The afternoon deal: Taxing PE

As a political move, raising the taxes on private equity firms seem a no-brainer but as Megan Davies and Kim Dixon report, gaining tax dollars from the easy target may not be a simple process.

The tax is likely to be a hot issue at one of the private equity industry’s biggest conferences, Super Return International, which starts on Tuesday in Berlin and is attracting heavy hitters from major American buyout firms such as Carlyle and Apollo.

More PE news:

Hot air

In a sign of the times, Air Products and Chemicals has become the latest suitor that does not want to hear ‘no’ for an answer.

The company launched an unsolicited $5.1-billion cash bid to buy rival Airgas in a move to create the largest industrial gas company in North America. In the past four months, Air Products had made two written offers but they were rejected by the Airgas board.

Unsolicited approaches and hostile M&A tend to increase coming out of a recession. As the economy begins to stabilize, stronger players feeling more secure in their own future seize on the chance to buy rivals at still-depressed prices. In the past few months, such deals include Kraft’s bid for Cadbury and the battle involving Agrium, CF and Terra.

Air Products said it offered a 38 percent premium over Airgas’s closing price Thursday and an 18 percent over Airgas’s 52-week high. But the $60 per share offer is around the low $60s Airgas touched in June of 2008.

The afternoon deal: Kraft and Berkshire financing

There’s an art to financing a deal and Kraft and Berkshire Hathaway ’s brushstrokes are showing. Kraft launched a $9.5 billion debt sale to help finance its acquisition of Cadbury, and Berkshire announced a bond sale of up to $8 billion to help pay for its acquisition of Burlington Northern Sante Fe.

Berkshire’s bond sale announcement comes on the same day S&P stripped the company of its top AAA rating, citing capital adequacy and liquidity concerns related to the Burlington acquisition. An investment strategist tells Bloomberg the ratings firms are “are hedging their bets in the event of another economic downturn.”

More from Reuters and the Web:

DealZone Daily

Australian wealth manager AMP Ltd will not seek to extend its exclusive agreement with France’s AXA SA on a joint $11.4 billion bid for AXA’s Australian unit, sources tell Reuters, opening the door for rival bidder National Australia Bank Ltd to start talks with AXA SA.

Shares in Thailand’s Thanachart Capital jump ahead of the announcement of the winning bid for a stake in Siam City Bank (SCIB), for which its Thanachart Bank is the frontrunner. Kaohoon newspaper reports that Thanachart Bank, also 49 percent owned by Canada’s Bank of Nova Scotia, has put in the highest bid of around $958 million for the 47 percent stake, beating HSBC.

In other M&A and corporate finance news reported by Reuters and other media on Wednesday:

Dubai World’s investment arm Istithmar has put port and shipping agent Inchcape Shipping Services up for sale for $600 million to $700 million and has attracted interest from private equity groups, the Financial Times says.

Hershey’s day in the sun

With the smell of Cadbury Cream Eggs and Kraft cheese slices thick in the air, Nestle could well be getting hungry for some M&A. Will the Kraft-Cadbury deal soften the Hershey Trust enough for a Nestle merger?

Nestle has plenty of firepower with $28 billion from the sale of its remaining stake in eyecare group Alcon and Hershey might be seen as no more than a large bolt-on. In addition, Hershey is one deal Nestle could do without big anti-trust issues.

And as David Jones reports, from a Hershey perspective, some heat may be softening the the Hershey Trust’s aversion to a deal.

The fact that Hershey had been actively trying to fund a bid for Cadbury, even if it ultimately failed, has raised speculation about its future, as has the fact that 85 percent of its sales come from the U.S. market, where Kraft is likely to attack it with Cadbury products.

Noted: Will European insurers hit M&A trail?

Analysts at UBS are predicting the European insurance industry could be at the start of a new wave of mergers and acquisitions (M&A) as companies look to counter falling demand for insurance by taking over rivals to boost top-line growth and extract cost synergies.  Bank rescues have created a number of potential targets as well.

The team, led by Marc Thiele, says:

“We believe European large-cap insurers will look for M&A in Eastern Europe and Asia…In our opinion, this would be more attractive than acquiring cash-generative businesses in mature countries; while this tends to offer greater cost-savings potential, it also offers less premium growth.

“On top of the normal M&A considerations, there are a number of additional game-changing transactions possible following the decisions involving ING and RBS to exit the insurance business in agreement with the European Commission.

Cadbury cracks

The recommended £11.9bn (US$19.4bn) offer by Kraft for Cadbury appears satisfactory to both parties. Kraft gets its prize, ultimately paying 13% more than it initially wanted. Cadbury shareholders receive 48% more than the value of their shares prior to Kraft’s approach.

Cadbury’s board can be pleased they managed to extract so much value when alternative bids seemed unlikely. Kraft’s management, led by Irene Rosenfeld, has remained disciplined helped by the side deal: selling its pizza business to Nestle for US$3.7bn.

Nevertheless, increasing the cash element of its offer to 500p a share, or 60% of the total bid, could cause Kraft some financial headaches, pushing its debt levels to over four times EBITDA. Rosenfeld denies that it will affect the company’s credit rating. If it did, the deal’s rationale would be dented.

That suggests that major shareholder Warren Buffett, who lent Mars US$4.4bn when it bought Wrigley two years ago for US$23bn, could have helped Kraft out on that front. The offer document mentions “alternative financing sources”. Rosenfeld would not comment further.

DealZone Daily

Monday’s highlights:

London-based oil explorer Tullow Oil (TLW.L) exercises a right to buy Ugandan oil fields which its partner in the fields, Heritage Oil (HOIL.L), previously agreed to sell to Italy’s Eni (ENI.MI) for $1.5 billion.

Some of Cadbury’s (CBRY.L) biggest shareholders, led by Legal & General, continued to reject Kraft Foods’ 10.5 billion pound ($17.2 billion) bid and will look for an increased offer.

Brazil’s Camargo Correa Group reiterates its interest in cement maker Cimpor and says it is pondering its options after the Portuguese stock market regulator turned down its merger proposal.

Keeping score: mid-market M&A in 2009

Dealmaking involving smaller companies held up marginally better than big-ticket mergers and acquisitions in 2009, according to Thomson Reuters data released on Monday. Deals of up to $500 million fell 26 percent compared to 2008, versus a 28 percent drop in the overall market, as still-tough credit conditions and the relative scarcity of private equity kept the clamps on the market.

A couple of points from the review:

“Mid-Market M&A valued up to US$500 million totalled US$532.4 billion during 2009, a 26.3% decrease from last year.

DealZone Daily

British bid target Cadbury will paint a glowing picture of its prospects this week as it makes an  impassioned plea for independence and endeavours to fend off Kraft’s advances.  Meanwhile, Italian chocolate-makerFerrero is still undecided on whether or not to bid for the embattled confectioner but has lined up a $4.5 billion loan from Mediobanca, The Times writes, citing Italian news reports over the weekend.

In another multi-billion M&A process, Dutch brewer Heineken will pay $5.4 billion in shares to acquire the beer business of Mexico’s FEMSA.

For other deals news from Reuters, click here.

And in other media: