RZB value = zero? Markets think so

Emerging Europe’s No.2 lender Raiffeisen International and its unlisted parent, cooperative bank RZB, on Feb. 22 preempted a Reuters scoop and disclosed that they were considering to put their businesses together. This would add to Raiffeisen’s business, currently exclusively in the former Communist part of Europe, a franchise serving large Austrian and international companies and institutional investors. Analysts and investors have been concerned because they can’t easily put a value on RZB’s business ex-Raiffeisen, and many fear they may be put at a disadvantage in the merger. The 21 percent drop in Raiffeisen’s shares makes it possible to quantify this concern. Raiffeisen International CEO Herbert Stepic (L) and RZB CEO Walter Rothensteiner address a news conference in Vienna February 26, 2010. Stepic and Rothensteiner reiterated they had not yet made a decision about a possible merger, but said they thought this was the right step to take. REUTERS/Heinz-Peter Bader Raiffeisen International CEO Stepic and RZB CEO Rothensteiner address a news conference in Vienna. REUTERS/Heinz-Peter Bader

The planned deal – which Raiffeisen and RZB say is still only one of several options – would be implemented under a procedure known as statutory merger in German and Austrian share law. Here’s how it works: Auditors – one for each company and a third, appointed by a court – review the two companies business plans for the next 10 years and from that derive a valuation for each of the two companies. Based on that valuation, they calculate an exchange ratio for the swap of both companies’ current shareholdings into the shareholdings in the new, merged company.

Since RZB already owns 70 percent of Raiffeisen, the new company’s equity value will equal that of RZB (as determined by the auditors) plus that of Raiffeisen’s current free float of 30 percent. Or, to put it the other way round: The free float in the new company will be calculated as:

Value of Raiffeisen free float divided by the sum of RZB’s value and the value of Raiffeisen’s free float

Pending final valuations, RZB and Raiffeisen in a confidential memo obtained by Reuters have put a tentative price tag of 6.1 billion euros on RZB, which they said would equal 1.17 times its book value. The memo put Raiffeisen’s own equity value at 6.2 billion euros, based on a share price of 40 euros – the level it traded at before the possible deal was disclosed. This yields a new free float of:

DealZone Daily

Merger Monday at long last? Spearheaded by British inusrer Prudential buying American International Group’s Asian life insurance unit for about $35.5 billion, the start of the week sees a swathe of deals announced.

Prudential confirms it is in advanced talks to buy the Asian arm of American International Group. The sides are finalizing the terms and financing, which will see Pru launch a $20 billion rights offer.

And others:

German pharmaceutical company Merck KGAA agrees to buy Millipore for around $7.2 billion, including net debt.

DealZone Daily

Top stories:

Schlumberger Ltd agrees to buy Smith International in a $11.34 billion all-stock deal that will boost the oilfield services leader’s revenue to double that of its nearest rival.

Dai-ichi Mutual Life Insurance, Japan’s second-largest life insurer, will sell about 1.07 trillion yen ($11.7 billion) of shares in Japan’s largest initial public offering in more than a decade.

EMI wants to keep ownership of the Abbey Road recording studios, immortalized by the Beatles album of the same name, though it is talking to other parties about revitalizing the site, the Terra Firma-owned music company says.

DealZone Daily

Australian wealth manager AMP Ltd will not seek to extend its exclusive agreement with France’s AXA SA on a joint $11.4 billion bid for AXA’s Australian unit, sources tell Reuters, opening the door for rival bidder National Australia Bank Ltd to start talks with AXA SA.

Shares in Thailand’s Thanachart Capital jump ahead of the announcement of the winning bid for a stake in Siam City Bank (SCIB), for which its Thanachart Bank is the frontrunner. Kaohoon newspaper reports that Thanachart Bank, also 49 percent owned by Canada’s Bank of Nova Scotia, has put in the highest bid of around $958 million for the 47 percent stake, beating HSBC.

In other M&A and corporate finance news reported by Reuters and other media on Wednesday:

DealZone Daily

Three U.S. private equity firms have been shortlisted to buy Morgan Stanley’s more than $1 billion stake in China International Capital Corp, a holding the Wall Street bank has been trying to sell since late 2007.

