Deals wrap: Cutting assets to pay for slick
BP is looking to sell assets to help pay for the oil spill in the Gulf of Mexico. A source says BP is in talks with U.S. oil and gas company Apache Corp. The Sunday Times reported that the talks involved $12 billion in assets. View article
Aon, the world’s largest insurance brokerage, said it will acquire human-resource service company Hewitt Associates for about $4.9 billion in cash and stock to beef up its consulting business. The Aon-Hewitt deal is the second major deal in the consultancy space in a year. View article
If you are feeling bullish, then you’re in agreement Warren Buffett, Ken Fisher, Leon Cooperman and John Paulson. The WSJ takes a look at what these four market heavyweights are buying. View WSJ article
Turns out Carl Icahn’s son, Brett Icahn, has played a large role in the hostile takeover attempt for Lions Gate Entertainment. View WSJ article More coverage
Need cash? Check out this early-stage tech investor ecosystem graphic, with email addresses of those who have the cash. View peHUB article
The Afternoon Deal: Reuters Summit exclusives
At the Private Equity and Hedge Funds Summit, Primus co-CEO Robert Morse tells Reuters the opportunities in real estate in the U.S. are extraordinary. The $1.2 billion financial investment firm is now setting its sights on property owned by distressed sellers in the United States.
Here is a selection of the best stories from today’s summit: BC Partners boss sees mini-bubble brewing CQS raises $750 million for convertibles BC Partners to court sovereign fund investors Toscafund says UK stocks’ low value “absurd”
From the Web:
Buffett Casts a Wary Eye on Bankers (NYT) “”Don’t ask the barber whether you need a haircut.” That little nugget was buried in Warren E. Buffett’s annual letter to Berkshire Hathaway shareholders published over the weekend.” – NYT This Year’s Huge (So Far) M&A Deals And The Lawyers Masterminding Them (Business Insider) A slide show of the big deals and the lawyers behind them.
M&A Is Back (Seeking Alpha) “Merger activity is picking up once again, although the transactions are quite different from most of the deals done in 2005 and 2006″ – Charles Lieberman at Seeking Alpha
IPO Market Vigilantes: Narrowing the Valuation Disconnect (Renaissance Capital LCC) “While the current period of poor IPO performance may leave buyers feeling burned, history demonstrates that such imbalances are short-lived.” – Renaissance Capital, Greenwich, CT (www.renaissancecapital.com).
What Happened To The Startup IPO? (Business Insider) “What you are seeing is large holding companies come in and basically take the place of the public markets in several instances and sort of provide semi-exits.” – Business Insider video
Is Cadbury too rich for Hershey?
While Cadbury shares saw some life on hopes for a rival bid from Hershey — boosted by reporting from the FT that a rival offer was further along than much of the market had assumed — naysaying analysts and pundits have been quick to point out that the financials of a Hershey bid are hard to stomach.
Hershey is only half the size of Cadbury, and a big share issue would dilute the stake of the controlling Hershey Trust, which has been every bit as crucial to defining the company as the kiss. The FT report says Hershey is working on a private equity element with none other than Byron Trott, Warren Buffett’s banker of choice. The idea that Buffett, who is Kraft’s biggest shareholder, could play both sides of a bidding war is, if not new, certainly intriguing, particularly given his apparent distaste for Kraft selling its own shares to keep its bid attractive.
And while Cadbury has repeatedly denied it is looking for a white knight, a deal that would leave its management in place, perhaps in exchange for keeping the Hershey Trust intact, could be attractive enough to consider breaking off a piece of Cadbury to give to a private equity investor to chew on … its gum business, for example.
Is Buffett being Krafty?
Warren Buffett may have thrown a monkey wrench into Kraft’s bid for Cadbury — not with his ‘no’ vote on Kraft’s plan to issue 370 million shares to help buy the British chocolate company, but with his scathing comments on Kraft’s board for a deal he has long regarded with skepticism. Buffett previously said Kraft’s stock was an “expensive currency” for funding the deal, a position he repeated on Tuesday.
Kraft’s proposed share issue would give it a “blank check,” allowing it to change its offer for Cadbury, Buffett’s insurance and investment company Berkshire Hathaway said in a statement. “And we worry very much that, indeed, there will be an additional change from the revision announced this morning.”
The statement came hard on the heels of a slight sweetening by Kraft of its $16.4 billion offer for Cadbury. The overall figure is the same, but the cash portion is a bit bigger. Perhaps more telling, it also followed a statement from Nestle shooting down speculation that the world’s biggest food group had any interest in getting involved in the Cadbury deal.
With Cadbury’s hopes for a new bidder now effectively dashed, and Kraft having tweaked its offer, any defections from the Kraft side will further crimp expectations that the bid might be raised again. Isn’t this precisely the message Kraft wants Cadbury to get?
While we’re on the subject of Kraftiness, we note the sale of Kraft’s frozen pizza business for $3.7 billion to Nestle — which is mean to help fund the increased cash portion of the Kraft bid — could well have helped Nestle decide to steer investors away from thinking it would challenge Kraft’s Cadbury bid.
Cadbury is being stupid. Its stock goes to 690p (where it traded before KFT came along) if KFT walks and KFT knows this. It doesn’t need to bid against itself. Read a wild story about a young worker Wall Street at http://storyburn.com
GMAC plays its too-big-to-fail card… again
The Treasury, as major shareholder of such credit boom casualties as Citigroup and General Motors, showed with its $3.8 billion infusion into GMAC that it can still be counted on to safeguard the financial system from systemic collapse. The auto-loan company, which had dutifully spread its wings into mortgages in the housing boom, wound up becoming a bank to qualify for TARP bailout funds a year ago – the day after Christmas 2008, to be precise. How could Treasury say no?
Now taxpayers are plonking another $3.8 billion into GMAC to help cover mortgage losses. That gives us another majority shareholding in a company that could not have survived to pay its bills, workers and its executives without aid. No, it’s not much in terms of the government’s balance sheet. But it should rankle in Congress when lawmakers come back from holiday.
Not far behind the brouhaha over universal health care lays the still smoldering debate over “too big to fail”. Is it naïve to note that the timing of GMAC’s new lifeline came when legislators were safely tucked away at home? Arguing that AIG was too big to fail, with its myriad confusing and distracting derivative contracts, and that GM was too big to fail, with its strategic position just behind the aorta of the American manufacturing heartland, or even that Citigroup, with its corner office (sans fireplace) in the U.S. superbanking community can somehow be extended to GMAC might seem farfetched to fiscal hawks.
A report in the New York Post last week certainly would have helped GMAC’s cause. The paper said that Warren Buffett was looking at taking on at least part of ResCap, GMAC’s real estate lending operation. That would probably have gone some way to convincing Treasury folk that GMAC was moving in the right direction. Many analysts see GMAC’s mortgage assets, which make up about a third of the company’s $178.2 billion balance sheet, as the main obstacle to the lender reaching profitability. GMAC said after the capital infusion it does not expect to record more major losses from its mortgage lending unit, which should help stabilize results. Well, if majority government ownership doesn’t stabilize the situation, too big to fail would not be an issue.
Warren Wonka the Candyman?
Warren Buffett knows sweets. His Berkshire Hathaway is the largest shareholder in Kraft Foods, which made an unsolicited — and rebuffed — $16 billion bid for Cadbury. The Wall Street Journal reported that the trust that holds voting control of Hershey has hired Buffett’s favorite banker, Byron Trott, as it also weighs whether to pursue the British chocolate maker.
Trott, a former Goldman Sachs banker who runs his own firm now, is known for his expertise in candy as well as in advising family- and trust-owned companies. He convinced Buffett to pay $6.5 billion to help finance Mars in its $23 billion takeover of Wrigley last year.
Paritosh Bansal and Jessica Hall report that while Trott’s latest engagement may not have anything to do with Buffett, he may end up helping the billionaire investor. Sources previously told Reuters Hershey is unlikely to make a bid on its own for all of Cadbury. But Hershey may want to pick up pieces of Cadbury, which makes Dairy Milk chocolate, Halls cough drops and Trident gum. This could bode well for Buffett, some investors said.
Cadbury shareholders could get better value and Kraft may not have to pay up for a deal if a third party values some pieces of the British company more than what it is worth in its entirety to Kraft, these experts said.
Buffett has made no secret of his worry that Kraft may overpay for Cadbury. On Wednesday, he told CNBC that Kraft had “a lot to do” to justify the price offered for Cadbury. He also said investors undervalued Kraft’s stock, so it was using a weak currency to pay full value for Cadbury.
While Kraft may think of itself as that kid in the candy shop, Buffett also knows how and when to say no.
“He hates the practice of CEOs overpaying, particularly with their own stock when it is undervalued,” said James Armstrong, president of Henry Armstrong Associates, which manages some $400 million and owns Berkshire stock. “It’s pretty clear that he doesn’t think it’s a very attractive acquisition at this price.”
Bank dealmaking circus=recruiting bait?
Some in the financial industry apparently smell opportunity in the latest round of mergers and blood-letting among top banks.
Referring to the Wells Fargo takeover of Wachovia as the WWF and placing Bank of America CEO Ken Lewis atop a bucking Merrill Lynch bull are just a couple of the attention-getting devices financial sector recruiting firm RJ & Makay uses in its latest promotional You Tube video.
Branching out from a previous video aimed at Merrill Lynch brokers, the new “Billion Dollar Video” (the company claims assets from advisers brought to them via these viral recruiting tools represent billions of dollars) targets all financial advisers but specifically appeals to those currently at Merrill Lynch and Wachovia.
Those brokers are grappling with with the question of whether to accept a retention/transition package, move to another firm or go independent. RJ & Mackay is clearly hoping they’ll opt to walk and chose the firm to advise them on where to go next.
The just over four-minute short could help at least get their attention. It’s an equal opportunity stick poker, targeting all the big hits of this financial season. JP Morgan Chase, Bear Stearns, Fannie and Freddie are all in there along with Lehman, Buffett, Goldman, AIG, Morgan Stanley, Bernanke, Paulson, the government bailout, executive greed, executive kool-aide dispensers and dealing with those pesky gnats, known as recruiters.
Watch here:
