M & A wrap: Lifting the Vale
Brazil’s Vale said on Wednesday it has created a new logistics company for cargo transport, but it denied media reports it is planning to sell stock in the unit in a spin-off. Logistics services generated $1.5 billion in revenue in 2010, an increase of 33 percent from the year before.
Cerberus Capital Management LP’s deal to buy 64 hotels from bankrupt Innkeepers USA Trust could still go forward, but at a lower price, two sources familiar with the situation told Reuters.
NYT’s DealBook contributor Steven M. Davidoff writes that Capital One’s proposed $9.2 billion acquisition of ING Direct requires clearance from the Federal Reserve, as it poses a potential systemic risk. “Whether or not the Fed approves the Capital One/ING Direct transaction, it is time for the Fed to run public hearings on what exactly Dodd-Frank means for our banks and what we as a country want from them,” writes Davidoff.
Why IPO when the markets stink? Venture capitalist Jeff Richards’s answer: “You go public in a choppy market because your business has strong fundamentals that investors will buy into regardless, you raise important growth capital, and begin establishing a track record as a public company.”
If private equity firms drafted their NFL dream team, who would make the roster? Fortune.com’s Dan Primack goes deep.
Xerox-ACS: the backstory
Xerox, which said early Monday morning it will buy Affiliated Computer Services for $6.4 billion, has had its eye on the IT services company for at least two years, but talks only began toward the end of the first quarter of 2009, several people familiar with the matter told Dealzone. Blackstone, which advised Xerox, worked with the company on this over the past 18 months, in addition to making the introductions earlier this year, according to one source.
Talks grew hot and heavy over the summer, especially as the credit market conditions improved, a second source said. Xerox has committed financing of $3 billion for this deal, which is being arranged by JPMorgan, so the deal only began to look like a real possibility once the financing side was sorted out.
ACS, which competes with other technology services providers such as Computer Sciences Corp and Accenture, is an attractive company because of its recurring revenue business model. It’s been an especially alluring target for private equity buyers, with Cerberus having offered to buy it for $62 a share in 2007. Cerberus withdrew its offer citing the credit crunch and ACS management’s refusal to engage with them. TPG was also interested in ACS about five years ago, the second source added.
Buyout firms didn’t lose the opportunity to sniff around at ACS this time around either, the sources said, although it’s not clear if the ACS management asked its bankers to run a formal sale auction.
“Every PE firm in the world that could raise the debt was kicking the tires on this one because of the cash,” said the third source.
So after doing the M&A dance for months, why did the companies rush to announce the deal on Yom Kippur, the Jewish holiday? Apparently, word got around on Sunday that Xerox was preparing a significant announcement, and some reporters were tipped off about it, two of the sources told Dealzone. But the board only ended up meeting late at night to approve the deal, and so it was considered “safe” to hold on to the announcement overnight, but not through all of Monday!
Update: From my colleague Franklin Paul, who said Xerox CEO Ursula Burns apologized to the audience on the ACS deal call “for our need to do this announcement on Yom Kippur.” “It was certainly not our intention,” Burns said, but they wanted to seal the deal before it began leaking. Certainly they did, given that Xerox has coveted ACS for a long time and probably would have hated to see the deal botched by rumors before the two sides signed on the dotted line.
Aozora-Shinsei merger back on track
Have two big Japanese lenders, backed by private equity, found a way to come up with a sensible merger plan? A merger between Shinsei Bank, nearly a third-owned by JC Flowers, and Aozora Bank, more than half-owned by Cerberus, is reported back on track after the Western firms cooled their jets on the deal last month, saying there was no strategic plan behind the tie-up.
Shares of both institutions have been on a tear since talk of a merger bubbled up last month, but are mere shadows of what they were earlier in the decade after their sale to private equity marked a fresh stab at rehabilitation in the Japanese banking industry. Just about the only thing going obviously well for the investments right now, aside from the merger bump, is the strength of the yen.
The banks plan to set up a holding firm in 2010 and merge a year or so later, the Nikkei Business Daily reported. JC Flowers and Cerberus will probably remain shareholders in the holding firm, according to the report, so this wouldn’t be a big cash-out for either.
Pooling their expertise make sense in Japan, where foreign ownership of local institutions has had a history of causing more friction than warmth. Analysts say the merged bank — which would be Japan’s sixth-biggest — would still need government money and face a huge challenge to win over depositors from the country’s megabanks.
Deals of the Day:
* A consortium of 11 banks and interdealer broker ICAP has bid 813 million euros ($1.07 billion) for LCH.Clearnet, Europe’s top independent clearing house, a source close to the consortium said.
* French energy giant EDF agreed to sell a stake in nuclear operator British Energy to Centrica, striking a partnership with the gas group to build a new generation of nuclear power stations in the UK. Centrica will pay 2.3 billion pounds ($3.4 billion) for the 20 percent stake.
from Funds Hub:
Dog Days at Cerberus
Embattled Cerberus Capital Management, a private-equity firm named for the mythological three-headed dog that guards the gates of Hades, has been overwhelmed by clients seeking to withdraw money from its $2 billion hedge fund, Cerberus Partners.
Website FINAlternatives said that fund investors representing 17 percent of the assets wanted to withdraw their money in December, the most recent month for which statistics are available. Now, with Cerberus's investments in Chrysler and GMAC going bad and unemployed investors needing to tap more funds, that figure may be heading higher.
Now, according to this Bloomberg report, Cerberus sent a letter to clients warning them that it could take "years" to meet all the redemption requests, which have stacked up since the firm imposed gates in December.
“The fund’s withdrawal requests have increased substantially since the fund suspended withdrawals, partially because investors wanted to reserve their place in line and partially due to individual investors’ own liquidity needs,” according to the letter.
Like some other hedge fund firms juggling the desires of investors who want their money, with trying to avoid gutting their portfolio with forced selling, Cerberus is considering creating a special vehicle that would carve out a portion of the fund to be liquidated and distributed to investors who want out. But it also says this would not be a quick fix. Company founder Stephen Feinberg told investors the fund “Would be managed by the general partner until it is fully liquidated, a process which might take several years.”
So should Cerberus investors lump the hedge fund in with its auto wrecks? The Cerberus Partners fund lost 16 percent in the year ended last November and fell 3 percent to $1.99 billion in the first two months of February, but at least one private equity investor tells us they are not any worse at this business than their competition. Still, investors may want to tread warily around the three-headed dog when Feinberg says the current mess has created some great new distressed debt opportunities for his firm.
Cerberus spokesman Peter Duda declined to comment for this post.
New Year’s resolutions for PE, Cerberus?
For M&A bankers, 2008 is perhaps best remembered using the catchphrase of Comic Book Guy from The Simpsons: “Worst. Year. Ever.” Dealmaking reached record lows in 2008, dominated by cancelled deals. At the start of 2009, questions linger about several companies, executives and deals. Most notably, though, there is a big question mark over private equity.
Last year was a bad year for PE firms as credit markets became too tight, stocks fell unpredictably low, and deals that were announced in better times began falling apart. PE deals fell to a five-year low.
The ‘Golden Age’ of PE quickly faded as many of the biggest buyouts announced in 2007 collapsed in 2008, including the $41 billion deal for Canadian telecommunications operator BCE, the largest announced buyout in history.
And many of the deals that did close are lining up to file for bankruptcy. Leverage – the backbone of PE deals — should be hard to come by for some time. And with the IPO market still frozen, firms will likely be holding on to their purchases much longer.
Attention-shy Cerberus struggled this year with two bad bets –GMAC and Chrysler. The government stepped in to help the auto industry – and Cerberus benefitted too.
As part of that deal, Cerberus had to hand over much of its GMAC stake to its investors. A big question for 2009 is whether investors will be able to get rid of their shares.
The handout of billions of dollars from the Treasury to Chrysler also put into question on Cerberus’ plans for the automaker in 2009. Unlike General Motors, Cerberus has provided few details on how it plans to make Chrysler viable.
In the deal world small has become the new big!
Yes, M & A activity in hard dollars for 2009 likely will continue to be down; however, acquisitions within the lower middle market will likely and dramatically increase in the total numbers of acquisitions where the deals are less complicated, synergistic, and as well these deals usually reflect a higher ROI.
The money seeking investment has not disappeared, it is just very cool to the large deal. Much of he available money is sitting in -0- % treasuries, and as such is tremendously under utilized. This money must “go to work”.
Gene Sartin
President & CEO
The Transition Companies
http://www.transitioncompanies.com
gsartin@transitioncompanies.com
Santa for automakers, Grinch for taxpayers?
A company in the U.S. auto industry fails — and the government steps in as savior. Yet again. That’s right. Santa visits the automakers this year while the Grinch steals taxpayers’ Christmas.
The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.
Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy. In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.
But the Fed’s approval was conditional on GMAC raising new capital.
GMAC said it had raised enough capital to satisfy the Fed’s conditions just as the Treasury announcement on Monday.
The Treasury’s generous moves help Cerberus just as much as they help the auto industry. Cerberus bought 51 percent of GMAC in 2006 and 80 percent of Chrylser last year. The private equity firm has been stung by both those investments as U.S. auto sales have plunged to record lows amid a sinking economy following its purchases.
A happy coincidence: Cerberus Chairman John Snow was the Bush administration’s treasury secretary before Henry Paulson.
so does this mean that it will be easier for us taxpayers to get cars manufactured by gm, financed by gmac at better rates no matter what our credit rating is? after all they ought to give taxpayers a huge discount considering that we have to back them financially after sqandering profits made from selling us a sub-par product in the first place
GMAC’s Christmas present
The Fed donned the red suit on Christmas eve for GMAC, giving the troubled auto finance company the nod to become a bank holding company.
The speedy approval should not come as a surprise, given that GMAC lends to consumers and GM depends on the finance company to sell cars — factors that could make its survival seen as key to fixing the economy.
The new status gives the company access to government lending programs and should allow it to continue financing loans for GM cars.
“In light of the unusual and exigent circumstances affecting the financial markets … the board has determined that emergency conditions exist that justify expeditious action on this proposal,” the Fed said in a statement.
The bank holidng status will come at a cost to GMAC’s majority owner Cerberus and minority owner GM: Both must cut their stakes in the company to comply with regulations that prevent many kinds of companies from owning too big a share of a bank.
DEALS OF THE DAY
** Nissin Foods Holdings, Japan’s top instant noodle maker, said it would buy a one-third stake in Russia’s largest instant noodle group Angleside Ltd for about $296 million, making a foray into the fast-growing market.
Does anyone else think that it’s a cruel karmic-realignment that GM execs are in part responsible for dragging their company into such a mess while finding a means to be forced to cash out on their stake in the company and are walking away with pennies on their stashed away dollars?
GM comes up empty
GM went trick-or-treating early but it looks no one answered the door. Either that, or its trick wasn’t very good. Either way, it appears to have come up empty-handed in its bid for government goodies.
The much-talked about General Motors-Chrysler merger is off the table for now. Reuters is reporting that talks hit an impasse after the Bush administration said “no” to funding for the deal, citing three people with direct knowledge of the talks.
GM had approached the Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.
A Bush administration official told Reuters the administration was not negotiating direct aid for the deal.
Maybe GM will have better luck after Nov. 4. Halloween will be over but Christmas isn’t too far away.
More deals of the day:
** Britain’s second biggest bank Barclays Plc is to raise 7.3 billion pounds ($12.1 billion) from investors from Qatar and Abu Dhabi and others to allow it to avoid taking government rescue cash, it said. The bank said it is raising up to 3.5 billion pounds from Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family. That could give him a 16.3 percent stake in the bank.
This entire credit debacle seems to have no boundries. Malnipulating the company to be approved should be considered a crime. Where is a real attorney general when needed? If our goverment continues to roll-over for these criminals, middle America, the core of this country is washed up. Ask yourself, who is looking out for me? Also it really doesn’t matter ” Whats in your wallet?”. If it’s anything like mine, empty……..
20 percent = zero
At the end of December 2007, Daimler’s 20-percent stake in Chrysler was valued at about $1.18 billion.
At the end of June, Daimler valued that investment at about $219.6 million.
Today, Daimler said the book value of that 20-percent stake is zero.
That’s right, zero.
To put that zero in perspective:
A year ago, after Daimler sold 80 percent of Chrysler to U.S. private equity firm Cerberus Capital Management, the German automaker listed the value of its minority interest at $1.8 billion.
Ten years ago, Daimler paid $36 billion for all of Chrysler.
What does Daimler expect? They got their reward up front when they robbed Chrysler after merging (TOOK OVER) Chrysler.
Then by not following on Chrysler’s successful FWD car lines effectively Chrysler has lost many customers, including me a long term one.
Perhaps Daimler should buy the Chrysler 300 car line they loved.
Craigslist a runaway bride?
EBay‘s lawsuit against Craigslist alleges that founder Craig Newmark and CEO Jim Buckmaster tried to dilute eBay’s 28.4 percent stake in the company after a marriage proposal. According to court papers unsealed Wednesday, Craigslist wanted out of the relationship since eBay had launched a competing product, Kijiji, but Meg Whitman countered with a bid to buy the entire company, leading to the allegedly “clandestine” meetings between Newmark and CEO Jim Buckmaster. At stake is the world’s third most valuable Web startup, as ranked by Silicon Alley Insider, valued at approximately $5 billion.
Microsoft‘s board met on Wednesday to discuss its stand-off with Yahoo, but don’t get too excited: they failed to reach a decision on what to do next, according to a Wall Street Journal report. The board is still weighing whether to adopt a hostile approach and nominate a proxy slate of directors to replace Yahoo’s board, sweeten its cash-and-stock offer for Yahoo, or possibly walk away from the deal. A Microsoft-imposed “deadline” passed last Saturday.
Three-headed canine guardian of the gates of Hell, meet controversial private security contractor Blackwater. Cerberus Capital Management is in talks to invest $200 million for a stake in Blackwater USA, ABC News reported on Wednesday, citing sources. Or, not. The Wall Street Journal confirmed that Blackwater is seeking outside investment, but quotes a Cerberus spokesman as saying the private equity firm took a look but decided to pass. As the WSJ’s Deal Journal notes, the “secretive, billionaire, former paratrooper [Cerberus' Steve Feinberg] trains his largesse on a secretive, lucrative quasi-military operations company” story was just too good to be true.
** British software company Micro Focus International Plc said it was to buy U.S. peer NetManage Inc for an agreed $73.3 million, or $7.20 per share.
** Britain’s Hornby Plc has agreed to buy model car maker Corgi for 8.3 million pounds ($16.5 million) to add to its stable of iconic toy brands, which include Scalextric racing cars, Airfix model planes and its eponymous train sets.
** Turkey’s leading mobile phone operator Turkcell is in talks to buy 80 percent of Belarussian Telecommunication Network (Best), a Turkcell official told Reuters.
** Japanese staffing service firm United Technology Holdings Co Ltd said it had abandoned plans for a capital and business tie-up with bigger rival Goodwill Group Inc.
