Deals wrap: VW revving up for shopping spree?
German automaker Volkswagen has revealed it has amassed a $20-billion war chest it intends to use to finance its ambitious Strategy 2018, VW finance chief Hans Dieter Poetsch told Reuters.
Analysts expect the majority of VW’s cash reserve to be used to bid for the 70 percent of German truckmaker MAN it does not already own and to possibly buy the Porsche AG sports car business and Austria’s Porsche Holding. Even with those three purchases, VW would still have money left over.
Bernstein analyst Max Warburton told Reuters the $22.9 billion cash pile Poetsch claimed the company has accrued is “a ridiculous level of liquidity” unless VW aimed to top up its underfunded pensions or pursue M&A plans.
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Rental car rivals Avis and Hertz were also kicking the tires on their respective takeover bids for the Dollar Thrifty Rental Group, according to New York Times DealBook blog contributor Stephen Davidoff. The latest news had Avis Budget Group matching Hertz’s initial takeover offer with their own with Avis CEO Ronald L. Nelson submitting a letter to the Dollar Thrifty board requesting “removing the matching rights, eliminating the break-up fees, and increasing the commitment to secure antitrust approvals” in any future Hertz bid.
Davidoff argues the motivation behind the unusual Avis request signifies “it fears being stuck in a never-ending bidding war in which Hertz is able to outbid the company by one penny every time, safe in the assumption that Hertz still can pocket the termination fee even if it loses.”
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from Funds Hub:
Trust the Cadbury trustee to get a deal
Warren Buffet may think Kraft isn't doing a good deal by taking over Cadbury. With Kraft shares falling, Cadbury's shareholders may not think the deal too sweet either and some disgruntled British consumers may be appalled that a much loved brand will be sold to a non-British group -- and one that sells chocolate symbolised by a lilac cow at that.
But one party is sure to get a good deal: the Cadbury pension fund trustees.
While Cadbury fans are digesting the takeover news, the trustees have lost no time in seeking a dialogue with Kraft to make sure they do get a good deal for the workers they represent. Call it fiduciary duty if you like but be sure pension trustees, used to a sponsor that "stood behind the pension fund for more than a hundred years", will give Kraft a hard and cold look to assess its credentials as a sponsor -- what the pension industry calls in vaguely biblical terms "the covenant".
In theory there is no need for a fight -- Kraft was swift to assure it would honour "the existing contractual employment rights, including pension rights". But did the multi-national really know what this pledge would cost, at least in pension terms?
Almost certainly no, because truth to tell the pension trustees themselves do not know. The fund is waiting for the results of its triennial valuation, which should give an accurate picture of the fund's financial shape. Independent consultant John Ralfe told me he thought trustees could present Kraft with a cash injection bill of £200 million or more.
Whether the assessment of an independent consultant not involved with the scheme in question proves right or not, it is fair to assume this kind of money would still be a small price to pay for the successful completion of a £11 billion deal.
If it turns out to be more, Kraft will still be careful not to antagonise the pension trustees because they may not be able to scupper a deal recommended by the board, but a prolonged struggle could attract the attention of The Pensions Regulator.
Reliance aims big with $12 bln bid for LyondellBasell
Ranked by Forbes as India’s richest man with a net worth of $32 billion, Mukesh Ambani is no stranger to taking risks.
The move by conglomerate Reliance Industries, controlled by Ambani, to bid for bankrupt LyondellBasell is a calculated one. Markets seem to think this is a bargain and investors pushed up Reliance’s stock nearly 4 percent on Monday.
If the deal, which sources say may be worth $12 billion, goes through, it would catapult Reliance into the ranks of top petrochemical makers such as Saudi Arabia’s SABIC, Germany’s BASF and Dow Chemical Co.
The bid comes at a time when asset prices have fallen globally in the wake of the economic crisis but there are still some lingering doubts over whether the worst is over for the global economy.
Reliance hasn’t shied away from making mega investments during downturns.
Last December, Reliance commissioned a 580,000 barrels per day refinery next to its existing 660,00 bpd plant in the western Indian state of Gujarat, creating the world’s biggest oil refining complex just as global oil demand began to collapse.
Reliance has a cash pile of $4 billion and $8 billion in treasury stock that can be sold, so funding is unlikely to be an issue for the company, Macquarie said in a research note ahead of the bid. Bank of America Merrill Lynch is among the advisers for Reliance, sources said.
