Deals wrap: Walgreen prescribes drugstore.com buy
Walgreen plans to buy drugstore.com for $429 million, expanding the online presence of the world’s largest drugstore chain. Drugstore.com shareholders will receive $3.80 a share, which is more than double the company’s closing stock price on Wednesday.
A sale of the British government’s $107 billion stake in Lloyds Banking Group and RBS may start next year, Bloomberg said, citing four people familiar with the matter.
Geothermal energy is likely to attract interest as investors rethink the outlook for nuclear power following the crisis in Japan, writes Leonora Walet and Tessa Dunlop. Japan sits on enough untapped geothermal power to replace all of its planned nuclear stations over the next decade, but the quake-prone country’s only plan to harness that energy’s potential is to develop hot springs.
Cheap valuations along with their respectable free cash flow and extensive real estate assets have made discount and dollar stores attractive targets for companies and private equity firms, and it looks like Wall Street can wring a few billion dollars more out of them, writes NR Sethuraman.
Dutch navigation and digital map maker TomTom, which is struggling with competition from offerings by Google and Nokia, is not looking to sell its mapping unit, denying a report it might consider a sale. TomTom exec Taco Titulaer told Reuters “our content assets are core to our strategy and product offering”.
Judging by the activity in one Blackstone Group managed portfolio, wealthy investors are showing a healthy appetite for newly minted hedge fund managers, writes Svea Herbst-Bayliss. While the bulk of money raised by Blackstone for its Strategic Alliance Fund II comes from pension funds, central banks and other institutional investors, fresh demand from the ultra-rich investors provides fresh evidence of how the $1.9 trillion hedge fund industry is roaring back to life after the financial crisis.
Virgin acquires banking licence
Sir Richard Branson boosted his attempt to become a leading player in the UK banking sector by agreeing to buy Church House Trust, a small regional private lender. The deal effectively gives Virgin Money a banking licence, allowing it to offer a full range of products to consumers, since the proposed purchase has already been approved by the Financial Services Authority (FSA).
After making the acquisition, Virgin aims to grow its banking business organically. However, it has not ruled out buying further assets, such as those that RBS and Lloyds have said they will divest. Buying Northern Rock assets might be possible too. The offer document states: “Having established an initial banking platform, the Virgin Money Directors believe that the acquisition of Church House Trust will enable Virgin Money to contemplate future acquisitions as appropriate.
“The Government has said it hopes the disposal of bank assets will see new players enter the market and Virgin Money may consider opportunities should they present themselves.” At present Virgin has 2.5 million customers of its existing financial services arm, which offers credit card, savings, insurance and investment products. However, Church House Trust is allowed to offer mortgages and take deposits as well.
Virgin will put in £37.3 million of new capital into the Church House Trust business. In 2008 Virgin Money made a £27.5 million in pre-tax profit on £98.4 million turnover. Church House Trust reported a £450,000 pre-tax profit on £4.05 million operating income for the same period. Church House Trust shareholders will receive 509.2p in cash and 1.0294 contingent loan notes for each share they own. That values the business at £12.3 million.
Virgin has received irrevocable undertakings to accept from investors representing 65.8 percent of the shares. Europa Partners advised Church House Trust. Quayle Munro acted for Virgin Money.
(From Acquisitions Monthly)
DealZone Daily
For the latest deals news from Reuters, click here. And here’s the top stories from the newspapers (some external links may require subscription):
John Tiner, former head of the Financial Services Authority, and now chief executive of Resolution – the investment vehicle established by Clive Cowdery — said his company is targeting pure asset management businesses in its quest to create an enlarged British life assurance and fund management group, the FT said.
LLoyds Banking Group is in talks with stockbroker Execution about creating a joint venture as it plans to build a sizeable presence in the UK equity broking market, the Times said.
Cocos – credit market classics?
”Cocos” has become the user-friendly name for a new type of hybrid bond created to help UK bank Lloyds raise money from investors to break away from a government insurance scheme for bad loans.
