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.
M & A wrap: A Buffett bailout for BofA
Warren Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America, stepping in to shore up the company in the same way he helped prop up Goldman Sachs during the financial crisis.
Bank of America shares rose 20 percent in pre-market trading on the news. Shares for the largest U.S. bank by assets have lost roughly a third of their value in August, and half their value since the beginning of the year.
The news of Steve Jobs’s resignation had many of his peers weighing in on the Apple co-founder’s legacy. Former Google CEO Eric Schmidt said Jobs is the “most successful CEO in the U.S. of the last 25 years,” while former eBay CEO Meg Whitman said his contributions are “unparalleled in the business world.”
Samsung Electronics Co reiterated on Thursday it is not interested in buying Hewlett-Packard Co’s PC business, shooting down persistent market talk the South Korean firm may snap up the unit to become the world’s top PC maker.
The deadline for initial bids in the auction for Hulu was extended until the end of the week to allow interested parties more time to examine the online video site’s financial information, according to people familiar with the situation. Yahoo, Google Inc, DirecTV and Amazon.com were among the parties preparing to submit an offer for the U.S. online company, the people said.
Is there a future for Morgan Stanley and Goldman Sachs? That’s the question WSJ’s Dennis Berman tackles on Mean Street.
Deals wrap: Barrick strikes deal for Equinox
Barrick Gold said it will acquire Australia’s Equinox Minerals for more than C$7 billion ($7.36 billion), topping an offer by China’s Minmetals Resources. Barrick said it has committed cash and financing in place for the transaction.
NYSE Euronext sees higher savings of almost 400 million euros ($584 million) in its $9.8 billion deal with Deutsche Boerse, up by about a third from its initial estimates, according to a Big Board spokesman. The new savings estimate, along with 100 million euros in benefits coming from cross-selling and distribution opportunities, would bring the total savings and benefits from the deal to about $725 million.
All eyes will be on Warren Buffett at Berkshire Hathaway’s annual shareholder’s meeting next weekend, as he will undoubtedly face questions regarding the resignation of his presumed successor David Sokol. This piece in the New York Times examines Buffett’s hands-off management style, which may come under scrutiny after Sokol’s resignation following news of his dealings in Lubrizol prior to Berkshire’s acquisition of the chemicals company.
A Reuters special coverage piece on Buffett also questions whether it is time for the 80-year old business manager to take a bow and exit the stage.
Deals wrap: Singapore Exchange’s ASX bid in trouble
Consolidation in the Asian exchanges industry hit a roadblock on Tuesday when Australia said it intends to reject Singapore Exchange’s proposed $7.8 billion bid for Australia’s ASX on “national interest” grounds.
Although a final decision has yet to be made, share moves hinted that the market doubts the deal can be salvaged. All eyes will now be on other major exchange deals awaiting approval from regulators and politicians.
Texas Instruments is buying National Semiconductor for $6.5 billion, paying a hefty 78 percent premium to merge two of the industry’s oldest firms into a dominant force in analog microchips.
It’s another spotlight-grabbing win for veteran deal advisor Frank Quattrone, whose boutique investment bank advised National Semiconductor on the sale.
Google’s M&A machine may be slowing down after years of going full throttle as it finds itself in antitrust limbo, argues Reuters Breakingviews columnist Rob Cox
Senior dealmakers at the Reuters Global M&A Summit said Chinese firms are facing a series of regulatory and political challenges in buying U.S. companies, which is driving them to other countries that are seen as friendlier.
DealBook editor Andrew Ross Sorkin wonders why typically outspoken Berkshire Hathaway chief Warren Buffett has been so quiet about the speculations of insider trading that continue to spin around his former heir apparent David Sokol and draws up a list of questions that deserve answers from Buffett.
Deals wrap: What now for Berkshire?
Warren Buffett’s reputation as someone who prides himself on his transparency and handpicks managers who can run businesses in a similar manner, took a blow when David Sokol, widely seen as Buffet’s successor at Berkshire Hathaway, resigned after buying shares in chemical company Lubrizol Corp before pushing Buffett to acquire it. Sokol said he did nothing wrong. Analysts said any impact on Berkshire Hathway will be short-term but acknowledged that Buffet’s brand was damaged.