Slaying Goliath to save the Dragon
In the blue corner – Emirates National Oil Company (ENOC), which recently hired proxy solicitation firm Georgeson to get out the shareholder vote in favour of its $1.9 billion bid to buy out the 48 percent of Dragon Oil it doesn’t already own. (Georgeson say they are the oldest and best shareholder consultancy in the business, and helped engineer a record turnout for the HBOS AGM that approved Lloyds’s takeover of the bank.)
In the red corner – retail investors keen to “Save Dragon Oil”. Armed with a website and a 3,000-page printout detailing of the Turkmenistan-focused oil explorer’s investors…
Congratulations to the operators of http://www.savedragon.com.ENOC‘s bid, which has already been rejected by some of the larger minority shareholders and appears to be based upon what ENOC can afford rather than what is it worth. The bid is opportunistic and seriously undervalues the company.
Noted: Why BHP won’t revisit Rio
The year-long ban BHP Billiton has had on revisiting a takeover of rival miner Rio Tinto will soon end, but it seems as if the moment has passed. Liberum and Investec said earlier this week that most of the synergies were captured anyway by the duo’s iron-ore joint venture. If regulators nix that deal, analysts say a full takeover could be back on — but how that would pass muster if a JV doesn’t is not clear. On Friday, Credit Suisse joined the chorus of disapproval, saying a takeover would cut BHP’s return on equity (ROE) in half. From the CS note:
“We have re-run the numbers on an all scrip BHP Billiton takeover of Rio Tinto at a 30% premium (2.3 BHP shares for each RIO share). We see such a deal as materially EPS dilutive (by 12% even after year 3) and would significantly decrease BHP’s return on equity (from 25% to 12%).
“We do not see BHP making another takeover offer for RIO because: (i) The iron ore JV should capture many of the synergy benefits expected from the possible merger. (ii) If the iron ore JV fails on account of not passing regulatory hurdles similarly then we do not see a takeover receiving regulatory passage. (iii) We do not foresee shareholder support for the deal (and any such deal would use BHP script) with the potential EPS dilution and ROE erosion significant. (iv) Non-availability of sufficient credit facilities.
“We see a reinstatement of the buyback as a more preferable option for BHP shareholders than another tilt at RIO. A buyback of US$18bn in FY11 would be 7% EPS accretive and return gearing to a more normal level of 25% (BHP is debt free by end FY11 on our current forecasts).”
When is this BHP – Rio non-news coverage going to stop ?There is nothing to report. BHP and Rio Tinto aren’t merging.The only possible explanation for more than two years of non-event coverage is that either BHP or Rio Tinto are paying to keep the non-event story alive in the media.
The derision thing
Derisory (di-ry-ser-i) adj. deserving derision; too insignificant for serious consideration.
In lambasting a formal takeover offer from Kraft as “derisory”, Cadbury Chairman Roger Carr has both ratcheted up the rhetoric (an earlier letter to Kraft did not use this term) and struck a tone familiar to connoisseurs of bid battles. Carr, of course, is a veteran dealmaker himself.
UK targets have often found rejecting an approach as “derisory” is just scornful enough, without incurring the wrath of the Takeover Panel. Other approaches to have met with the same brushoff include Macquarie’s 2005 hostile bid for the London Stock Exchange and BHP Billiton’s epic tilt at rival miner Rio Tinto. Over in Ireland, Aer Lingus has decried the advances of budget archrival Ryanair in exactly the same manner.
Still, a bit of bluster doesn’t mean a deal can’t eventually be done at whatever the opposite of a “derisory” price is. WPP, for example, eventually won over market researcher TNS, and brewer Scottish & Newcastle finally melted into the arms of Heineken and Carlsberg.
Kraft’s offer is actually worth less than an initial informal approach because its stock has fallen in the meantime. Monday’s move certainly hasn’t impressed Reuters columnist Neil Collins, who says Kraft CEO Irene Rosenfeld has “pressed the snooze button”.
Can American Capital find a rich suitor?
More consolidation may be coming to the world of private equity lenders. Debt-laden Allied Capital solved its long-standing problems last week when it sold itself to Ares Capital. Rival American Capital, once an S&P 500 component but now struggling for survival, could be the next takeover target.
But some investors wonder if Allied got a raw deal. Ares paid $3.47 a share in stock for a company that had a book value of $7.49 in June. One law firm has already launched a “shareholder investigation“. Similarly, American Capital’s shares trade below $3, compared with a book value of $8.76 at the end of June.
Ares Capital is one of the rare healthy players in the field. It has a strong balance sheet and minimal liquidity concerns, and it has managed to pay a dividend throughout the worst U.S. recession since the Great Depression. For an Allied shareholder used to a continuous flow of bad news, swapping that stake for an investment in a healthy company must seem like a good move.
