From Acquisitions Monthly

Pfizer, the world’s largest pharmaceuticals company, is lining up Turkey’s largest drugs company, Abdi Ibrahim, for a deal, according to an M&A banking source.

There are no talks so far, and what form a potential tie-up would take is not yet known.

Only last month the president of Pfizer’s emerging markets business unit revealed that the drugs company was considering new acquisitions.

“We see opportunities coming from the financial crisis… opportunities to build partnerships in emerging markets,”

Jean-Michel Haldon told Reuters in June. He did not give further details at the time, but under the stewardship of chairman and chief executive Jeff Kindler, Pfizer wants to add $3 billion in annual revenue by 2012 from emerging markets, which include China, Brazil and Turkey.

Family-owned Abdi Ibrahim – which is run by its president Nezih Barut and has annual sales of around $850 million – would certainly provide Pfizer with that additional source of income.
Turkey’s pharma market also remains hugely fragmented and is ripe for consolidation.  Abdi Ibrahim may be Turkey’s market leader, but it only has 7 percent of the country’s estimated $11 billion pharmaceutical market.  Hot on its heels are the likes of Novartis and Sanofi-Aventis.

The big multi-nationals are increasingly looking to the developing markets for growth as they face stiffer competition from generic drug makers, patent expiries, and a pressing need to reinvigorate their drug pipelines – all reasons why Pfizer bought Wyeth in January for $68 billion.  Pfizer’s best-selling anti-cholesterol drug Lipitor indeed expires in 2011. While a source close to Pfizer would neither confirm nor deny the company’s bid interest, Pfizer’s chief spokesperson Ray Kerins predictably would not comment on what he described as rumor. As for Abdi Ibrahim, all of its 2829 employees seem to have gone off on holiday.   “Welcome to Abdi Ibrahim,” said a corporate voice mail.  “Abdi Ibrahim’s headquarters will be closed from 6 to 20 July due to corporate summer vacation.”

A federal judge has agreed to delay the UBS tax-evasion trial as the U.S. and the Swiss seek a resolution. UBS shares gained strongly on the presumption that a delay was near.

A source familiar with the situation told Reuters the talks, now led by the U.S. and Swiss governments, were aimed at finding a way to allow the bank to transfer client data without breaching Swiss law. No doubt the discussions, and perhaps even the nature of a settlement, will be murky.

That a settlement is being sought may be a short-sighted reason to buy UBS stock. Without its precious secrecy to define it, Swiss banking would lose the standing that has made it the wealth-management center of the world. The fact that the two sides are talking may indicate Washington is willing to accept less than unconditional surrender. But make no mistake: Settlement means less secrecy, not more. While a settlement would help the bank with this particular mess, it could have an added sting in the form of a payment from UBS to the U.S. government.

Longer term, tax lawyers say European governments, which are also trying to recoup unpaid tax money from offshore banks, could also put pressure on Switzerland as a global fight against tax cheats gathers pace.

Neelie Kroes’ campaign to ensure the European Commission’s rules over state aid are respected has remained in a high gear over the last few weeks. Three times the Competition Commissioner has spoken publicly about how restructuring plans for shaky banks bailed out last Autumn should be agreed with the governments of those countries.

This Tuesday she told the British Banker’s Association the truth. Royal Bank of Scotland made the largest ever corporate loss last year and yet was still saved by the government with a massive £20 billion plus rescue injection. One might ask how such an institution, so fundamentally important for the economy, could not be?

Kroes does not dispute that. What she does insist on is that such aid cannot be effectively propping up the bank indefinitely, allowing the balance sheet, and hence the bank’s business, to remain bigger than it should be, if it were not for that aid.

EC rules state that a restructuring plan to set out how this should be rectified must be made within six months of the aid being administered. After a while there is a danger that smaller banks, without aid, will be disadvantaged by their larger protected brethren.

Kroes is clearly losing her patience with the UK Government. The two camps have yet to resolve how Northern Rock will be restored to independence over 15 months after a draft restructuring plan for the UK’s fifth largest mortgage lender was submitted.

