the number two mobile player in Africa along with Vodafone.  Each has just over 40 million subscribers on the Continent.  They are, however, way behind the number one operator, South Africa’s MTN, which says it has 100m subscribers.  And they could fall even further behind if the US$60bn tie-up between India’s Bharti Airtel and MTN goes ahead.

Add to that the fact that the majority of Zain’s African businesses are struggling to grow during the global economic downturn, and you have a reason why Zain might want to get out of Africa.

Tying up with Vivendi, however, by taking a minority stake in the larger French group, might be a more practical way for Zain to move forward and, in the words of al-Barrak, “to cement Zain as a top-ten leading global mobile operator by 2011″.

Whether Vivendi, which has operational control of Maroc Telecom, would want that, or could even afford all of Zain’s African operations for US$12 billion – if indeed that is a realistic valuation – is another question entirely.

Vivendi has about €8.3 billion worth of net debt and, according to some analysts, has only €1bn for manoeuvre without jeopardising its investment grade BBB credit rating.

An alternative might be for Vivendi, through its Maroc Telecom subsidiary (which owns telcos in Mauritania, Burkina Faso and Gabon) to buy some of Zain’s African operations.

When both Zain and Vivendi spokespersons declined to comment, they also failed to scotch the rumours, despite some Paris- and London-based bankers playing down such talk.

No doubt, France Telecom is following the situation closely. It chief executive Didier Lombard has increasingly turned his attention to Africa but has so far ruled out buying a pan-African operator.

The SEC’s decision to let Ponzi schemer Bernard Madoff off with a “no admission of wrongdoing” settlement could be defended on a number of levels, but none will be very satisfying on a day when the Obama administration is set to give the much-maligned regulatory body sweeping new powers to oversee U.S. securities markets.

Madoff pleaded guilty to a $65 billion investment scam in a separate criminal case and faces sentencing on June 29. There is no way he is ever returning to Wall Street, and he is probably going to jail for the rest of his life.

One might consider it a waste of SEC resources to pursue the case any further. And there’s poetic justice in the agency, which for decades missed the biggest fraud on Wall Street, being denied any satisfaction in the courtroom. SEC sources said the deal with Madoff is in line with a February settlement that also included no admission or denial of the findings.

But with the president just hours away from unveiling his plan to boost the SEC’s resources and widen its mandate to catch future Madoffs, it may have been worth keeping a lawyer or two on the case — for appearances’ sake.

Barclays will look a whole lot healthier after securing $13.5 billion from BlackRock for its crown-jewellish BGI asset-management arm. This is the same Barclays that turned down aid from the British government and bought defunct Lehman Brothers’ U.S. investment banking business in September, giving it that heroic posture of a down-but-not-out, maybe somewhat punch-drunk prize fighter — Britain’s own Rocky Balboa. Now, as far as Chief Executive John Varley is concerned, BGI-less Barclays is one of the best-capitalized banks in the world.

Investors are cheering Barclays on. Its share price has soared more than fivefold in the last three months, after crashing to a 24-year low on fears that it might need taxpayer funds.

The deal makes BlackRock the world’s biggest asset manager. Though the wealthy of the world are hurting in the recession along with the paycheck-to-paycheck crowd, it’s hard to see Barclays staying in the back seat of the lucrative asset-management market for long. Under the cash-and-shares deal, Barclays takes a 19.9 percent stake and two seats on the board of the enlarged group, to be called BlackRock Global Investors (giving the new firm the added bonus of not having to change BGI’s stationery).

After enjoying a bit of confusion from savior Fiat about the imperative of a June 15 deadline, and a quick, 24-hour trip to the Supreme Court, Chrysler creditors now know in no uncertain terms just how much political will there is behind getting the automaker’s government-orchestrated deal done.

The top U.S. court can certainly be counted on to ponderously deliberate matters of vital importance to the nation. But when the consequences of delay are dire (thousands of auto workers’ jobs, a U.S. presidency, etc.), a decision to not make a decision can come with lightning speed.

In a brief two-page order, the justices said opponents of the Fiat-Chrysler deal had not met the burden of showing the Supreme Court needed to intervene. The court’s action was not a decision on the merits of the challenge, they said. The Chrysler dispute marked the first time the Supreme Court had been confronted by legal issues involving the federal government’s power to deal with the economic crisis.

More importantly, it showed that the mechanics working on the reconstruction of the auto industry may have one less headache to worry about as they hammer out problems at General Motors, which is using a similar quick-sale strategy in its bankruptcy in New York.

Barclays‘ seemingly never-ending effort to get top dollar for its Barclays Global Investors unit appears to be enticing some Middle East money behind the current best bid from U.S. fund manager BlackRock, which is believed to be in the neighborhood of $12 billion.

