Given Citigroup stock’s dizzying tumble toward nationalization (wipeout) levels, it would appear Uncle Sam’s conversion of Citi preferred shares into common broadly supported anyone shorting the stock. The government did a deal to convert $25 billion of its Citi preferred stock, giving it a stake of up to 36 percent in the bank.Other moves announced this morning also have a decidedly more managerial tone. The bank’s board is to be reconstituted. Other major shareholders, including the government of Singapore, said Uncle too, getting on board with the Treasury plan, which supporters will argue is better than no plan at all. Singapore was an early adopter of the failed investment strategy of bailing out the bank.Where we are in this latest wave of the financial tsunami is difficult to calculate. Globally, this week has seen tremendous activity between governments and banks. Lloyds Banking Group is prepared to tap a 500 billion pound ($715 billion) insurance scheme concocted by Britain to cleanse risky bank assets. And a deal struck yesterday could raise the British government’s holding in Royal Bank of Scotland to 95 percent. Global development banks have launched a two-year plan to lend up to 25 billion euros ($32 billion) to shore up banks and businesses in crisis-hit Eastern and Central Europe.The problem with lenders of last resort is that they are a monopoly and their doors can never close. Notice the queue of seemingly defunct businesses lining up for ever more cash, whether it be Fannie Mae looking for another $15 billion, or the $30 billion GM says it needs to forestall a meltdown of industrial proportions.Deals of the Day:* The chairman of China Huiyuan Juice Group, the country’s top juice maker, said he would meet with Coca-Cola Co executives next week to discuss their $2.5 billion bid for his company.* Beckman Coulter, a maker of medical test systems, said it agreed to acquire the diagnostic systems portion of Olympus Corp’s life sciences business for about $800 million to broaden its clinical chemistry offering.* Britain’s BG Group sweetened its offer for Australian coal seam gas firm Pure Energy, now valuing the company at A$1.03 billion ($671.9 million), in a bid to eliminate rival bidder Arrow Energy from the race.* Commodities trader Noble Group launched a takeover bid for Australia’s Gloucester Coal, valuing the miner at nearly A$400 million ($261 million), looking to thwart Gloucester’s planned merger with Whitehaven Coal.* Indonesian coal miner, PT Indika Energy Tbk said it agreed to buy an 81.95 percent stake in engineering firm PT Petrosea Tbk from Clough International Singapore Pte Ltd for $83.8 million.* China National Petroleum Corp launched a friendly C$443 million ($357 million) offer for Verenex Energy Inc to give the state-owned oil company a stake in a Libyan oil concession.* Coal miner Caledon Resources said it has received an indicative approach “significantly in excess” of its current market price.* UK-based NeutraHealth said it received an unsolicited offer from India’s Elder Pharmaceuticals, at an indicative partial offer price of 5.5 pence per share.(PHOTO: Workers are reflected in the window of a Citibank branch in London January 16, 2009. REUTERS/Toby Melville)
You can almost hear the outrage machines coughing and spluttering to life in Congress. GM and Chrysler‘s latest bailout requests, though well telegraphed, will be reviewed by their own special branch of government – call it the Car Komintern, perhaps, since it took over from the Car Czar concept. But legislators who are concerned that they are being bullied into throwing good money after bad will have plenty to say about the nearly $22 billion in additional government loans the automakers say they need.
The sum is nearly $5 billion more than the automakers have already received from the Treasury. And despite having provided more detail on how the money is to be spent, the industry’s viability is intrinsically linked to economic recovery. There is no Car Czar, and there certainly is no Economy Fairy.
The Detroit Free Press argues that the automakers are being a whole lot more candid about what they plan to do with the funds than the banks were when they got bailed out. And politicians supporting the automaker rescue may be able to get a lot more mileage out of the dangers of bankrupting the Midwest labor force than Wall Street has gotten convincing America that bankers deserve subsidized golden parachutes and bonuses for running their companies into the ground.
Almost on cue, with an end-March restructuring plan deadline looming, reports of General Motors’ impending demise are bubbling up from the slush of a winter’s economic meltdown. The Wall Street Journal reports GM is looking to take back big chunks of bankrupt parts supplier Delphi, which it spun off a decade ago. The move would make GM bigger just when it is busy right-sizing. Is it taking aim at gaining that exalted Too Big To Fail status that has saved so many banks?
Meanwhile, Bloomberg has an analytical piece suggesting the U.S. government will insist on bankruptcy at GM and Chrysler, engineered to put taxpayer money above other claims. Whatever the case, it is clear the fate of the automakers is again the subject of much debate in the Oval Office. Turnaround plans from GM and privately held Chrysler are expected before the end of the month, and the White House says no decisions are expected before then.
