DealZone

Temasek’s strong stomach

temasek2.jpgSingapore wealth fund Temasek may have gotten hold of some bad stuff this year when it bought a 9 percent stake in Merrill Lynch. The stock has lost more than half its value since the purchase was announced in late December. But far from swearing off noxious bank assets, the flush Asian fund says it wants more. And why shouldn’t it? It just doubled its full-year profit by selling assets in local power and its national telecoms and airlines companies, as well by cutting a stake in Bank of China, so the toxicity of Merrill’s share price is not making it sick. Financials grew by two percentage points to 40 percent of its portfolio in the year through March and are likely to grow further, with Temasek saying it expects contagion from the credit crisis to spread. That should keep prices down for a while. Temasek said it will not cap its investments in the sector, but it was mum on whether it was thinking of taking on any Lehman exposure.

India’s largest oil producer ONGC has agreed a 1.4 billion pounds ($2.6 billion) takeover of Russia-focused oil explorer Imperial Energy Corp as it works to secure energy to fuel India’s booming economy. Imperial said ONGC’s overseas arm, ONGC Videsh, would pay 1,250 pence in cash for each of its shares in a deal that could double state-owned ONGC’s proved and probable reserves. This is less than the 1,290 pence approach Imperial said last month it was discussing with an unnamed bidder, which sources close to the matter identified as ONGC. Investors aren’t wholly convinced though, with the shares trading down more than 1 percent this morning after rising sharply in recent weeks on hopes for a bidding war.

Infosys Technologies agreed to buy British consultancy Axon Group for 407 million pounds ($753 million) as India’s second-biggest software services exporter looks for growth beyond an uncertain U.S. market. The cash deal values Axon at six pounds per share, a 19.4 percent premium over Friday’s close of 5.025 pounds and 33 percent over the average price of the last six months, Infosys CEO Kris Gopalakrishnan said. The stock has risen to 611, and Infosys shares have taken a hit as expectations rise another bid will emerge. Altium Securities said in a note it believed there was room for a counterbid closer to 700 pence.

Other deals of the day:

* Hyundai Heavy Industries, the world’s top shipbuilder, expressed its interest in Daewoo Shipbuilding, joining three other major bidding groups vying for its smaller rival. State-owned Korea Development Bank (KDB) and a government agency have put up for sale their combined 50.4 percent stake in the world’s No. 3 shipbuilder, in a deal estimated to fetch up to $8 billion, more than double Daewoo Shipbuilding’s current market price.

* Bluescope Steel, Australia’s top steel maker, will sell its New Zealand iron sands mining operation for NZ$250 million ($176 million) to Hong Kong’s Cheung Kong Infrastructure Holdings, the company said.

Only Cheerleaders Need Apply

A member of professional cheerleading squad practises for the 2008 Beijing Olympic Games and Paralympic Games in Dachang CountyThe yo-yo that is Lehman Brothers’ stock took another spill before the market opened on Monday, after a top South Korean regulator threw cold water on the idea of a state bank buying the battle-scarred Wall Street warrior. Financial Services Commission Chairman Jun Kwang-woo told reporters Korea Development Bank (KDB) should be a “cheerleader” and let local private banks take the lead in any such purchase. KDB’s interest lit a rocket under Lehman’s shares on Friday. When asked about the status of KDB’s possible interest in Lehman Jun said: “That would be an international marriage. Would you get married just after one or two blind dates?” A couple of blind dates might be a step up from the shot-gun buyouts that South Korea’s banks faced after the Asia crisis.

Canada’s Precision Drilling Trust will buy U.S. driller Grey Wolf for $2 billion in cash and stock, creating one of the largest North American oil and gas rig operators. The announcement comes a month after Grey Wolf shareholders voted down a proposed purchase of well-servicing company Basic Energy Services. Precision Drilling, Canada’s largest oil and gas driller, first made an unsolicited purchase offer for Grey Wolf in June. News that a deal had been struck emerged on Sunday. Based on financial results through June, the combined companies will have annual revenue of $1.8 billion.

Germany’s Commerzbank could buy insurer Allianz‘s Dresdner Bank possibly by the end of this month, according to a source familiar with the situation at the bank. German weekly Welt am Sonntag said an agreement between the two was possible within the coming week. The two companies had agreed on the basic principles of the transaction, according to the paper, which said Commerzbank would buy Dresdner for slightly more than 9 billion euros ($13.38 billion) and Allianz would vouch for writedowns on the balance sheet of Dresdner of up to 1 billion euros. The sums were still being negotiated. Allianz would have a stake of slightly less than 30 percent in the merged bank, the report also said.