This nickname seems to have caught on in financial circles as it is much snappier than the bonds’ official title: Enhanced Capital Notes.
The name Cocos seems to have derived from “contingent convertible,” which describes one characteristic of these bonds – they convert to equity in certain circumstances.
Coco was famously the first name of French fashion designer Chanel. She was not known for her understanding of the credit markets but she did know a thing or two about fashion and the value of tradition over new-fangledness.
One senior capital markets banker pointed out these comments she made:
“Innovation! One cannot be forever innovating. I want to create classics.”
Some bankers hope Cocos can become credit market classics, but admit that the jury is still out.
UBS and the UK banks shake-up
Some cheering news on an otherwise tough day for UBS - the Swiss bank has bagged key roles for both Lloyds and RBS, as the two British banks agree to a massive shake-up that involves taking 31 billion pounds more of government money. As Victoria Howley and Daisy Ku wrote earlier:
“UBS AG (UBSN.VX) has taken key roles on two landmark deals to shore up British banks — landing the Swiss bank a welcome boost in fees and prestige on the same day it shocked the market with worse-than-expected results.
“UBS is working alongside Bank of America Merrill Lynch (BAC.N) to raise 13.5 billion pounds ($22 billion) for Lloyds Banking Group Plc (LLOY.L) in the world’s largest rights issue.
“It is also working with Morgan Stanley (MS.N) to advise Royal Bank of Scotland Plc (RBS.L) on its participation in the UK government’s Asset Protection Scheme (APS). [ID:nL3540088]
“UBS’s advisory team is led by Alex Wilmot-Sitwell, co-chief executive of the investment bank, and Chris Fox, a managing director in the bank’s London financial institutions group.
“Lloyds is paying 500 million pounds in fees and expenses, of which 190 million pounds ($309 million) will go to the six banks underwriting the rights issue — UBS and Merrill alongside Citi (C.N), Goldman Sachs (GS.N), HSBC (HSBA.L) and JPMorgan Cazenove (JPM.N).
“As joint sponsors and global co-ordinators, UBS and Merrill are likely to earn more than the other four, implying payouts of more than 32 million pounds each.”
DealZone Daily
Mining group Xstrata did not support hopes of a more general M&A rebound on Thursday, announcing it had no intention of offering for rival Anglo American and that it continued to assess a range of alternative growth options. Read the Reuters report here.
OCBC , the smallest of Singapore’s three local banks, has agreed to buy ING‘s private banking unit in Asia for $1.5 billion, a surprise outcome in a complex drawn-out auction.
CIT Group is getting closer to finalizing the terms of a new loan that would give the commercial lender, trying to avoid bankruptcy, $3 billion to $6.5 billion, two sources familiar with the matter told Reuters.
In other news on Thursday:
The British government will not underwrite a planned rights issue by Lloyds Banking Group, the Financial Times said on Thursday.
Japan’s securities regulator is probing allegations of market manipulation in share trading by BNP Paribas, the Asahi newspaper reported.
The founder and other senior officers of hedge fund Cadogan Management LLC, who quit the firm two weeks ago, have now agreed to buy back the business from Fortis Bank, the Wall Street Journal said, citing people familiar with the matter.
DealZone Daily
British Prime Minister Gordon Brown plans to outline a sale of government assets on Monday aimed at raising 3 billion pounds, according to a draft speech provided by his office. The sale will be carried out over the next two years and include betting company Tote and the cross-channel rail link between the UK and France.
In other stories reported by the media on Monday and over the weekend:
British bank Lloyds has lined up a syndicate of investment banks to underwrite a 11 billion pound rights issue, the Sunday Times reports, without citing sources. The deal would be linked to Lloyds’ attempts to reduce its participation in the UK government’s toxic asset scheme.