Other Berkshire execs seen as possible successors to Buffett include Ajit Jain, Berkshire Hathaway Reinsurance Group chief, repeatedly praised by Buffett for his running of the insurance business; Gregory Abel, MidAmerican Energy Holdings CEO, who Buffet called a “terrific manager” and part of a “dream team” at the Berkshire-owned utility; and Matthew Rose, Burlington Northern CEO, who joined Berkshire after selling the No. 2 U.S. railroad company to Buffett last year for $26.4 billion.
Warren Buffett’s hunt for a large acquisition could lead to targets like Eaton, Illinois Tool Works or Cliffs Natural Resources, all of which seem to fit his recent preference for growth in industries outside of his core insurance unit, writes Michael Erman and Ben Berkowitz.
Vodafone will buy out Indian partner Essar in a $5 billion deal that ratchets up its exposure to a mobile market that has proved challenging despite its rapid growth.
The NY Mets are seeking $200 million for a minority portion of the team — a badly needed cash infusion that the team’s owners would pour directly into the club’s operations and use to pay off some of their debt, writes the New York Times.
The return of blockbuster takeovers in the exchange industry has put the spotlight back on the London Metal Exchange, but its tightly held, member-run structure means it is likely to remain independent for now, writes Sue Thomas.
Deals wrap: AT&T’s crystal ball
AT&T’s surprise $39 billion deal to buy T-Mobile USA from Deutsche Telekom will create a new leader in the U.S. mobile sector and likely draw scrutiny. The regulatory challenge will be predicting what the dominant form of communication will be 3 to 5 years from now, analyst Evan Stewart said. The deal will take a year to close, in which time customers are expected to see improved network quality, according to AT&T.
Sprint Nextel risks being further eclipsed by Verizon and the new AT&T, which together would boast 230.3 million customers in the U.S., compared to Sprint’s less than 50 million, writes Michael J. de la Merced and Jenna Wortham of The New York Times.
Citigroup plans to slash the number of common shares outstanding and reintroduce a dividend after suspending payouts two years ago, taking another step in its long recovery from the brink of failure during the financial crisis.
Warren Buffett said he believes Japan’s devastating earthquake is the kind of extraordinary event that creates a buying opportunity for shares in Japanese companies and that his Berkshire Hathway is looking for more large-scale acquisitions anywhere in the world. “The United States is most likely where we will do something,” he added.
Facebook agreed to buy Snaptu, an application developer for mobile devices that are less sophisticated than smartphones, as the world’s largest Internet social network focuses on expanding its mobile services.
The Carlyle Group acquired a majority stake in movie special effects company Foundry from Advent Venture Partners and other stakeholders, in what Advent partner Mike Chalfen called a validation of the firm’s growth investment strategy, writes VentureBeat’s Ciara Byrne.
Deals wrap: Japan crisis may delay some IPOs
Extreme market volatility tends to make investors a jittery bunch. The deadly earthquakes and nuclear crisis in Japan will obviously have an immediate impact there, but the fallout from the catastrophe is expected to spread across the globe where it could delay or even cancel a slew of new share offerings and debt deals.
According to IFR, a Thomson Reuters publication, one major deal in the pipeline that’s at risk of cancellation is the planned $6-$8 billion London-Hong Kong IPO of Swiss commodity trading group, Glencore, a deal expected in May.
Institutional investors will be demanding a higher return on their investments, forcing stock and bond deals to expect lower valuations, or face being pulled all together. Glencore’s IPO may be the victim of bad timing.
Yesterday we told you about Nasdaq OMX Group’s desire to make a counterbid for NYSE Euronext. But there are significant hurdles that it must overcome if it wants to trump the $9 billion offer Deutsche Boerse made for the Big Board.
Nasdaq must find $5 billion in debt financing, account for a relatively steep $347.5 million termination fee on the NYSE-D.Boerse deal and team up with the IntercontinentalExchange, which would look to buy NYSE Euronext’s lucrative interest-rate futures business. All of this means, the deal is far from a certainty.
Finally, Peter Mycroft Psaras of Seeking Alpha takes an in-depth look at Warren Buffett’s purchase of Lubrizol. Psaras uses his own formula, which is based on Buffett’s Owner Earnings, to see if the Berkshire Hathaway CEO overpaid for the company.