Hope yet for a Lehman Seoul mate

Lehman BrothersJust yesterday, the sound of doors closing could almost be heard echoing across the pacific as Lehman Brothers reportedly hit the Asian wealth circuit looking for help filling its expected $4 billion in third-quarter writedowns. Now state-run Korea Development Bank says it might be interested in buying the bank, lighting an 8 percent fire cracker under Lehman’s stock in premarket trade. “We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,” a KDB spokesman said. KDB said it was open to mergers or acquisitions of both domestic and foreign companies to beef up its weak areas as the government was aiming to privatize it by 2012. Previous reports said KDB and CITIC Securities, China’s biggest brokerage, balked at the high price Lehman was asking.

Since its long-standing dispute with CME Group‘s Chicago Board of Trade over trading rights is just about settled, the Chicago Board Options Exchange may soon become a takeover target. While the CBOE is expected to pursue an initial public offering, with a filing possible as soon as next month, many exchange industry experts see that as only an interim step. It will be like sticking a “for sale” sign up, they argue. Despite being the top U.S. equities options market, with a stranglehold on index options, the CBOE may have to consider a bigger partner. It is one of the few remaining stand-alone exchanges, which leaves it vulnerable to a squeezing of its margins by growing competition, particularly exchanges that can offer investors stocks and options under the same roof.

Mining giant BHP Billiton‘s $128 billion bid for rival Rio Tinto could raise competition issues in iron ore. With mines across Australia’s ore-rich Pilbara region, Rio Tinto and BHP are the world’s second- and third-largest iron ore producers, respectively, behind Brazil’s Vale, and analysts reckon a combined group would control about 35 percent of the world’s seaborne traded iron ore. In a nine-page “statement of issues” ahead of its Oct.1 ruling, the Australian Competition and Consumer Commission (ACCC), which can order companies to sell assets if it thinks they have too big a hold in one sector, highlighted the likely impact of a deal on the iron ore trade and, in particular, on Australian steelmakers, but saw no major competition issues in copper, gold, uranium, bauxite or alumina. “I don’t think that’s a surprise to the two companies, particularly BHP … that iron ore would be the one area the regulators would be looking at very closely,” said Ken West, a partner at Perennial Growth Management. “But the Pilbara is the one they don’t want to be tampered with. If the regulators don’t show flexibility, then the Pilbara could become a deal breaker,” West said.

Lehman’s long march

Staff member displays Chinese yuan notes to media at currency exchange booth at Songshan airport in TaipeiAsia’s sovereign wealth funds may be loaded, but they don’t need long memories to recall the big losses they’ve suffered on seemingly sure-thing investments in Wall Street’s troubled banks. So with reports that Lehman Brothers came up empty in efforts to win funds from top Chinese brokerage CITIC Securities and state-owned Korea Development Bank, it’s anybody’s guess where it will come up with the cash it needs to deal with an expected $4 billion in writedowns before announcing results in September.  

The path most traveled heads further east, to Singapore and the gulf, where investors could be equally, if not more gun-shy given the news flow. A ray of hope could shine from Singapore though. State investment firm Temasek said it was prepared to plunk more money into Western banks. An Singapore sling couldn’t come at a better time. This morning, Citi’s Prashant Bhatia became the latest big bank analyst to warn on Lehman and fellow investment banks Goldman and Morgan Stanley, lowering third quarter estimates for all three, and The Wall Street Journal says the Fed had called Credit Suisse last month to see if it had pulled a credit line from Lehman, acting to prevent a repeat of the cascading speculation that helped sink Bear Stearns.

U.S. private equity investor Lone Star is buying the rump of lender IKB, Germany’s most prominent casualty of the subprime crisis. The sale by state bank KfW closes an embarrassing and costly chapter for Europe’s biggest economy. IKB nearly collapsed a year ago under the weight of $24 billion in investments linked to risky U.S. home loans, making it Europe’s first major victim of the global financial crisis. The government brokered the first of three rescues to avert what the country’s banking watchdog warned could trigger Germany’s biggest financial crisis since the 1930s depression. But as the cost of the rescues spiraled towards 10 billion euros ($14.8 billion), Berlin started looking for a buyer.