Barclays is planning to spin off a 4 billion pound portfolio of complex credit assets as its presses ahead with a process to clean up its balance sheet, the Financial Times says, quoting people familiar with the matter.
Chinese state-owned metals conglomerate Chinalco does not intend to tale a stake in UC RUSAL when the indebted Russian aluminium company lists shares in Hong Kong later this year, the South China Morning Post reports. Last week a Russian newspaper had reported that Chinalco may be interested in acquiring a stake in RUSAL, citing unnamed banking sources.
One must wonder if this is as well timed as his sale of Gold from the British Treasury….
In asset management, it’s shedding season
For asset managers, the shedding season seems to have no end in sight.
More asset management units of financial institutions are likely to find their way into the market in the months ahead, as they look to separate distribution from product creation, Jefferies & Co’s financial institution group predicts.
More than two-thirds of global asset management deal activity came from such divestitures in the third quarter, a record level in a three-month period, Jefferies said.
These included deals such as Bank of America’s agreement to sell the long-term asset management business of Columbia Management to Ameriprise, Bank of New York Mellon’s acquisition of Insight Investment from Lloyds, and the purchase by Sumitomo Trust & Banking of Citigroup’s 64 percent interest in Nikko Asset Management.
“As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing,” said Aaron Dorr, a managing director.
There were 38 deals in the third quarter, down from 66 in the same period last year, but disclosed deal value climbed to $4.5 billion from $4.2 billion and managed assets transacted rose to $749 billion from $728 billion, Jefferies said.
Ask Sid if he likes UK banks
If you see Sid, tell him. Tell him his help will be needed to swallow more UK equity than at any time since the flood of privatisations in the 1980s.
That’s the clear message from UK Financial Investments, the body that holds stakes in Royal Bank of Scotland, Lloyds Banking Group and nationalised banks. Those stakes are likely to be worth about 80 billion pounds.
“We will need to innovate, be imaginative in our approach and use the full range of sales methods available to us,” John Crompton, head of market investments at UKFI, says in a speech at Reuters offices in London.
Crompton says nothing has been decided on timing, price and how long the sell-down will take. But UKFI is expected to test investor appetite some time next year with an institution placing of several billion pounds. That could include structured transactions, including exchangeable debt issues.
Once markets stabilise, shares are likely to be offered to retail investors. That’s due to the scale of the disposal, but also to allow the public to share in any profit from the taxpayer led bail-out.
Still, “Sid” — the man on the street used to drum up interest in the privatisation of British Gas — may not be called on for another couple of years. UKFI will be keen to pitch any retail offer into stable markets to avoid repeating the BP share sale disaster, when shares were sold during the 1987 stock market crash. Taxpayers wouldn’t take that kindly.
Deals du Jour
A year on from the collapse of Lehman the newspapers are full of stories reflecting on the bank’s failure. A senior Bank of England official said he was “astounded” the U.S. government let the bank fall, but some might be more shocked by the rapid bounce-back of the stock markets, which is helping big M&A deals come down the pipeline.
For the latest Reuters deals news, click here.
And here’s a round-up of deal-related stories from Monday’s press:
* French Economy Minister Christine Lagarde plans to extend billions of euros of loan guarantees to France’s top banks for another year, and is calling on them to provide action plans on financing the economy, Les Echos reported.
* Tony O’Reilly is ready to give up his controlling stake in debt-laden Independent News & Media, following months of restructuring discussions. As part of a wider plan, bondholders will take cash and shares ahead of a rights issue, the Times of London reported.
* The British Conservative Party is looking at plans to sell shares in Royal Bank of Scotland and Lloyds Banking Group to retail investors, the Financial Times said. Shadow Chancellor George Osborne is examining options to offload government stakes in the two banks, the newspaper said. Reuters story here.
* Britain’s Resolution, an acquisition vehicle founded by tycoon Clive Cowdery, may buy a general insurer as part of its plan to shake up European financial services, Chief Executive John Tiner told the Times.