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.
Deals wrap: A successor for Buffett?
A fairly unheralded 44-year-old Chinese-American hedge fund manager, with a strong background as a human rights activist, has become a leading candidate to replace Warren Buffett, should he retire as founder and CEO of the $100-billion Berkshire Hathaway fund, according to the Wall Street Journal.
Li Lu, who was a student leader during the 1989 Tiananmen Square protests in Beijing, is the first person to be identified to potentially replace the soon to be 80-year-old Buffett, in what the WSJ story said is “among the most high-profile succession stories in modern corporate history.”
Buffett told the WSJ his retirement plans are not imminent and his job would likely be split after he leaves the company into separate CEO and investing functions. The WSJ story revealed David Sokol, the current chairman of Berkshire unit MidAmerican Energy Holdings, is considered the top contender for Buffett’s CEO role, while Li would potentially serve as one of Berkshire’s top fund managers.
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Recently Facebook founder and CEO Mark Zuckerberg told ABC News’s Diane Sawyer he would only consider an IPO “when it makes sense,” but now Bloomberg, “citing three people familiar with the matter,” reports that may not be until 2012.
The postponement would give Zuckerberg more time to increase users – Facebook just surpassed the 500 million mark – and boost sales which could double to at least $1.4 billion in 2010, according to the sources quoted by Bloomberg.
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How to get a job in business? Short Buffett
Raj Rajagopal will graduate from business school in May and he’s currently looking for a job. But don’t expect the Cornell University student to get a call anytime soon from Warren Buffett.
That’s because Rajagopal recently put together a report in which he recommended selling shares of Buffett’s Berkshire Hathaway in part because “adoration is not an investment strategy.” In short, Rajagopal said anyone who sinks money into Buffett’s empire is chasing past returns and buying shares “at the tail end of his career.”
Rajagopal’s 15-page presentation is making the rounds on Wall Street and being circulated by some hedge fund managers who aren’t particualy big fans of the so-called Oracle of Omaha.
The presentation points out some common criticism of Buffett’s company, including the failure to develop a clear succession plan and the firm’s seeming reliance on a handful of individuals to make investment decisions.
But the report prepared by Rajagopal, who was a former Wall Street analyst according to his blog, also accuses Buffett of being a bit of a hypocrite on the subject of derivatives. He notes that Buffett famously decried derivatives as a “financial weapon of mass destruction,” yet continues to use them as part of Berkshire’s investment and hedging strategy.
Rajagopal, who could not be reached for comment, also blasts Berkshire’s most recent big deal–the $34 billion acquisition of railroad giant Burlington Northern. He said Buffett overpaid for a “boring” regulated utility company.
But what’s more likely to grab attention are some of the sharp zingers aimed at Buffett and his financial empire. One such line is: “The buffet is cold, stale and ending (pun intended).”
Mr. Rajaopal’s comments read like those of a jealous newbie speculator, who thinks he can do better.
It lacks any understanding of how the Berkshire Hathaway business is structured, the investment philosophy or anything that relates to the generation of cold hard cash.
No, you’re not going to see 24% compounded returns into the future and Buffet has said as much. If this Rajagopal character did even a basic free cash flow analysis on the company and realised that Buffet is ultimately about generating cash, and returns on that cash he would realise that Berkshire Hathaway is not that expensive at the moment, it’s not super discounted either. That’s assuming the business will grow at around 7% into the future.
As for railways did Rajagopal even bother to read the basics from Security Analysis by Benjamin Graham? If the right proportion of cash is reinvested into a railway and it’s not overburdened with debt, during its lifetime, it can be very profitable. Buffett has bought an extremely well run railway here and what’s more with petrol running out (don’t kid yourselves it’s not) he will see some very satisfactory returns.
This Rajagopal is obviously from the Wall Street school of short termers and speculators, whose stock in trade is the “latest thing”, management rhetoric and other meaningless BS. It doesn’t surprise me that it’s circulating around the seedy haunts of the hedge funds.
I don’t own Berkshire stock but I admire the business and its CEO, that admiration is based on concrete facts and won’t be swayed by jealous no marks like this.