Plugging Holes at Lehman

Pedestrians walk past a Lehman Brothers sign in New YorkLehman Brothers is considering selling all or part of its asset management unit – anchored by Neuberger Berman and thought to be worth about $8 billion — by the time it releases third quarter earnings. That would be more than enough to fill the $4 billion dollars in write-downs JP Morgan says the bank will have to take in the quarter, but sources say it’s not clear if all or part of the investment management business would be sold. Some have said an outright sale of the entire investment management business could be tough, as it would be too big for most buyers to swallow. One source familiar with the situation said Lehman is marketing its asset management unit to a number of buyers including private equity firms. A second said Lehman is looking at several alternatives including selling a stake in the business.

General Dynamics has agreed to acquire Zurich-based Jet Aviation, a privately held provider of business-aviation services, for about $2.25 billion in cash. The U.S. defense contractor said the deal, which would expand its flight support services, is expected to immediately add to its earnings and should close by the end of the year. Jet Aviation is currently owned by private equity firm Permira Funds. It provides maintenance, repair and overhaul services for business jets. It also charters executive jets.

Tata Consultancy Services is close to acquiring Citigroup‘s backoffice unit in India for up to $550 million, the Economic Times reports, citing a source close to the development. The announcement of a deal for Citigroup Global Services is likely to be made “within three weeks”, the paper said, adding that Tata, India’s top software services exporter, has edged out IBM in the race for the Citi unit.

Soros goes long on Lehman

George SorosGeorge Soros must see something he likes in Lehman Brothers. Or maybe he just likes a good bargain. Or maybe he’s been talking to activist investor Carl Icahn. Either way, the billionaire financier hiked his stake in the fourth-largest U.S. investment bank to 9.5 million shares as of June 30 from just 10,000 shares, according to a regulatory filing on Thursday. That’s about a 1.4 percent stake. Lehman’s shares are down 75 percent so far this year as it battles through the credit crisis that has battered the balance sheets of many top banks. There was no word from Soros’s Quantum Fund on why he upped the stake, while a Lehman spokesman declined to comment.

Boosting stakes seems to be the play du jour. Hedge fund Harbinger Capital Management has accumulated a 4.9 percent stake in Cablevision Systems Corp, The Wall Street Journal said on Friday, citing regulatory filings. It’s unclear what Harbinger intends to do with its holding, but it may explain some uncharacteristic overtures that Cablevision has made to shareholders in recent months. In July it said it was willing to consider all options, including selling its Rainbow Media unit, home to cable TV networks like AMC and IFC, as well as MSG, which owns venues like Madison Square Garden and Radio City Music Hall. “Everybody was wondering why Jimmy got religion all of a sudden,” one analyst told the Journal.

And one from the trash talk department: Republic Services Inc, the third largest U.S. trash hauler, said on Thursday it had rejected Waste Management Inc‘s revised buyout offer. The new proposal continues to undervalue Republic, the company said in a statement. As a result, Republic will not furnish information to or discuss a combination with Waste Management, the biggest U.S. trash hauler. In other words: No thanks.

Lehman seen looking to Asia

lehman.jpgBy most accounts, the sovereign wealth funds of Asia are licking their burnt fingers after picking up big stakes in sickly U.S. financials. So we read with interest a report in the NY Post that Lehman Brothers CEO Dick Fuld has held talks with South Korean and other Asian investors about possibly raising more capital. Smell a little Déjà vu? This would certainly be a hard sell for Fuld and Co., but with the dollar showing signs of recovery, and a dearth of cheap alternatives, they could just be tempted to try to catch the proverbial falling sword yet again, further confounding the conservative investment strategies they’ve built up over the past few decades of wealth generation.

What would you call a midsize Chrysler/Nissan car – a Chryssan, a Nissler? Ok, so neither is particularly witty or catchy, but branding is probably not behind what the two automakers are up to. The Wall Street Journal reports the automakers will jointly produce midsize cars, after agreeing in April that Nissan would build a small car for Chrysler using the North American automaker’s design and Chrysler would build a new full-sized pickup truck for the Japanese automaker using Nissan’s plans. The two companies have since been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, the Journal said, citing people familiar with the matter. Chrysler is evaluating whether it makes financial sense to partner with the company, the paper said.

Other deals of the day:

* Montagu Private Equity has hired Morgan Stanley to look at strategic options for BSN Medical, a move which could lead to a sale of the business for up to 1.7 billion euros ($2.64 billion), a person familiar with the situation said.