Deals wrap: Whopper deal sealed
Burger King agreed to be bought by investment firm 3G Capital for $3.26 billion. The deal represents a 46 percent premium to Burger King’s share price before news of the deal talks emerged on Wednesday. *View article *View WSJ article on how tasty a Burger King deal is
Hewlett-Packard raised its offer by $3 to $33 per share for 3Par. Shortly after, Dell announced it is bowing out of the bidding war for the data storage company. *View article
China is stepping up attempts to hamper BHP Billiton’s $39 billion hostile offer for Potash Corp, amid worries about future supplies of fertilizer it needs to rapidly boost food production. There is a report that China’s state-run Sinochem has hired HSBC to advise it on options and another which says China is considering launching an anti-monopoly investigation into the deal. *View article *View factbox on Potash supply and demand
Worldwide M&A volume last month was the largest in over a year. Get a snapshot of the deal activity in this PDF.
Deals wrap: Is 3PAR a good deal?
Dell is expected to soon give up its pursuit of 3PAR, either ceding to HP’s last offer of $30 per share or giving up at a few dollars higher, according to a Reuters survey of eight technology investors and analysts. * View article *Columnist Robert Cyran asks: Is 3PAR an overpriced bauble for HP? * An MSN article makes the case that both Dell and HP are certifiable.
AIG faces the prospect of looking for another buyer for its Taiwan unit after regulators threw out its proposed $2.2 billion sale of Nan Shan Life to China Strategic. There have been suspicions in Taiwan about the connections of China Strategic with political foe China, and concern it did not have the experience to run an insurance business. * View article
Some high-profile IPO’s are under water and this is not sitting well. “Investors are sick to the back teeth of being treated like idiots,” Dan Nickols, at Old Mutual Asset Managers, tells the Financial Times. *View FT article
from Breakingviews:
HP tries big buyback to quell investor discontent
Sometimes an ounce of prevention is worth a pound of cure. Case in point: Hewlett-Packard. Like many tech concerns, it is sitting on a large cash pile. But the company's bidding war with Dell for control of 3PAR raises fears it may squander its $15 billion hoard on overpriced baubles. Promising to repurchase $10 billion of stock soothes investors. Refraining from such battles would be more effective.
HP's investors were already shaken by the surprise booting of chief executive Mark Hurd from the company. Making three bids in one week for 3PAR made them feel queasier. The stock lost another 5 percent of its value last week, bringing its total losses since the start of the year to about 25 percent. HP may fear the strategic implications of a Dell victory, but agreeing to pay $2 billion net of cash -- or more than three times the undisturbed price -- for 3PAR appears undisciplined. Promising investors to return some of their cash is a sensible move. It reminds them that HP has a good record in rewarding despite a steady history of acquisitions. Since the existing buyback program is running low, it was natural to replenish the fund -- especially if the company feels its stock is priced at bargain levels.
Investors should be comforted by the fact the buyback lessens the chances that cash burns a hole in HP's pocket. The authorization is about equal to a year's worth of free cash flow. Of course, a better way to lessen investors' fear of HP squandering their money would be to avoid irrational acquisitions, like the bid for 3PAR, altogether.
from Breakingviews:
3PAR battle is case of undisciplined cash vs. cash
Consumers may still be deleveraging, but at big corporations it's liquidity galore. How else to explain the curious case of the bidding war over 3PAR, a data storage company coveted by Dell and Hewlett-Packard? There's no sound mathematical rationale for the 3PAR frenzy, which has now reached $2 billion with HP's third counter-offer to Dell.
Only a highly creative financier with a spreadsheet and a bong could justify the valuation on HP's latest bid -- the sixth for the company in three weeks. HP is offering $30 a share -- more than three times 3PAR's $9.65 undisturbed price as of Aug. 13. Plus, HP will pay a $72 million termination fee if it clinches the deal.
Let's put that into Excel and smoke it. Assume HP -- or Dell for that matter -- really can pump up the sales volume of 3PAR by stuffing it through its distribution pipeline. Consensus estimates compiled by Thomson Reuters show the company is already expected to improve sales from $195 million last year to $460 million by 2014.
Say 3PAR's new owner can supercharge that growth, doubling sales to $920 million instead, while maintaining projected operating profit margins of 11 percent. That gives earnings before interest and tax of just over $100 million. Taxed at 30 percent and discounted, that suggests a return on HP's all-in investment of just around 3 percent.