The Obama administration confirmed our reporting that it had hired two law firms to assist Treasury Department officials on auto restructuring matters, lending some credibility to the bankruptcy argument. Lawyers tend to hover and hop around with vulture-like efficiency when talk of bankruptcy funding gathers momentum.
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.
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.
Another day, another round of hand-wringing: Do I, or don’t I? That seems to be the mantra of top executives mulling buys in what continues to be a rocky market while those on the receiving end are left wondering will he, or won’t he?
So far, it ain’t looking good — for the sellers, or the buyers.
Late last night, Samsung Electronics Co Ltd, the world’s top memory chip maker, decided to dump its pursuit of flash memory card maker SanDisk Corp. That unsolicited deal would have been worth $6 billion, but Samsung apparently got cold feet after seeing SanDisk’s wider-than-expected quarterly loss.
“Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung,” Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed by Samsung on Wednesday.
Japanese banking heavyweight Mitsubishi UFJ Financial Group has tarted up its offer for California bank UnionBanCal by 17 percent to $3.5 billion. That’s $73.5 per share and above the $70 that market insiders were expecting. MUFG already owns 35 percent of the California lender, and is hoping that more exposure to the subprime stricken west coast will help revitalize its core business. Analysts are skeptical this strategy – no matter how cheap or well insulated from the subprime meltdown the U.S. assets appear – will have the desired results. MUFG’s first quarter net profit fell by 66 percent on a lousy economy and anemic credit conditions, and the bank has forecast virtually no growth this year. Investors looking to get a foot in the door could be betting that banks with significant foreign stakes will be more likely to be pursued.
Nothing humming for GM in Asia. Mahindra & Mahindra, India’s top utility vehicle maker, says it is not interested in buying the brand that has become synonymous with the guzzling of gas, but will instead focus on its own models for the key U.S. market. “There has been a lot of speculation. I want to say categorically we are not pursuing Hummer,” Vice Chairman Anand Mahindra said at a news conference. In China, a source says Hunan Changfeng Motor has backed off from preliminary takeover talks. GM has explored a sale in Russia, as well, sources have said. Russian billionaire Oleg Deripaska’s car unit, Russian Machines, last week also denied it was seeking to buy Hummer.
Bankers for Bradford & Bingley have been left to sell over 70 percent of its 400 million pound cash call, the UK lender said, as it hired the former head of rival Alliance & Leicester to draw a line under its troubles. The mortgage bank, which has seen a torrid three months since it first surprised the market with news of an emergency rights issue, named City veteran Richard Pym as chief executive with immediate effect. Underwriters Citi and UBS now have until Friday to place the remainder of the cut-price, twice-restructured offering.
CVS Caremark Corp is bolstering its position on the West Coast with its acquisition of rival Longs Drugs Stores Corp. The deal, announced on Tuesday, is worth $2.54 billion and will allow CVS to expand in states like California and broaden the reach of its prescription services. The acquisition of Longs’ 521 stores will also give CVS a leading position in Hawaii, where it doesn’t operate. CVS will pay $71.50 per share for Longs, including its Rx America subsidiary, a prescription benefits management services company with over 8 million members. Longs shares closed at $54.04 before the news on Tuesday, but surged nearly 30 percent in extended trading on the deal. Shares in CVS fell nearly 7 percent on the news.
GM chief Rick Wagoner says there’s significant interest in the auto maker’s planned sale of up to $4 billion of assets as it battles record losses and falling sales, but no deals are expected soon. General Motors Corp is struggling against an accelerating downturn in its home market and high oil prices that have hammered sales of its trucks and SUVs, triggering a $15.5 billion quarterly loss, the third-largest in its 100-year history. Earlier this month, sources told Reuters GM was in talks with India’s Mahindra & Mahindara Ltd and automakers in Russia and China about selling its Hummer brand.
A consortium led by Goldman Sachs Group Inc has agreed to pay about $1.5 billion for a number of ABN AMRO’s private equity assets, the Wall Street Journal said Wednesday. On Monday, Belgian-Dutch financial services group Fortis said that together with Britain’s Royal Bank of Scotland Group and Spain’s Banco Santander, it had sold a number of ABN AMRO private equity assets to a Goldman Sachs-led consortium. The Journal said Goldman’s investment comprised 32 European companies as well as roughly $450 million in capital to be invested in future deals.
