DealZone

DealZone Daily

U.S. drugstore operator Walgreen is to buy rival Duane Reed for $618 million from private equity firm Oak Hill Capital Partners, giving the company the market lead in New York. The acquisition brings the company 257 new stores in the city and has prompted analysts to think that struggling chain Rite Aid might make an attractive target for Walgreen rival CVS Caremark as it looks to catch up.

Britain’s Babcock International has increased a proposed offer to buy defence firm VT Group to as much as 1.29 billion pounds, but its advances have again been rejected.

For more Reuters deals stories, click here.

In other media:

Beijing’s sovereign wealth fund, China Investment Corp, is investing $1.5 billion with three private equity secondary specialists – firms that buy positions in buyout funds from other investors – the FT reported. CIC will put $500 million with each of Lexington Partners, Goldman Sachs and Pantheon Ventures in special accounts that will be kept separate from the firms’ main funds.

 Leading shareholders in Telecom Italia are discussing among themselves the possibility of merging with Telefonica of Spain, the FT writes. The discussions are said to be informal and preliminary but involve Telecom Italia’s three biggest Italian shareholders – Mediobanca, Intesa Sanpaolo and Generali.

DealZone Daily

Japan Airlines will keep its partnership with American Airlines, due to concerns that forging ties with rival suitor Delta Air Lines would make it difficult to achieve a quick turnaround, a source tells Reuters. Delta and American have been courting JAL, now bankrupt, for months, looking to gain access to its vast network in Asia.

British pay-TV group BSkyB sold a 10.4 percent stake in commercial broadcaster ITV, finally bringing an end to a long-running legal battle. BskyB had been ordered to cut its stake to below 7.5 percent in 2008. Since then, it has been through a series of appeals, all of which it lost.

For these stories, and all other Reuters news on deals, click here.

And for a selection of news in rival media:

The government of Ghana has blocked the estimated $4 billion sale of a stake in its Jubilee oil field, foiling months of talks between potential buyer Exxon Mobil Corp and the stake’s owner, Kosmos Energy LLC, the Wall Street Journal says.

Distressed companies still scrambling for financing

Are the shoots really so green? Not for distressed companies.

Restructuring is still tough for mid-sized companies, even as confidence about the economy has improved, according to a report by investment banking firm Morgan Joseph & Co Inc.
 
“Direct lending by hedge funds has virtually dried up as they are focused now on trading existing paper, with the result that new financing remains very expensive,” said James Decker, head of the restructuring group, in the report.
 
Debtor-in-possession financing has become prohibitively expensive. About 35 percent of the fifteen most recent DIP facilities analyzed by Morgan Joseph had actual or implied spreads to LIBOR of 1000 basis points or higher.  
 
In contrast, the average DIP loan in 2009 was priced at a spread to LIBOR of almost 800 basis points. In 2008, spreads averaged in the 500 basis points range, according to the report.
 
“Though the financing markets have certainly improved, one should remain skeptical of those that proclaim the capital markets will quickly return to levels experienced just prior to the financial crisis,” the report said.

High-frequency trading: useless and manipulative?

Floor tradersThe explosion of interest in high-frequency trading has started to drag new faces to sometimes staid industry conferences. Traders who for years worked on algorithms and computer codes behind the scenes are stepping into the spotlight. They’re appearing on more and more panel discussions, feeling the need to defend their practice against the slings and arrows of politicians and regulators.

So far, they’ve managed to mix exasperation with good humor. The head of one high-frequency trading shop, speaking on a panel this week, said that if you believe everything you read in newspapers you might think the practice is “an unfair, highly profitable and socially useless trading strategy implemented by highly secretive and unregulated traders using superfast computers to compete with retail investors, manipulate markets and front run flash orders causing volatility in the financial markets and creating systemic risk.”

