Spring time for debt in Consol, PVH deals

Apparel company Phillips-Van Heusen agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners in a cash and stock deal for about $3 billion to boost its presence in Europe and Asia. It expects to use $3.05 billion debt, $385 million cash at hand, $200 million perpetual convertible preferred stock and $200 million from a common stock offering to finance the deal and refinance certain other debt.

Consol Energy agreed to buy Dominion Resources Inc’s Appalachian natural gas properties for $3.48 billion in cash, giving Consol a leading position in the growing Marcellus Shale field. It too is going to the debt markets to finance the deal, though for how much exactly is not yet known, Consol’s shares fell more than 9 percent after it said it would issue $4 billion in debt and equity to fund the purchase and development of the property.

Do two deals announced in one day make a trend? Maybe only in a blog, though CNBC’s David Faber also noted the rising use of borrowing. But it is at least probably safe to say that debt finance is appearing healthier than it has in months. With the Federal Reserve expected to say tomorrow it is ready to keep money cheap for months to come, the prospects for more of the same are looking bright.

The afternoon deal: Deciphering Schlumberger’s deal

OIL/Schlumberger’s stock is down, while shares of Smith are up 8 percent. Is Schlumberger’s $11.34 billion all-stock deal for Smith International a bet on gas, a sign of more consolidation to come, overpriced, or a shrewd move?

Here’s what is being said on the Web:

Schlumberger sees gas drill growth in Smith deal (Reuters)
“No doubt, in the long-term, shale gas is going to be one of the big new energy sources in the U.S. and overseas,” Schlumberger Chief Executive Officer Andrew Gould said, “and the capacity to serve that market in North America is of great interest to me.”

Behind Schlumberger’s Smith Deal: A Big Gas Bet (NYT)
“Schlumberger’s $11 billion takeover of smaller rival Smith Industries seems to be a big bet on unconventional natural gas production in the United States,” reports The New York Times.

Keeping score: Exxon-XTO data points

From the Thomson Reuters data team:

    Exxon Mobil’s $40.7 billion acquisition of XTO Energy ranks as the sixth biggest announced worldwide M&A transaction this year and the fourth biggest US target transaction. The deal ranks as the eighth biggest Energy & Power M&A transaction in history and marks the biggest US transaction since Chevron’s $43.3 billion acquisition of Texaco in October 2000.  The $85.1 billion combination of Exxon and Mobil in December 1998 ranks as the biggest Energy & Power deal on record. Worldwide, energy & power M&A totals $330.9 billion for year-to-date 2009, an 18.1% decrease from last year at this time.  Worldwide M&A in the oil & gas sector totals $203.7 billion, a 17.2% increase over last year at this time. In the US, energy & power M&A accounts for 12.2% of overall activity, a 7.5 decline from last year.  Oil & gas M&A activity in the US totals $74.9 billion, a 35.6% increase over 2008. With the announcement, JP Morgan (advisor to Exxon Mobil), moves from fourth place to third place for worldwide merger advisors, with $467.5 billion in announced deals from 299 deals. Barclays and Jefferies (advisors to XTO Energy) rank 10th and 21st, respectively. In the US, JP Morgan remains in third place with $269.5 billion.  Barclays moves to sixth place from seventh and Jefferies moves from 23rd place to 13th.

Bye Bye BJ Services

If the bottom of the cycle has arrived for the oil and gas services business, then Baker Hughes‘ $5.5 billion stock-and-cash deal to buy smaller rival BJ Services may well be the beginning of a broad consolidation in the industry. 

The premium is hardly as juicy as one might expect at 16 percent, given the deal seems such a perfect fit. BJ has a network of faster-growing international operations, while Baker is mostly focused on the big U.S. market. Plus, BJ has attractive high-pressure pumping technology.

But a look at the state of the market shows the urge to merge will probably keep pressure on premiums. Natgas futures are at seven-year lows on soaring inventories and sinking demand, weather forecasters see a mild winter ahead, and economic green shoots are still only at the sprout stage. Just this morning, OPEC voiced concern about rising oil stocks, hinting ominously that it may have to do something about that.