Other deals of the day:
* Australia’s CSL Ltd, the world’s top maker of blood plasma products, is buying smaller U.S. rival Talecris Biotherapeutics Holdings Corp for $3.1 billion, to boost its presence in the fast-growing biopharmaceutical industry.
GM has had a rough few weeks, with its share price racing down hill and increasingly frequent questions about solvency. So we note with interest the second sign in two days that the auto giant is looking to pump up its position in higher growth markets abroad. Russian car maker GAZ said today it plans to create a $1 billion joint venture with GM. The director of GAZ’s light vehicles unit, Leonid Dolgov, said the venture will produce around 300,000 cars per year, allowing the partners to compete with French rival Renault in Russia, Europe’s largest car market. Yesterday, a source told us Chinese pickup truck maker Hebei Zhongxing Automobile was in talks with GM and major Chinese automaker FAW Group to explore opportunities for cooperation, including possible equity ties. The source gave no specifics about Zhongxing’s discussions with GM, which runs two ventures with China’s top automaker, SAIC Motor, making cars and minivans. These are hardly high-gear moves, but could amount to welcome pay-offs if things in the U.S. continue to stall.
U.S. investment bank JP Morgan has held talks with potential partners about forming a consortium to break up British mortgage lender HBOS, The Daily Telegraph newspaper reported. National Australia Bank, named by the Telegraph as a potentially interested party, played down the report, while a UK industry source said HBOS had not received an approach. “We’re not sure this is a clever time to make acquisitions,” NAB Chief Executive John Stewart told reporters on Friday, shortly after NAB announced a further A$830 million ($798 million) in losses from its exposure to U.S. mortgages. Without naming a source, the Telegraph said JP Morgan had also approached private equity firms and may talk to Spain’s Banco Santander about a deal that would resemble the break up of ABN AMRO by a group of three banks last year.
The chief of U.S. hedge fund Harbinger Capital Partners, the largest shareholder of Cleveland-Cliffs, has begun pushing the iron ore pellet maker to put itself up for sale, The Wall Street Journal said. Phil Falcone, who wants Cleveland-Cliffs to take advantage of the steel boom, reckons the company could fetch as much as $130 a share, or about $14 billion, the paper said, citing a person close to Harbinger. The move comes a week after Cleveland-Cliffs said it agreed to acquire coal miner Alpha Natural Resources for about $8.3 billion to expand its coal assets and capitalize on the boom in the global steel industry. In a regulatory filing made after the deal announcement, Harbinger Capital, which owns about 18.36 percent of Cleveland-Cliffs common stock, expressed concerns about whether the Alpha deal was in the best interests of shareholders.
General Electric has bulked up on its health binge, moving to buy medical device maker Vital Signs for $860 million. Vital Signs shareholders are to get $74.50 per share in cash, a 28.4 percent premium to Wednesday’s closing price, and above the shares’ 52-week high of $61.20, reached on May 9. GE said the deal, which it expects to close in the fourth quarter, values Vital Signs at $860 million, net of cash and investments. It said that shareholders with a 37 percent stake in Vital Signs have agreed to vote in favor of the deal.
Chinese pickup truck maker Hebei Zhongxing Automobile Co is in talks with General Motors and major Chinese automaker FAW Group to explore opportunities for cooperation, including possible equity ties, a source close to the situation said. “Consolidation is inevitable in the Chinese auto market, which now has more than 100 players, and a company of Zhongxing’s size makes a good takeover target or joint venture partner,” the source told Reuters. “Zhongxing is holding talks with several potential partners including FAW and GM to seek cooperative opportunities, including possible equity ties, but nothing has been decided at the moment,” a source said.
Tribune has narrowed the potential list of bidders for the storied Chicago Cubs baseball team to 3-5 groups bidding $1 billion or more, according to sources briefed on the matter. Of the 10 groups approved to bid for the Cubs by Major League Baseball, only those that bid $1 billion or more for the team, its home ballpark Wrigley Field and a stake in a regional sports TV network advanced to the next round, said two sources, who asked not to be identified because the process is ongoing. While Tribune and baseball officials declined to comment, three sources said Internet billionaire Mark Cuban, owner of the National Basketball Association Dallas Mavericks; and a publicly held group led by New York City taxi tycoon Andrew Murstein were among those advancing. Others advancing included Tom Ricketts, chief executive of Incapital LLC, a Chicago securities and investment banking firm, and son of the founder of TD Ameritrade; and a group headed by Michael Tokarz, chairman of MVC Capital, one of the sources said. The Tokarz group includes Fred Malek, who previously bid on the baseball team in Washington.