DealZone

Is oil heating up?

oil1Energy M&A has heated up over the past few weeks, with two large deals possibly on the horizon: the sale of Repsol’s Argentine unit YPF as well as Kosmos Energy’s stake in the Jubilee oil field in Ghana.

If thise deals would happen, it would follow Suncor Energy’s $20 billion takeover of rival Petro Canada, announced earlier this year.

So is M&A in the oil sector heating up? Maybe, but insiders warn that the fluctuations in oil and gas prices could slow the flow of deals.

Historically,  crude oil has tended to trade between 9 to 11 times natural gas prices.  But with crude at around $60 a barrel and natural gas at around $3.35 per million british thermal units, that ratio is currently 18 times natural gas prices.

That suggests gas prices will go up or crude prices will go down. If oil prices drop, then assets that on the market could be pulled, and the M&A market could cool fast.

GE’s Immelt’s subtle defense

General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.Jeffrey R. Immelt, Chairman and CEO of General Electric, speaks after being honored by the national non-profit group "A Better Chance" in New York
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.

Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.

“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”

Agrium CEO makes a plea for kindness

Agrium CEO Mike Wilson“Be kind in your article. I read this morning I wasn’t going to get the deal across,” said Agrium CEO Mike Wilson, referring to an article in Canada’s Globe and Mail about his company’s hostile bid for rival fertilizer maker CF Industries. “What the hell is that?”

Speaking on the sidelines of a BMO Capital Management agriculture, protein & fertilizer conference,  Wilson said he was frustrated by CF’s unwillingness to discuss his company’s bid, but “frustration won’t make us go away.”

Agrium bumped its cash-and-stock bid for CF to around $85 a share on Monday, increasing its previous bid more than 6 percent.

Energy asset on block at Blackstone?

USAOne intriguing remark that Blackstone COO Tony James let slip on today’s earnings call is that it could be gearing up to sell an energy asset. 
James explained that while opportunities to exit investments weren’t numerous, it had succeeded making a profit on the sale of pharmaceutical company Stiefel. 
“We have another company in our portfolio… in the energy sector, which had some very, very exciting results finding unbelievable amounts of hydrocarbons and… that might be something we’d look to exit,” James said on a call to the media. 
He didn’t identify the company so we’re doing the guessing ourselves — out of the current energy investments Blackstone lists on its website, we reckon Kosmos Energy, which has a significant oil field in Ghana, could fit the bill.

(Additional reporting by Mike Erman)

Squeezing out a smaller premium

BRITAIN/PepsiCo Inc’s offers to buy the remaining stakes in its two largest bottlers came as a surprise, but the biggest surprise may be the scant 17.1 percent premium in the overtures.
    
PepsiCo’s bid to buy the rest of the bottlers it does not already own constitutes a so-called “squeeze-out,” or a transaction in which the buyer already owned some portion of the target and was seeking to own the 100 percent.
    
Even given that squeeze-out premiums are typically lower than cases where a buyer did not own any part of the target and was seeking to acquire 100 percent, this one looks particularly low, according to FactSet Mergerstat.
    
The average 1-day premium for a squeeze-out deal was 35.77 percent versus the average 1-day premium of 44.10 percent for a full acquisition, FactSet Mergerstat said.
    
Put another way, the PepsiCo premium was half the normal premium for a typical squeeze-out. Both Pepsi Bottling Group and PepsiAmericas rose above PepsiCo’s offer, suggesting that shareholders expect the deal to get a little sweeter.

First Reserve’s deal war-chest expands

oilFirst Reserve is sitting on another $9 billion of spending money for energy deals after finishing raising its latest buyout fund, Fund XII. The private equity giant, which specialises in energy investments, said the fund is the largest ever raised in the energy sector and exceeds its previous fund, Fund XI, which raised $7.8 billion in 2006. 

The fund appears to be lower than target, however. London-based private equity intelligence firm Preqin said in a recent report that the fund had a $12 billion target.