Like Allied, American Capital has suffered as the recession reduced the value of the companies it invested in. As a result, it’s gotten harder to sell them except at distressed prices. That value reduction is a big blow for a cash-starved company that has already defaulted on $2.3 billion of debt.
Both American Capital and Allied have sold portfolio companies at heavy discounts to their purchase prices. Now with equity markets sharply up from their doomsday-scenario lows in March, American Capital is on an aggressive selling spree. Recently it sold components distributor Imperial Supplies to W.W. Grainger and life sciences equipment maker Axygen BioScience to Corning.
Unfortunately for American Capital, it may not have all that many more companies in its portfolio to sell at decent prices. Its best bet may be to find a healthy suitor for itself so it can return some capital to shareholders before it’s too late.
– Anurag Kotoky
What a joke. Yea all their companies have accurate marks.
They are in default on covenants. The debt holders are in the drivers seat.
Next sell off in the stock market and they will be forced to file. Then Malon can go back to the commune.
Tandberg shareholders take on Cisco
Acquisitive by nature, with a famed M&A team at hand and a couple of different bids already in the market, Cisco Systems is no stranger to stakeholders in its takeover targets trying to get a better deal. So news that investors holding 24 percent of the shares in videoconferencing firm Tandberg have snubbed Cisco’s $3 billion bid shouldn’t rattle the company too much.
A Norwegian analyst figured it was possible Cisco might raise its 153.50 crowns-per-share bid by 11 percent. But investors aren’t nearly as optimistic about Cisco opening up its wallet or a rival bidder emerging. Tandberg shares are hovering at only about a crown above Cisco’s offer price, even after the call to arms from existing shareholders.
The one-month tender period for Tandberg shareholders began on Oct. 9, and Cisco needs acceptances from at least 90 percent of shareholders to fully acquire the company. Analysts say it could opt for a smaller stake if the price for the whole company isn’t right.
from Commentaries:
Schh…Orangina Schweppes bound for Japan
There's an almost palpable sigh of relief in the statement from Blackstone and Lion Capital confirming the two private equity firms have received a "binding offer" from Japan's Suntory for Orangina Schweppes.
It discloses little beyond Blackstone and Lion saying they will only be able to decide whether to accept the offer "once the necessary social, legal and regulatory steps will have been completed".
All that of course involves lots of red tape -- so it may take some time -- but you can be sure Blackstone and Lion will be doing everything they can to speed the process along -- wishing the days away and hoping that their luck holds.
Finding a buyer like Suntory apparently willing to pay somewhere between $2.6 and $3 billion for Orangina at this point in the cycle gives Blackstone and Lion the perfect exit. Suntory could be paying them up to twice 2008 sales and more than they paid in 2006 to get hold of Orangina and its European brands.
The duo crow that since they took over in 2006, Orangina has "achieved industry-leading growth, both organically in its core countries and by expansion into new markets, and through strategic acquisitions of leading brands". Volumes and sales have both risen and Orangina Schweppes is now the second largest producer in Europe's still soft drinks market.
Blackstone's chief operating officer Tony James said last week that the private equity group would look to get out of investments if there was an opportunity for long-term value and noted that flotations are once again a possibility.
That begs the question why Blackstone -- with $28 billion in its coffers to invest -- and Lion have decided to go with Suntory rather than an IPO for Orangina.
Road to fortune or highway to hell?
That will ultimately be the question asked about what kind of a future the German carmaker Opel faces.
Parent General Motors said on Thursday that it indeed wanted to sell a majority stake in the unit to Canadian auto parts group Magna and Russia’s Sberbank, a decision long favoured by the German government under Chancellor Angela Merkel.
With about two weeks to go until a general election in Europe’s biggest economy, this would clearly be a political victory — but the question remains whether it will also be an economic one.
Merkel said that GM’s recommendation — which would see Magna’s Brussels-listed rival bidder RHJ International losing out in the battle that has dragged on for months — is going to be tied to conditions.
Although she said that those conditions would be manageable and negotiable, doubts remain about whether this will be the new beginning the company is hoping for.
“The most meaningful choice would have been a global company that produces several millions of cars (per year), such as GM or a Chinese producer. Magna is not a producer of cars in the classic sense, and I could imagine that some other producers could be upset about the decision. As a consequence, Opel may lose some contracts,” said NordLB analyst Frank Schwope.
“This seems to be a political decision rather than an economical one.”