Kohlberg Kravis Roberts, Bain Capital and TPG Capital are competing to win the chance to acquire a stake in China’s best known and most profitable investment bank, sources tell Reuters.

In other M&A and corporate finance news from Reuters and other media on Tuesday:

DealZone Daily

Shares in Russian aluminium group Rusal fell heavily on their debut, as a broad market slump across Asia and worries over the group’s debt and legal issues dogged its landmark $2.2 billion Hong Kong IPO.

And in other media:

Greece is wooing China to buy up to 25 billion euros of its bonds in its efforts to avert one of Europe’s biggest debt crises, the Financial Times and Wall Street Journal reported.

Private equity groups including CVC Capital Partners and Carlyle are preparing to finance a 5 billion euro bid for German cable provider Kabel Deutschland, the FT reported.  Read the story here.

DealZone Daily

Italy’s Ferrero has ruled out a rival bid for Cadbury Plc, clearing the way for Kraft Foods to complete its 11.7 billion-pound ($18.9 billion) proposed takeover of the British confectioner. Fellow chocolate maker Hershey has already said it has no intention of bidding for Cadbury, so with Nestle already ruled out, Kraft appears on course to complete its recommended bid by the deadline of February 2.

US investment group Blackstone is examining the possibility of entering the UK banking market, its chief executive Stephen Schwarzman said on the sideleines of a conference in Saudi Arabia, confirming earlier reports by Reuters and other media. He said that opening a bank in the UK would not represent a major change in strategy for Blackstone.

And from other media:

CPA Global, the patent and legal services group, is set to complete on Thursday a management buyout financed by Intermediate Capital Group, the Financial Times reported.

DealZone Daily

A negligible 1.5 percent of Cadbury (CBRY.L) shareholders have tendered their stock to Kraft (KFT.N) at the first deadline — as expected, most are waiting for a higher offer from the U.S. food group. Billionaire Warren Buffett gave Kraft an embarrassing slap on the wrist on Tuesday, warning it not to overpay for the British confectioner. His words caused a steep drop in Cadbury shares, as markets discount a smaller chance of the bid succeeding. But then again, Kraft raised the cash component of its offer, while possible rival bidder Nestle (NESN.VX) bowed out of the race.

Singapore’s third-largest lender United Overseas Bank (UOBH.SI) will sell ifs Singapore life unit to Britain’s Prudential (PRU.L) for around $310 million.

And in other media:

An unnamed Russian group is close to buying control of one of Ukraine’s largest steel groups, Industrial Union of Donbass, the Financial Times says.

DealZone Daily

The New Year starts with a massive — though widely expected — deal as Novartis (NOVN.VX) says it plans to buy the rest of eye-care group Alcon (ALC.N) for almost $40 billion. The seller is Swiss food group Nestle, which as it happens is sometimes mooted as a rival for  Kraft’s (KFT.N) hostile 10 billion pound bid for Cadbury (CBRY.L). The British chocolate maker’s shares nudge up 4 pence to above 800 pence after media reports that Kraft is set to raise its offer. But markets were expecting a higher bid anyway.

And shares in Japan Airlines Corp (JALSF.PK) jump 31 percent as the country’s government looks to secure funds to prevent the carrier from running out of cash.

For more on these and other deal-related stories from Reuters, click here.

In other media:

National Australia Bank (NAB.AX) is gearing up for a takeover of nationalised British lender Northern Rock (NRKx.L) and has held a “beauty parade” of potential advisers on the deal, British newspaper The Observer reports.

DealZone Daily

Chinese bank ICBC is in talks to buy a stake in Taiwan’s Cathay Financial, sources say, in a deal that could be worth more than $3 billion.The talks come amid an easing of cross-strait relations between the former enemies, in hopes of boosting both economies and political ties.

In other M&A news reported by Reuters and other media on Wednesday: 

Kohlberg Kravis Roberts and Taiwan financial conglomerate Fubon Financial are among the bidders for Morgan Stanley’s stake in Chinese investment bank CICC, sources say, in a deal that could be worth more than $1 billion.

Government-controlled Brazilian bank Caixa Economica Federal agrees to pay $429 million for a 49 percent voting stake in commercial bank Banco Panamericano to expand in consumer lending.