He argued that a more accurate definition of high-frequency trading would be, “a wide variety of highly competitive, low margin trading strategies implemented by professional market intermediaries who have invested heavily in technology that have the effect of making the markets more efficient by enhancing liquidity and transparent price discovery to the benefit of investors.”

from From Reuters.com:

Following the smart money

At least 20 of the 30 biggest hedge funds boosted their positions in financial institutions in the last quarter, a sign that Wall Street is ready to bet on more risky sectors in the hope of longer-term rewards.

The push into financials indicates fund managers including Steven Cohen and John Paulson -- closely watched as barometers of risk -- have shifted from routine merger arbitrage plays to directional bets with more reward potential.

More coverage analyzing the Smart Money:

Paulson's AngloGold bet points to inflation

Betting on a takeover of CF Industries Holdings

from Funds Hub:

Distressed investing: surprises at every turn

Library photo of A worker of Electricite de France repairs damaged cables caused by a winter storm in Bayonne REUTERS/Regis Duvignau (FRANCE)Investing in a company in trouble is rarely for the faint-hearted, as the funds lending to Eggborough power station know.

Earlier today France's EDF, Eggborough's current owner, confirmed lenders to the coal-fired power station planned to exercise their option to buy the Yorkshire plant for about 190 million pounds.

The lenders, which include Bluebay Value Recovery Fund, took on the debt following an earlier restructuring of the company. Reports suggest that despite the low acquisition price, Eggborough may be worth as much as a billion pounds.

Goldman’s Viniar: Why pay twice?

HEALTHFOOD-ASIA/Turns out Goldman Sachs is a staunch advocate of going organic — when it comes to the money management business.

As Barclays auctioned off its Barclays Global Investors unit this year, Goldman was widely seen as a likely acquirer. That is until Blackrock In under Larry Fink emerged as the buyer with a $13.5 billion deal.

Lots of other money managers are expected to be sold, as the industry consolidates and cash-strapped banks look for valuables to pawn. But Viniar told analysts Goldman’s preference is to grow the business without deals, and appeared to question the very idea of money manager deals.

from Funds Hub:

Madoff Junkies

Bernard MadoffOne of the more striking aspects about the Madoff affair is the large number of people who appear to have been 'hooked' on Madoff products.

 

Money managers were drawn by Madoff's air of mystique, his stellar reputation as a market timer, the apparently steady returns with rock bottom volatility and the absence of fees, which some collected from clients anyway.

 

Those wanting more could simply have increased allocations but some chose to create new investment vehicles instead. Behind the banks and asset managers which lost money, some names appear again and again.

from Funds Hub:

‘High-handed’ hedgies face boycott

BNY Mellon's look at the "Hedge Fund of Tomorrow" has gained some column inches for its confirmation that wealthy Europeans have proven decidedly disloyal to the hedge funds who lined their pockets during the good times.

Rapid exits from European HNWs have apparently created an industry which is more American, and more institutional. BNY Mellon and research firm Casey Quirk expect assets to recover, and more than double within 4 years. Small beer given previous growth rates, but beggars can't be choosers.

I was most struck though by another line in the 50-page report.

Left outside the gatesInvestors were asked what they would consider the greatest challenge for hedge funds going forward, and it is clear that the installation of suspended redemptions or investment gates has riled the clients something rotten.

Pay-to-play funds scandal: Time for a change

primackDan Primack is the editor of peHUB, a Thomson Reuters publication.

The New York State Pension Fund kickback scandal is making new headlines. The Wall Street Journal reported that Steven Rattner, the head of the Obama administratino’s auto task force, was one of the executives involved with payments that are under scrutiny, citing a person familiar with the matter.

On Thursday, New York State Attorney General Andrew Cuomo filed a criminal complaint against Raymond Harding, former chair of New York’s Liberal Party, for scheming with the already-indicted David Loglisci and Hank Morris. Cuomo also coaxed a guilty plea and financial remuneration out of Barrett Wissman, a crooked former hedge fund manager.

All of this got me to thinking more about the issue of raising fund capital from public pension systems, a process that often is just begging to be corrupted. Inexperienced and smaller general partners (GPs) can have real difficulty getting in front of a pension system’s investment staff, because there is rarely a transparent or streamlined process.