M&A wrap: Buffett trades off his reputation
Warren Buffett showed again that his name and money is enough to give a struggling company instant credibility in the market. But the legendary investor also demonstrated his canny command of that reputation means that deals such as the $5 billion investment in Bank of America can immediately generate profits.
Anglo-Irish bank has chosen preferred bidders for its $9.5 billion U.S. commercial real estate loan portfolio and aims to have completed that sale, the largest in the United States in recent years, before the end of the year.
Glencore, the world’s largest commodities trader, stood on the verge of its largest takeover bid since its May stock market listing, after South Africa’s Optimum Coal confirmed it had received approaches.
The New York Times’ Dealbook is reporting that Rio Tinto and the Mitsubishi Corporation have raised their offer for Coal & Allied to approximately $131 a share , valuing the company at about $11.6 billion.
The blogging service Tumblr is close to raising $75-$100 million in venture capital, implying a market value of $800 million, the Wall Street Journal reported, citing people familiar with the matter.
Deals wrap: M&A not immune to Euro crisis
Shadows that started to fall over the pitch books of European dealmakers in the second quarter are darkening, threatening to rob banks of a few billion dollars in potential M&A fees.
After a robust first quarter boosted by mega transactions like Deutsche Telekom’s $39 billion exit from the U.S., fears about stuttering growth and Europe’s mounting debt crisis slowed the rise to only 24 percent in the second quarter, reversing hopes of a robust rebound and several years of rising M&A.
Analysts are pointing toward September as a key time frame if M&A’s have any hope of rebounding, with SABMiller’s expected renewed assault on Australian bid target Foster’s coming later this month.
In other news, Bank of America Corp has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its $17 billion stake in China Construction Bank, three sources with direct knowledge of the talks told Reuters.
BofA, the largest U.S. bank by assets, is likely to sell half its stake to shore up its Tier 1 capital, one of the sources said. Analysts believe Bank of America needs about $50 billion to meet new capital requirements.
Finally, from the WSJ.com comes a report that Wal-Mart is exploring a potential acquisition of the Brazilian unit of French retailer Carrefour SA, two years after a previous attempt to strike a deal ended over a disagreement on price.
Investment bank UBS AG is advising Wal-Mart on the possibility of making an offer for Carrefour’s Brazilian stores, which could be valued at between $6 billion and $8 billion, they added
Deals wrap: AES powers up in U.S. midwest
More consolidation is on the way in the power industry as global power provider AES is buying smaller Ohio-based rival DPL for $3.5 billion. The acquisition will help the company beef up its regulated power business that tends to provide steady returns even during tough market conditions.
Just days after posting a sharp drop in first-quarter profit, Bank of America said it plans to spin off its last large private equity unit, BAML Capital Partners, which has more than $5 billion in assets. It’s the latest in a series of moves the bank has undertaken to comply with new U.S. regulations that limit how much of their own capital banks are allowed to invest.
U.S. based hard-drive manufacturer Seagate Technology is buying Samsung’s loss-making disk drive unit for $1.4 billion in an attempt to take on rival Western Digital, which bought Hitachi’s global hard-drive business last month.
Rupert Murdoch’s News Corp has started talks on forming a consortium to make a bid for Formula One motor racing, sources familiar with the matter told Reuters.
Watch the trailer for HBO’s Too Big to Fail, a star-heavy film adaptation of Andrew Ross Sorkin’s book about the financial crisis.
Deals wrap: Warren Buffett’s zoo
Elephants. Zebras. Berkshire Hathaway CEO Warren Buffett rolled out the animal metaphors in an interview on CNBC on Wednesday to explain that his company remains on the prowl for big acquisitions, which he calls “elephants”.
Buffett said they were hard to find, though, noting he’d lost a sizable one – a “zebra” – in recent days. “There aren’t many elephants out there, and not all of the elephants want to be in my zoo,” he said.
Yahoo is in talks to leave its Japanese joint venture, hoping to transfer its 35 percent stake to partner Softbank. If successful, the divesture could free up nearly $8 billion for the once-mighty Internet firm to compete with Google and Facebook.
“Wall Street’s titans aren’t paid to sweat the details. That’s become painfully obvious from the foreclosure and mortgage mess that may cost big banks like JPMorgan and Bank of America billions of dollars. The past two decades of bank merger mania brought big cost savings, and temporarily higher stock prices, but left a massive muddle,” write Reuters Breakingviews columnists Agnes Crane and Rob Coz in a new piece on the dark side of American bank consolidation.