Barclays said it had received proposals for BGI and iShares from a number of parties, including BlackRock, and was continuing talks. BlackRock confirmed the talks, but both sides said issues remained that could derail a deal. San Francisco-based BGI is the world’s biggest fund manager, with $1.5 trillion in assets under management and would more than double the size of BlackRock.

With Bank of New York Mellon also in the hunt, sources say Barclays may keep a hand in the game after a sale, possibly taking a stake of up to 20 percent in the enlarged asset manager. Media reports say BlackRock may get funding from Middle East investors, possibly including some Barclays shareholders. The Qatar Investment Authority and Adia, the government investment arm of Abu Dhabi, are in talks alongside Kuwait’s KIO to inject $3 billion into BlackRock for a 12 percent stake, the UK’s Sunday Telegraph newspaper said.

In April Barclays agreed to sell iShares, which is part of BGI, to buyout house CVC for $4.4 billion, but a “go shop” clause allows it to seek higher offers until June 18. So even if a deal is struck this week, the BGI sale may continue to dominate headlines for another week and a half.

(From Acquisitions Monthly)

Rio Tinto’s agreement to scrap its refinancing deal with Chinese shareholder Chinalco, join its iron interests in Australia with arch rival BHP Billiton and raise $15 billion from investors is a remarkable coup, solving many of the miner’s problems.

Most importantly it allows the company to halve its $40 billion debts, which doubled to that level when chief executive Tom Albanese bought Canadian aluminum company Alcan for cash at the top of the commodity cycle in mid-2007.

After the cycle turned, and prices fell, exacerbated by the global economic downturn, Rio and Albanese’s position looked vulnerable. BHP had earlier tried to exploit this, proposing a mega 3.4-for-1 all share offer.

BHP said that bid, suggested in early 2008, would only be made if regulatory authorities around the world approved. That was never that likely. However, there should be less resistance to this morning’s proposals by the duo, apart from the usurped Chinese.

In order to combine their iron ore capabilities in Western Australia in a 50:50 joint venture BHP will pay Rio $5.8 billion, from its existing cash resources, to lift its share from 45 percent to 50 percent. That values the venture at $116 billion. Ten billion dollars of synergies are envisaged.

That cash fillip will help Rio in particular. Refinancing its Alcan-related debt was the trigger that pushed Rio into Chinalco’s hands in the first place. The Chinese investor initially took a 12 percent stake in Rio when the latter was first approached by BHP.

Its aim was to try and prevent such a dominant iron ore supplier being created. Ironically, the worst has now come to pass for the Chinese and such a force looks likely to be formed via the BHP Rio joint venture.

For Western democrats, in a week when the world remembers the 20th anniversary of the Tianamen Square protests, that is cheering news. The Chinalco option never looked that attractive once Rio, along with other miners and most equities rallied in March.

Rio’s share price has more than doubled from its low point in January. That made the alternative option, of raising the necessary cash to refinance the debt via a rights issue, a far cheaper and better option.

You’ve got to admit that when Ryanair’s chief executive Michael O’Leary (left) told journalists in London on Tuesday that the low-cost airliner was studying a bid to buy Germany’s flag carrier Lufthansa, he must have meant it as a joke.

For Ryanair to acquire Lufthansa is a bit like taking ice to the North Pole: a bit far-fetched now, but certainly plausible in the near future. “We are having a serious look at Lufthansa. We could almost buy it for cash,” O’Leary confidently told the media.

But he also qualified those comments with his usual effusive charm, saying: “We are not planning any bids for Lufthansa in the foreseeable future, but it is the only one of the other three large airlines that we would be interested in.”  That rules out British Airways, which is still in merger talks with Iberia. O’Leary doesn’t want the hassle of its pension fund. It also excludes Air France-KLM, the world’s largest airliner by revenues.

Despite Ryanair’s market capitalisation being almost as big as those two other carriers combined, it is nevertheless Lufthansa’s cheap market price that O’Leary says attracts him.

But even he has tacitly admitted that he has missed the most opportune moment to make a bid approach.
While Lufthansa’s shares have taken a bashing during the current economic downturn, they are already on their way back up, in line with the DAX-30. In March, Lufthansa’s shares hit a low point of €7.90. Now, they are hovering around €10. Nevertheless, with Ryanair’s market cap at €5.4 billion and Lufthansa’s at €4.7 billion, a paper merger is still plausible, with Ryanair taking majority control, but only if Lufthansa’s shareholders and the German state were to give their approval.

However, a cash deal looks unlikely, after Ryanair reported its full-year results today. Its net debt increased by 25 percent to €120 million and it made a net loss of €169.2 million compared with €390.7 million last year, mainly thanks to a €222.5 million write-down on its 29.8 percent stake in Aer Lingus. That raises the other question: How can Ryanair even contemplate taking over Lufthansa when it has tried twice and failed to acquire Ireland’s national carrier?