“Energy remains a large, dynamic and complex industry where change creates new, attractive investment opportunities,” said William Macaulay, Chief Executive Officer of First Reserve in the press release (below).

Another deal in healthcare: what’s the magic pill?

pillsAs dealmakers everywhere struggle to get deals done, the healthcare industry seals yet another one.

Express Scripts has agreed to buy health insurer WellPoint’s prescription business for $4.68 billion in a significant expansion for the U.S. pharmacy beenfit manager. The deal will be a concoction of cash and up to $1.4 billion in common stock, and will generate more than $1 billion of incremental EBITDA.

This comes on the heels of Pfizer’s $68 billion acquisition of Wyeth, Merck’s $41.1 billion takeover of Schering Plough and Roche Holding’s $46.8 billion buyout of Genentech. Granted, this isn’t a pharma deal, but it still falls under the umbrella of the healthcare sector.

Dow Chemical: Official Rainmakers’ Punching Bag

Poor Dow Chemical.

Not only did the company end up having to buy Rohm and Haas at basically the same steep price it agreed to last year, but it has also become the favorite target of lawyers, bankers and maybe even judges at the Tulane Corporate Law Institute, an annual gathering of top dealmakers.

Timothy Ingrassia, head of Goldman Sachs mergers and acquisitions business in the Americas struck the first blow on Thursday morning.

 ”You’ve already had Dow Chemical’s unique interpretation of the merger agreement. There was never a transaction that made Apollo look better,” Ingrassia said, referring to private equity firm Apollo’s previous efforts to get out of an agreement to buy Huntsman Corp. 

JPMorgan slashing research, ex employees say

NEWYORK-BEAR    JPMorgan is cutting 30 percent of its research department, according to two former employees, but the bank is keeping mum about its plans and declined to give details of the cuts.
    David DeRose and Leighton Thomas, co-founders of a Bear Stearns alternative research unit that moved to JPMorgan when that bank acquired Bear a year ago, said on Wednesday they sold the unit to an investment firm largely because they could not hire more staff under JPMorgan’s management.
    “If you stay under a research division that’s being cut 30 percent, we can’t get any headcount,” said DeRose.
    JPMorgan intends to shed 1,000 to 2,000 jobs from its investment bank this year, co-investment bank chief Steve Black said at the bank’s investor day in February.
    It was unclear whether the cuts DeRose mentioned are included in these figures and a JPMorgan spokesman declined comment.
    Research staff may be an easy target for cuts, since it is hard to quantify their contribution to the bank’s bottom line.
    And banks’ research divisions across Wall Street have been shrinking since the Securities and Exchange Commission in 2002 banned firms from using banking fees to pay analysts.

By Elinor Comlay

At the helm of GE

MALAYSIA/Once nearly as routine and immutable as its dividend and its triple-A rating, General Electric CEO Jeffrey Immelt could be counted on to step up and calm the markets when things got rough. He who guides the biggest corporate bellwether of the U.S. — nay, global — economy was to the markets what baseball, apple pie and Chevrolet were to the United States.

Now that auditors at Chevrolet parent GM have called into question its ability to stay in business, and baseball’s biggest star has admitted once being a doper, apple pie seems to be all we have left of this particular cliché of Americana. And even dessert may not be safe from recession-spending cutbacks at the kitchen table.

So back to the question of GE: facing a possible downgrade after bowing to market realities and cutting its dividend, is Immelt’s job in jeopardy? CFO Keith Sherin sat down on the conglomerate’s business TV network, CNBC, to talk financials and assure markets the company would weather the storm just fine. GE’s finance unit has no short-term liquidity issues, and speculation about its ability to maintain sufficient capital is “overdone,” he said. Sherin also said it would take an “incredibly disastrous economic situation” for GE to seek money from the government’s Troubled Asset Relief Program. Many would describe the current economic outlook as precisely that.