Lightning-fast, high-volume trading and the handling of private stock offerings, or quasi IPOs, have left U.S. financial regulators scrambling to keep up, officials told the Reuters Future Face of Finance Summit.
from Shop Talk:
Check Out Line: Duke wins, but there’s another bracket to fill
Check out a different kind of tournament bracket still underway.
The Duke Blue Devils may have won yet another college basketball title Monday night, but consumers can still make their "Sweet 16" picks in Consumerist.com's annual "Worst Company in America" tournament, which runs through April 26.
In its fifth year, the website, owned by Consumers Union, the publisher of Consumer Reports, lets consumers vote for their least favorite companies in matchups much like the NCAA tournament. Starting with 32 "teams," the tournament pairs companies in votes in which the "winner" (think about it, in a worst company vote you want to lose) advances to face the next competitor.
In the first round this year, Bank of America beat Citibank, GM beat Toyota and in an "upset" Cash4Gold beat defending "champion" AIG. Other companies that advanced included Walmart, Ticketmaster, United Airlines, Best Buy, Apple and Comcast, which has lost in the title game the last two years.
In addition to AIG, past winners have included Halliburton, Recording Industry Association of America and Countrywide. In last year's final, AIG whipped Comcast 3,528 to 1,968 as voters took their frustration over the recession out on a company that was bailed out by the U.S. government.
"They were just constantly in the headlines," Consumerist.com co-managing editor Ben Popken said of AIG. "They became a real focal point for what went wrong with the economy."
Consumers nominate companies to compete in the annual tournament, which was created as a tongue-in-cheek way for shoppers to "bite back" using social media and the Internet, according to Consumerist.com. To be considered for inclusion the website now requires that companies must regularly provide products or services to consumers.
Where’s Lloyd?
Lloyd Blankfein has very much been a man in the news lately, sometimes to good effect and sometimes not so much. In the past few weeks the Goldman Sachs CEO has made headlines by declaring that his firm was “doing God’s work” and, just this week, by suggesting that Goldman probably would have survived without the government largess that was channeled its way at the height of last year’s financial sector meltdown. Those comments, made in interviews with the Times of London and Vanity Fair, were part of a broad media offensive which has sought to burnish the image of the bank Rolling Stone’s Matt Taibbi famously described as a blood sucking vampire squid.
It seems surprising, then, that the nearly ubiquitous Blankfein will be absent when Goldman convenes its annual U.S. financial services conference next week, featuring such industry heavyweights as JPMorgan’s Jamie Dimon and Blackstone’s Steve Schwarzman, there will be no appearance by Blankfein or any other Goldman senior executive. That’s in sharp contrast to what happens at many top banks when they sponsor conferences; Bank of America’s outgoing CEO Ken Lewis, for example, was keynote speaker at his bank’s financial services conference early last month.
Does this mean Blankfein has said his piece for now and is going to adopt a lower profile going forward? Not necessarily, Goldman says. Blankfein, or whoever the Goldman CEO is at a given time, is never a featured guest at the conference, said Ed Canaday, a spokesman for the bank. “Historically we have not had our CEO or another member of senior management speak at the conference,” he said. “I know it’s different from some other companies but that’s how it’s been done historically.”
Meanwhile Bank of America, which on the initial conference agenda had the initials “TBD” next to its name in the space where other banks listed their CEOs, has dropped out entirely as speculation swirls about who will take the top job at the troubled lender. Given Blankfein is as secure in his job as any CEO of a major bank, perhaps the next Bank of America chief will take a page out of his book and be conspicuously absent from the stage next year.
from Summit Notebook:
Thain says put shareholders first
John Thain says he put shareholders first and his interests second in deciding to sell Merrill Lynch to Bank of America.
Thain, speaking at the Reuters Global Finance Summit in New York, said a deal to sell a partial stake in Merrill Lynch to Goldman Sachs would have been better for him, but the sale of the entire Wall Street firm to Bank of America was the best outcome for shareholders.
Over a fateful weekend in September 2008, as Lehman hurtled toward bankruptcy, AIG floundered and the financial system looked into the abyss, Merrill held discussions with Bank of America, Goldman Sachs and Morgan Stanley for various transactions, Thain said.
