Norway's $420 billion oil fund is rattling the cage of some of the foreign companies in which it has invested. As a shareholder it deserves praise for putting its head above the parapet. But as a sovereign wealth fund it is treading a fine line.

Norges Bank Investment Management (NBIM) has been stung into action by a combination of domestic political pressure to account for its investments and heavy losses on some parts of its extensive external investment portfolio.

NBIM has publicly chastised Volkswagen for its plans to take over Porsche assets as part of a cosy merger between the two German carmakers. A detailed letter to VW Chairman Ferdinand Piech, published in full on its website, doesn't mince words.

The fund's list of gripes is pretty long, ranging from conflicts of interests, a lack of transparency, questionable financial and strategic logic for the deal to concerns about the treatment of minority shareholders.

NBIM's intervention may well be too late to have any effect on the outcome of the planned tie-up. Only legal action by the fund, which had a 0.35 percent stake in VW at the end of 2008, could prevent the deal.

Nevertheless, the VW letter goes further than NBIM has before in openly criticising one of the companies in its extensive portfolio of 8,000 equity investments. This is unlikely to be a one-off, as NBIM is attempting to raise its profile.

At a presentation in London last week it laid out the tools it has at its disposal for achieving its goals. These include dialogue and engagement, contact with regulators, proxy voting, shareholder proposals and legal action.

NBIM has used this to good effect in the case of Constellation Energy  where it managed to block a unit of Warren Buffett's Berkshire Hathaway from taking over the energy group by successfully postponing a shareholder meeting. And it is seeking a change in bylaws at four U.S. companies where it is demanding the appointment of an independent chairman.

A similar tactic at Sara Lee Corp resulted in a change to the U.S. consumer goods and food group's rules. On one level, NBIM should be applauded. Its actions are precisely the kind that large institutions should be taking to ensure the companies they own are governed properly. This is a duty that many shareholders failed to perform in the past.

In the U.S. activist investors such as Calpers -- the country's biggest public pension fund -- have been doing this for years.

However, NBIM's position is complicated because it is the arm of a sovereign government. Agitating for change at foreign companies leaves it open to accusations that it is interfering inappropriately in the affairs of other countries. That charge has mostly been levelled at sovereign wealth funds (SWFs) from the Middle East and Asia that have taken high-profile stakes in Western companies.

NBIM, which is far more transparent than most other SWFs and based in a neutral Nordic country, has a more credible claim to be a dispassionate investor rather than a tool of Norwegian foreign policy. Nevertheless, it should not be surprised if its activism is met with a backlash.

Nobody hates cars as much as the car industry does these days. The business is crippling some of its biggest players and behold the dearth of industry names queuing up to buy other automakers.

Opel in Germany is being sold yet are Volkswagen, Porsche, BMW or Daimler anywhere to be found? Spot the empty parking lot.

Without the Chinese, auto sector M&A right now is about as exciting as a 1981 Yugo.

Some makers still have money though, so what has everybody racing to get away?

Bad experiences, in part.

The last really big deal where two car companies merged was DaimlerChrysler in 1998. It’s best remembered this way: Spent a lot of dimes, did a lot of crying. Disaster and divorce. 

A great article written years after the deal revealed telltale signs of the troubles in store for that marriage when even the order of the name – which should go first – threatened to break up the talks.

But good old fashioned sectoral M&A is being thwarted by something more than good old fashioned fear and loathing. It’s self-loathing. The industry’s top names have already gobbled up the companies they wanted – Jaguar, Lamborghini, Bentley.

U.S. and European makers are all out of love partly because their long established businesses at home are not making the big bucks. What they want now is emerging market growth, China preferred.

Just look at the reform plans of General Motors. Keep Buick, kill Pontiac. This was an astounding choice from a U.S. marketing perspective.

Pontiac has trounced Buick in U.S. sales forever. Cool people drive Pontiacs, or at least people who used to be cool. Burt Reynolds drove a Trans-Am in Smokey & the Bandit in 1977 and the tyres are still hot.

On the other hand, if you have an uncle who wears white shoes and belt and likes to make out he’s well off but isn’t, he drives a Buick.

He’ll tell you it’s just like a Cadillac. And you’ll ask ‘Then why didn’t you buy a Cadillac?’ He’ll try to avoid saying because he couldn’t afford one. And your mother will ask why can’t the family just get along.

But Buick is GM’s big badge in China, and that’s where it is placing its bets. Why aren’t German carmakers buying German carmakers and Americans U.S. ones? Because they don’t want to be in Germany or the United States, they want to grow abroad.

Don’t be fooled by Fiat. Yes it now has a stake in Chrysler, but it came to the table empty handed. The Obama Administration needed a “front” – an industry buyer to feign deep faith in the future of Chrysler – to make it politically feasible for it to fork over the billions in taxpayer money needed to keep the maker of Dodge trucks on life support.

Fiat boss Sergio Marchionne saw this and stepped forward. He similarly had his eye on European government funding when he put up his hand for Opel. You guys pay and I’ll own it. You have to give the guy credit.

It’s tough under such terms to think of these deals as strategic industrial tie-ups, they’re purely opportunistic. And the Germans at least realised this and thought better of doing a deal.

Fiat, not having sold one of its brand in America since 1983, now returns to a vastly different market from the one it fled from in despair.

If they thought it was tough back then, just wait until they try selling in a market where the Japanese have plants churning out cars and trucks across the country and the South Koreans, a complete non-entity before, now sell about 700,000 cars a year.

European whispering about how Fiat might “introduce” small cars to America misses out the last 35 years of change in the U.S. market.

Which is a good place to turn to the Chinese, who currently are not missing out on anything.

By the time Fiat sells its first car in Ohio, Chinese ships will be docking full of smaller, cheaper rival models that will drive Fiat into the weeds. There’s a chance the Chinese ships could outnumber the Fiats that get bought.

The Chinese have taken years gearing up. They bought the UK’s MG-Rover, want GM’s Hummer SUV maker, and are now eyeing an indirect slice of Saab.

More importantly, they have partnered at home with all the big names – VW, Ford, Daimler, GM, Hyundai – and that has fostered expertise that sets up the next phase of growth – exports of their own brands such as Chery, Geely and Changan.

You may not know these names now, but you will soon. No American knew what a Daewoo or Kia was 10 years ago either. The Chinese will put the wind up the Americans, Europeans, Japanese and South Koreans. India also risks being left behind in its similar yet still nascent dream of dominance in the cheap auto export market.

A good rule of thumb is that any nation that can build nuclear plants, rockets and submarines can export a passable hatchback.

Russia hasn’t, that’s true, but China has one critically important advantage – the ardent desire of Western and Asian firms for a slice of the massive Chinese market.

There’s a quid pro quo there that’s likely to clear the way for more Chinese takeovers and their inevitable export push.

U.S. and European companies want partnerships and a nod for access in China, and in return will tell Washington and Brussels it’s cool with them if Chinese firms come knocking.

China’s makers are about to and the appetite of global automakers for Chinese takeaways is already plain to see.

This post was written by Jason Neely.

Highlights from this week’s Thomson Reuters Investment Banking Scorecard:

·Nine Consecutive Weeks of IPO Filings in the US
Since late June, 32 Companies have filed to go public on US stock exchanges, marking nine consecutive weeks of IPO filings and the longest streak in over a year.  Notable names include Hyatt Hotels, Dole Foods, Dollar General and Ancestry.com.

·US Debt Capital Markets Activity Breaks Even
The volume of new debt offerings from US issuers totals $1.5 trillion for year-to-date 2009, exactly even with volume last year at this time.  US High Yield activity is up 139% over 2008 levels, totaling $72.4 billion from 166 offerings.

·Porsche-Volkswagen Tie-up Boosts M&A Rankings
As Porsche and Volkswagen prepare to merge operations, eight investment banks secured advisory roles in the transaction, boosting worldwide M&A rankings.  Most notably, Citi moved up one spot to third, while UBS moved to seventh from ninth.

·Switzerland Sells 9% Stake in UBS
The Swiss government sold a 9% stake in UBS on Thursday, raising $5.1 billion in proceeds and topping the week’s list of biggest equity offerings.  European follow-on common stock activity totals $125.1 billion, a 15% increase over last year at this time.

·Investor Group Raises Stake in Cathay Pacific Airlines
An investor group comprised of Air China and Swire Pacific acquired an additional 14.5% stake in Hong Kong-based Cathay Pacific Airlines in a deal valued at $948.2 million.  Year-to-date, Hong Kong target M&A totals $14.1 billion, a 76% decrease from 2008.

·Japanese Lending Down 1% from 2008
Taisei Corp, a Tokyo-based construction and engineering concern, secured a $1.6 billion revolving credit facility via Mizuho and Mitsubishi UFJ Financial Group, bringing Japanese syndicated lending activity to $168.9 billion, a 1% decline from last year.

    Rexam is delivering a nasty surprise to its shareholders, but the logic of its proposed rights issue is hard to fault.
    If trading turns out to be as bad as the board expects, then the penalty payments for refinancing its existing debt will far outweigh the cost and dilution of the issue.
    Broker Oriel Securities reckons the cost to Rexam if it loses its investment grade rating will be an extra 8 to 12 million pounds a year in interest payments.
    Businesses everywhere are rediscovering the joys of equity, as the way to stave off the dreaded downgrade. So far this year, shareholders have put up $119 billion, according to Thomson Reuters data, with $28 billion more due.
    Even cash-rich carmaker Volkswagen is reported to be considering issuing shares to bolster cash reserves and pre-empt any ratings downgrade relating to its merger with Porsche. Spanish utility Iberdrola and French construction groups Lafarge and Saint Gobain all took similar steps to bolster their ratings.
    Unfortunately, credit ratings agencies are so jumpy about regulators and the risks of legal action by investors that companies can't always bank on such moves working.
    Saint Gobain launched a rights issue, but still S&P cut it to BBB from BBB+. Lafarge did worse. Fitch not only cut its rating to BBB-, it added a "negative outlook".
    One reason ratings have increased in importance is that as banks have turned off the taps, companies have turned to the bond markets, allowing the agencies like Moody's Corp and McGraw-Hill's S&P to cash in.
    Experience has taught them caution, however, and the number of issues downgraded from investment grade to junk is on the rise. The threat of this -- with the higher cost of borrowing and reduced market access it brings -- is a powerful incentive to go to the shareholders. S&P has identified 75 issuers -- with $255 billion of debt -- in danger of losing their coveted investment grade.
    The unhappy experience of Rexam shareholders is likely to repeated many times as the debt crisis unwinds, but at least it's better than losing control of the business to its lenders.

Porsche's chief executive Wendelin Wiedeking may have been persuaded to leave in order to ease a merger with Volkswagen, but there are still major hurdles to overcome before the sports car maker finally emerges from the pits.

Wiedeking is paying the price for his disastrous plan to take over the far larger carmaker, which left Porsche with a majority stake in VW but saddled with debts of 10 billion euros ($14 billion). His departure marks a crucial turning point in a bitter power struggle between VW Chairman Ferdinand Piech and his cousin Wolfgang Porsche, chairman of the family firm.

    Wiedeking's exit ultimately paves the way for Piech to
install his own lieutenant to run the sports car maker instead
of Wolfgang Porsche's golden boy Wiedeking, who brought it back
from the brink of bankruptcy in 1992.

    But before that happens, the two companies still need to
agree on a structure which will allow them to make Porsche's
sports car unit VW's 10th brand. A merger between the two
companies rather than VW buying the Porsche sports car brand
from the Porsche family holding company is being touted as the
way forward. But although the various parts are gradually being
assembled, a deal could still be some way off.

    As to be expected in this family feud, mixed messages from
the Porsche and VW camps continue. The precise role of Qatar is
still unclear, some insiders are insisting Porsche can go it
alone with a financial boost from Qatar, while VW executives are
confidently predicting  that Porsche will be absorbed into the
larger company.

    Lower Saxony premier Christian Wulff says the German state
will retain its 20 percent stake in VW, with Qatar to take a 17
percent stake -- this would roughly fit with the Qataris taking
Porsche's VW options off its hands. But the crucial question of
how much the Porsche and Piech families would own of a combined
VW/Porsche has yet to be nailed down.

    VW Chief Executive Martin Winterkorn -- Piech's loyal
lieutenant -- says a decision on Qatar taking a stake will be
taken on August 13 by the VW supervisory board. Presumably the
Qataris will want a better idea by then of who they will be
sharing the company with.

    Piech -- grandson of Porsche founder and VW Beetle designer
Ferdinand Porsche -- has made it clear that he wants control of
the Porsche marque and Wiedeking's departure speaks volumes
about the balance of power between Piech and his cousin.

    Sacrificing Wiederking and bringing the Qataris on board may
not be enough to keep Wolfgang in the Stuttgart office once
occupied by Ferdinand Porsche. Piech clearly wants his name on
the door. Given his track record, you'd have to put your money
on him succeeding.

Porsche isn’t the only family-controlled German company that has got itself into a complete pickle bidding for a far larger rival.

    Indeed, if you want a test case of how ambition can land a company in serious financial difficulties, look no further than Schaeffler, a privately-owned ball bearings maker which has
seriously overextended itself following a bid for listed car parts maker Continental last year.

    Despite snapping up 90 percent of Conti’s stock, Schaeffler could easily lose control of its intended prey and may end up being swallowed by it.

    Following the bid battle, Schaeffler holds a 49.9 percent direct stake in Conti. A further 39.36 percent is held by Schaeffler's banks -- Sal Oppenheim and Metzler -- in a sort of warehousing deal to reflect the fact that Schaeffler does not actually have the money to buy the whole of Conti. Schaeffler has signed an agreement that it will not increase its stake above the current level prior to August 2012.

    This leaves Schaeffler in an awkward spot. It cannot consolidate Conti and the two companies continue to be run as separate units in an uncomfortable stand-off. Conti is not paying a dividend, meaning that Schaeffler can only finance the stake out of its own earnings. Meanwhile, Conti’s share price has fallen sharply from the 75 euros Schaeffler paid a year ago
to around 25 euros now.

    Both companies are highly leveraged. Schaeffler has debts of about 11 billion following the Conti takeover, while Conti has net debts of a similar amount -- just over 11 billion -- mostly the result of its purchase of VDO from Siemens. Its debts are equivalent to 71 percent of its enterprise value.

    It is Conti’s high debts which, paradoxically, may allow the target to turn on its pursuer. It must repay 3.5 billion euros ($5 billion) by the middle of next year and intends to raise equity to meet part of this liability. The only alternative would be to sell assets at low prices, which would hurt Schaeffler. There is talk of an equity issue to raise 1.5 billion euros.

    Unless Schaeffler was able to come up with the 750 million euros it would need to follow its money, its direct stake would be diluted. It is hard to see why its banks would invest either -- especially if they are relying on Schaeffler to take them out of their holdings at some point.

    Even though Schaeffler’s representatives dominate Conti's supervisory board, it would be difficult for them to torpedo a fundraising unless they had an alternative funding plan. Moreover, a cash crisis at Conti would hurt them very severely.

    Conti seems to be talking about issuing shares at a discount of around 15 percent to the current level. This looks very tight. But were it to do this, and Schaeffler did not invest, its direct stake would fall to 35 percent. And assuming its banks did likewise, the total stake would fall to 63 percent.

    Conti's chief executive Karl-Thomas Neumann, wants to seize the initiative and merge the two businesses. Following the capital raising, Conti’s equity value would be a touch under 6 billion euros. Neumann clearly thinks that would make it considerably bigger than Schaeffler. His proposal would be to push together the two businesses under Conti’s control.

    Unsurprisingly, the Schaefflers do not welcome the idea of being scrunched down in this way. True it would give them access to a listing, synergies from the merger and the possibility of repaying some of their heavy debts. But it might also deprive them of control.

    They are wriggling on the hook. They seem to believe, with the advice of JP Morgan, that their private company has an equity value of some 10 billion euros. On this basis they have rejected Conti’s advances.

    Meanwhile, Schaeffler is trying to get to grips with its own debts, hiring restructuring experts Houlihan Lokey to help out. It has bought itself some time with a 1 billion euro bridge loan.

    The outcome is likely to be decided by the bankers. And here it looks as if Conti has the edge. It is taking steps to cut its debt, while pushing for a resolution of the stand-off between
itself and Schaeffler. Meanwhile, Schaeffler looks to be playing for time while trying to stave off a deal by relying on what may be an unrealistic valuation for its own business.

    Conti has recently attacked Schaeffler publicly, accusing it of destroying value and behaving irresponsibly. If the bankers decide they want a deal, it may well be on Conti’s terms.

Volkswagen has called off a round of merger talks with Porsche, a source close to VW Chairman Ferdinand Piech said, adding talks would not resume until Porsche’s financial situation was clear. Porsche preferred shares hit the skids as fears that the financial engineering needed to pull off the deal may be beyond even German know-how.

Despite a healthy sports car business that the holding company says still earns enough to make interest payments on 9 billion euros ($12.19 billion) in net debt, the listed parent of Porsche is reported to be sounding out German state bank KfW about a 1 billion euro loan. Porsche declined direct comment on the report, saying only: “We do not name the banks with whom we negotiate.”

The families that control Porsche have a 51 percent stake in VW and they would like to drive that to controlling interest of 45-55 percent in the combined entity. Analysts have gone to the drawing boards and been able to figure out how Porsche, a 6.8 billion euro company, swallows VW, a 70.3 billion euro company. Accounting for preferred shares and other market inefficiencies, they calculate VW’s actual market cap at as little as 25 billion euros; on a comparable basis, Porsche holds a 14.1 billion euro equity stake.

A little harder to figure may be the politics. The state of Lower Saxony holds a potentially deal-blocking stake in VW, and there’s a bit of bad blood sloshing about in there. So even if VW becomes more affordable for Porsche, its ability to jump-start the deal could still need more German engineering.

Other Deals News:
* A Grupo Mexico SAB de CV unit formalized its $1.55 billion offer for bankrupt U.S. copper miner Asarco LLC by filing its own proposal for Asarco’s reorganization in a Texas court.

* China’s top economic body has approved state-owned Minmetals’ agreed $850 million deal to buy debt-laden Australian miner OZ Minerals Ltd, bringing Minmetals a step closer to completing the transaction.

* Japan’s Daiwa Securities SMBC said that it would buy a financial advisory unit of Britain’s Close Brothers Group, as Japanese investment banks rush to sign cross-border deals.

AIG plans to float its Asian crown jewel, Volkswagen halts talks with Porsche, Nomura hires for a massive push in U.S. equities, and more. Here are the latest deal-related stories:

AIG to launch IPO for Asia crown jewel

Volkswagen halts tie-up talks with Porsche

Nomura hires for massive U.S. equity push

Cubs’ offer won’t be voted on next week: sources

Babcock & Brown infrastructure fund gets acquired

China pension fund plans foreign PE deals: sources

China government OKs Minmetals’ OZ Minerals deal

Daiwa SMBC to buy unit of Britain’s Close Brothers

Whitehaven says to drop merger deal with Gloucester

Metro to present Karstadt deal outline: sources

And in Europe’s morning papers:

* Hedge fund manager Noam Gottesman, co-chief executive of GLG Partners Inc (GLG.N), plans to move to New York from London to build up the fund’s U.S. assets, the Daily Telegraph said.

* Alan Miller, former fund manager at New Star, plans to launch two new funds in a joint venture with Alexander Spencer Churchill, the Daily Telegraph said.

* Britain’s Financial Services Authority is investigating potential insider dealing in shares of pub companies Punch Taverns (PUB.L) and Enterprise Inns (ETI.L), the Daily Telegraph reported. Reuters story here.

* Societe Generale (SOGN.PA) CEO Frederic Oudea has said that further writedowns are possible at the bank, depending on market conditions, Le Parisien newspaper reported. Reuters story here.

The timing could have been better for the luxury car show at the World Financial Center in New York, home to Merrill Lynch & Co.

The Motorexpo opened on Monday — the morning after Merrill employees were shocked to hear their company was being bought by Bank of America, marking the end of the storied name in American finance.

Nikki Gold, a promoter for the Motorexpo, handing out brochures at the entrance to Merrill’s headquarters, said “A lot of people are in a really sour mood — the people you expect to take the brochures aren’t taking them.”

Those who did take the brochures joked about it, she said.

“They say things like: ‘Good luck with the Expo!’, ‘Don’t know if I can afford this now’, ‘We’ll see if we have a job tomorrow’” she said.

The Motorexpo features Aston Martins, Bentleys and Porsches — but the luxury cars weren’t getting much attention on Monday as Merrill employees were very much focused on other things.  

Fresh from having announced the end of its leasing programs, Chrysler Financial’s credit line is shrinking. The 20 percent cut in its credit facilities to $24 billion makes plenty of sense, given their downsizing, and on Friday it said its lenders were happy with the move to drop leasing. But The Wall Street Journal says Chrysler couldn’t actually get the whole $30 billion. It also says the automaker is paying a far more chunky 1.1 to 2.25 percentage points over Libor on different parts of the funding, from 0.3 to 0.5 percentage point on its borrowings a year ago.

Labor issues are a whole lot more dangerous to a deal in Germany than most other Western economies. So when Volkswagen’s senior labor leader says talks to agree on workers’ rights in Porsche’s new holding company are in danger of collapse, it’s probably time to check the engine. Responding to accusations from his Porsche counterpart that VW labor was blocking a deal, Bernd Osterloh said Zuffenhausen-based Porsche aimed to create a two-class system in which 12,000 Porsche employees outranked VW’s massive workforce. “If the 360,000 men and women working in the Volkswagen Group were of the opinion that a labor contract has to be terminated, Porsche representatives in the holding’s works council could then prevent this, according to the plans in Zuffenhausen,” he said in comments sent to Reuters.

Other deals of the day:

* Australia’s biggest port and rail operator, Asciano, rejected an unsolicited private equity bid worth around A$2.9 billion ($2.7 billion), saying the offer undervalued its business.

* Dutch food group Nutreco said it bought premix and specialty food company Biofaktory for about 10 million euros ($15.77 million).

* HSBC said it was ready to submit an updated application to South Korean authorities on its bid for Korea Exchange Bank, while a regulatory official said HSBC had been in negotiations to cut the purchase price.

* Russia-focused oil company Imperial Energy said it has received another approach for a possible cash offer for the company.