That's way below 3PAR's cost of capital. Of course, HP might argue it's not a bad use of a portion of the cash sitting on its balance sheet. It's certainly a better return than five-year Treasury bills are offering. And maybe the inclusion of 3PAR's kit to its offering will help it sell all sorts of other goods and services.
The trouble is, shareholders of CEO-less HP and direction-seeking Dell might see things differently and have better ways to deploy the cash they effectively own. HP's owners have lopped more than $5 billion off the company's market value this week. That says plenty about how they view HP's creative use of their capital.
Deals wrap: 3PAR bidding war hits $2 billion
What’s another $200 million between rival bidders? Less than three hours after Dell matched HP’s $1.8 billion bid for data storage specialist 3PAR, HP upped the ante to an even $2 billion. The HP offer shakes out to $30 per share. 3PAR shares were up another 20 percent to $31.29 in early trading, according to Reuters. *View article*
FT blogger Gwen Robinson wondered how 3PAR became the target of such an intense bidding war and suggested it may be “simply a throwback to those crazed acquisitive days of the dotcom boom.” *View article*
In another software play, HP is rumored to be a potential bidder for security software maker ArcSight Inc. According to the Wall Street Journal, bidders, including Oracle and HP, could pay up to $1.5 billion for the company. Other ArcSight competitors could include EMC, IBM and CA Inc. *View article*
This month’s $200 billion in takeover announcements is unlikely to assuage fears of a double-dip recession, analysts told Reuters. “For now, the dominant factor on the market remains the U.S. and Chinese slowdown in growth,” Alain Bokobza, head of global asset allocation at Societe Generale CIB in Paris, told Reuters. *View analysis*
Deals wrap: Betting on 3PAR
Trumping HP’s bid by 30 cents a share, Dell offered, and 3PAR accepted, $1.6 billion for the data storage company. *View article *View analysis on valuations taking a back seat to egos
Fast money is building in Potash Corp after BHP Billiton’s hostile bid, but the sheer size of the potential deal could limit the sway arbitrageurs and hedge funds have on the outcome, writes Michael Erman. *View article *Full coverage *View WSJ’s blog on how to say “Potash”
Take a look at what could be Phil Falcone’s riskiest trade ever in a special report on the hedge fund manager’s wireless broadband technology bet. *View article
The private equity sector is responding to the new world order: less capital, less profit and more accountability. *View Bloomberg article
from Breakingviews:
HP’s deal mojo unrestrained by l’affaire Hurd
Mark Hurd, the Hewlett-Packard chief executive, turned out to be a man of hearty appetites -- including for deals. Before leaving HP earlier this month under a cloud, Hurd spearheaded an M&A tear that included the purchases of 3Com, Palm, and EDS. But any bankers worried that the tech group's appetite for deals might wane after Hurd's departure can breathe easier.
HP's unsolicited bid for 3PAR, unveiled on Monday, could even be taken as a sign the company's takeover libido has been given a boost. If that were to prove sustainably the case, though, shareholders might find it troubling.
A single $1.6 billion offer by a company with a $90 billion market value is, literally, no big deal. And HP says 3PAR's data storage technology fits perfectly into its product portfolio in the arena of cloud computing. Moreover, the tech giant can point to early successes from its 3Com purchase.
But 3PAR has been on the block for some time, and HP had looked at it before. So it's surprising suddenly to see an unsolicited offer just a week after Dell, HP's arch-rival in the computing business, agreed a friendly deal at the end of a competitive auction.
And there's the question of price. Dell agreed to buy 3PAR for $18 a share. To make 3PAR think again, HP is throwing down $24 a share -- more than seven times its target's sales, and nearly two-and-a-half times what 3PAR was worth before it went on sale. HP's delayed reaction also means 3PAR must pay Dell some $54 million if it wants to break the deal and go with HP instead.
Companies often wait to see their competitors' cards before moving. But HP's comportment in this process is curious. Perhaps unfairly, it leaves the impression that under Hurd the company was less eager to pay up for 3PAR -- but that with the penny-pinching boss gone, more spendthrift voices are being heard.
That would be a concern for shareholders. And it could explain why muscling in on 3PAR -- a small and strategically reasonable deal, albeit at a generous price -- wiped nearly $2 billion off HP's market cap.
Looks like a turf war, EDS for Anne Livermore, Palm for Todd Bradley, and now a much overpriced deal for Donatelli. Looks like children raiding the candy jar!