Initial discussions with Bank of America involved either the sale of the entire company or a 9.9 percent stake and a multibillion credit line, the former Merrill CEO said.
With Goldman, discussions only involved the stake sale and the credit line. Discussions with Morgan Stanley about a strategic transaction were brief, he said.
"When Bank of America offered $29 a share on Sunday afternoon, it was clear to me that was the best thing for our shareholders," Thain said.
Thain was fired by Bank of America soon after the deal closed, and is now considering a career in private equity and other jobs.
Reflections on B of A’s rough year
One public-relations lesson for Bank of America <BAC.N> after a year of crisis and a pummelling in the court of public opinion: Don’t always listen to the lawyers. That’s the word from James Mahoney, director of communication and public policy at the country’s largest bank. B of A has taken a beating over everything from its pay scale and lending practices to the fees it charges consumers. It’s humbling for the institution that a year ago was the country’s “leading bank,” Mahoney told a trade conference sponsored by by Financial Research Corp of Boston. “Two words emerged: bonus and bailout. It’s been all downhill ever since.” He said the bank’s lawyers barred it from offering a single narrative on the decisions leading up to its takeover of the investment bank Merrill Lynch at the height of the financial crisis just over a year ago. The lawyers fretted that executives might stray from the script during any future depositions to investigators, Mahoney said. But that left B of A exposed to a lot of attacks and with no easy way to protect its flank. The lesson? “Don’t listen to lawyers if you’re trying too manage the public reaction.” Mahoney had a receptive audience for a rare peek under the hood at the bank’s rough year. While B of A sorts out its leadership with the pending departure of longtime chief executive Ken Lewis, Mahoney’s said the bank has taken more than its share of PR black eyes because of its size. “I think we really became the target of a lot of the anger that’s out there because (the bank) is a highly visible, convenient place to vent,” he said. (Reporting by Ross Kerber)
One thing, and one thing only, saves companies’ reputations during times of crisis: total honesty. Why no one seems ever to learn this simple and powerful lesson is absolutely beyond me, but there you have it.
In asset management, it’s shedding season
For asset managers, the shedding season seems to have no end in sight.
More asset management units of financial institutions are likely to find their way into the market in the months ahead, as they look to separate distribution from product creation, Jefferies & Co’s financial institution group predicts.
More than two-thirds of global asset management deal activity came from such divestitures in the third quarter, a record level in a three-month period, Jefferies said.
These included deals such as Bank of America’s agreement to sell the long-term asset management business of Columbia Management to Ameriprise, Bank of New York Mellon’s acquisition of Insight Investment from Lloyds, and the purchase by Sumitomo Trust & Banking of Citigroup’s 64 percent interest in Nikko Asset Management.
“As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing,” said Aaron Dorr, a managing director.
There were 38 deals in the third quarter, down from 66 in the same period last year, but disclosed deal value climbed to $4.5 billion from $4.2 billion and managed assets transacted rose to $749 billion from $728 billion, Jefferies said.
Should Ken Lewis get his payday?
Ken Lewis started at Bank of America 40 years ago, working his way up from junior credit analyst to the CEO suite. His employment contract at the nation’s largest banks obviously predates the government’s bailout of Bank of America. Yet pay czar Kenneth Feinberg may have a say on whether he cashes in on retirement benefits and accumulated compensation worth $125 million.
Some argue it is simply inappropriate for Feinberg to try to tackle Lewis’ retirement package.
“A fair reading of the situation would be he is getting what he is entitled to and game over,” said Alan Johnson, a Wall Street compensation consultant.
But to many, Lewis is a poster child for the crisis that struck Wall Street banks last year, nearly collapsing the financial sector and resulting in taxpayers spending hundreds of billions of dollars to bail out firms like Bank of America.
“The Obama administration has to use every tool at its disposal to fix the pay problem, particularly the golden parachute for failed executives,” said Richard Ferlauto, director of corporate governance and pension investments for the American Federation of State, County and Municipal Employees, one of the largest U.S. labor unions.
Should Lewis get his retirement package in full? Leave your answer in the comments section.
He does not deserve the payout as he misled shareholders in acquisition of Merrill Lynch. If he was pressured into the deal, shareholder had every right to be informed before voting on the deal. This resulted in the sharholders making an uninformed decision leading to the destruction of the value of the company and the brand.