It seems as if a similar delay could happen with RBS. However, that could be disastrous for Kroes as the UK government turns its attention to the forthcoming election. RBS is such a significant bank that there is a danger Kroes’ authority will be damaged irreparably if no agreement can be reached on possible divestments.

With Germany she acted decisively agreeing a dramatic restructuring of Commerzbank and WestLB within the EC timetable.

So the next month, before RBS updates on its internal restructuring plans with interim results in early August, will be critical. An announcement on the sale of various RBS Asian businesses, possibly to Standard Chartered and ANZ, is expected imminently.

However, that is unlikely to be sufficient to satisfy Kroes, who wants to see RBS’s dominant domestic position in UK corporate and smaller business banking broken up. Perhaps we will yet see NatWest and the Royal Bank separated. Bringing those brands together was disgraced former chief executive Sir Fred Goodwin’s key deal.

After that Kroes will aim her sights at Ireland and her homeland of the Netherlands. Both states are propping up key lenders there. Kroes is due to visit Ireland for two days on July 16.

Roche’s megabucks Genentech buy is looking more like a reverse takeover — in some ways, at least.

The Swiss drugmaker splashed out $47 billion to buy out its biotech partner to secure access to Genentech’s impressive new drugs. But Roche’s U.S. operations are to operate under the Genentech name and research, development and commercial operations are all being based at the U.S. group’s South San Francisco headquarters.

Now Roche doesn’t even consider itself Big Pharma. It says it will leave the industry group Pharmaceuticals Research and Manufacturers of America (PhRMA) but will retain Genentech’s membership of the Biotechnology Industry Organization (BIO).

“As part of the world’s largest biotechnology company, Genentech and Roche believe that BIO’s purpose is closely aligned with the direction of the new company and, therefore, can represent the company’s interests in Washington, among policymakers, legislators and the general public,” Roche said in a statement.

PHOTO CREDIT: People are reflected in a window (R) as they walk past the headquarters of Swiss pharmaceutical company Roche in Basel February 4, 2009. REUTERS/Christian Hartmann

Xstrata is different from most other major mining companies. Rather than being a long established group with strong links to a particular country, such as Australia for Rio and BHP, South Africa for Anglo American, or Brazil for Vale, it is a relative upstart with few ties to any particular territory, aside from its tax inspired domicile, Switzerland.

The group’s culture might seem innocuous but it is important, particularly when Xstrata has this week proposed a “merger of equals” with South African stalwart Anglo American. Unlike many of its rivals, Xstrata’s raison d’etre is doing deals, led by raucous chief executive Mick Davis.

The company floated in March 2002 with an initial value of £2 billion. Since then, a number of transformational acquisitions such as the $19 billion purchase of Falconbridge, and the recovery in global commodity prices, has meant the group is now valued at £20 billion. At its record high last year, when it tried to buy platinum producer Lonmin, it was worth £67 billion.

Xstrata’s strength is that it has always been much closer to its customers than other, perhaps more parochial groups keener on looking after their employees. The presence of trading entity Glencore on its shareholder register, with a third of Xstrata’s stock, is testament to this.

Davis’s true loyalty showed earlier this year when he effectively enabled Glencore to retain this stake, by funding its participation in January’s £4.1 billion rights issue, via a side deal selling certain Glencore coal assets in Colombia to the group for $2 billion.

The current tilt at Anglo American, now worth £24 billion, looks a deal too far for Xstrata. For one, Glencore looks likely to be diluted down to a sixth of the combined group, as the proposal currently lies. Secondly, Anglo American will vigorously defend its independence, as it is already showing, helped by implicit South African support.

Glencore must have approved Xstrata’s move but that in effect puts Xstrata in play, if it is indeed willing to effectively relinquish control. That is highly significant. The end result might either see Anglo American making a “pacman” offer for Xstrata to defend itself or else encourage Vale, which has approached Xstrata before, to make a play for it.

Ultimately Xstrata, with few political connections, looks the more vulnerable participant in this process.

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.