Deals wrap: Competition for Potash?

Potash Corp mill general superintendent Trevor Berg holds a handful of chicklet potash at a potash holding centre at the Cory mine facilities near Saskatoon, August 19, 2010. REUTERS/David Stobbe   China’s state-owned chemicals group Sinochem has approached Singapore state investor Temasek to join a consortium that may bid for Potash, sources said. It was unclear if this potential consortium will bid to buy a blocking stake or make a full counter offer. *View article

Air Products raised its bid for Airgas to $5.5 billion, the latest salvo in its hostile move on the rival company. *View article

The Justice department is looking into Google’s takeover of airline ticketing software firm ITA Software Inc, to determine whether the deal would exert too much influence on the online travel industry. *View WSJ article *View graphic on Google’s acquisitions

The WSJ takes a look at Berkshire Hathaway’s bid for Wesco Financial. “This begins as a Warren Buffett love story. The intriguing question is whether it ends that way,” reports the WSJ. *View WSJ article *View additional article on the deal

Temasek’s long China play gets short U.S.

TEMASEK/Singapore investment vehicle Temasek cut its losses in Bank of America and ran in the first quarter, dumping a 3 percent stake, for which it took a $3 billion hair cut. Having watched its relatively high-risk investment in Merrill Lynch turn to dust, the Singapore state agency turned to firmer ground: China.

Temasek was among the investors to gobble up a stake in China Construction Bank that Bank of America sold earlier this week as it further drew in its horns from the global recovery story. Sources say the move fits with Temasek’s focus on global companies that aim to grow in Asia, noting that Bank of America is losing whatever global allure it may have bought along with Merrill’s bad assets. Getting a “gentleman’s C” in the stress test doesn’t inspire much confidence either.

However bad things get for Bank of America, it’s hard to dispel the ghosts of China’s policy banking bedrock. Though they will tell you they have been shedding dud assets from their balance sheets for years, nobody is under any illusions about either transparency or solvency of the People’s banking system. That’s not to say such investments won’t pay off. After all, as the axiom goes, no risk, no gain.

Bank of America’s stalwart position in China

FINANCIAL-BANKOFAMERICA/Ordered by the federal government to find $33.9 billion of capital, Bank of America‘s Ken Lewis seemed to be acting the part of the visionary global business hawk yesterday when he detailed plans to retain a large stake in China Construction Bank. “It’s a strategic partner, and we always want to have a very large ownership position,” Lewis said on a conference call hosted by Calyon Securities.

A few hours later, the bank sold a block of 13.5 billion CCB shares for $7.3 billion, according to a source directly involved in the deal. A lock-up period on the block expired last Thursday. The rest of the bank’s CCB stake — about 10.6 percent — is still locked up, and will be until Aug. 29, 2011.

The China investment may be a great long-term opportunity, but Bank of America is facing severe short-term pressure to raise funds, so a lesser Lewis might have admitted he would have sold more if he could have, but his hands were tied. While no doubt making money on the initial investments it made in 2005, Bank of America has been unloading its CCB stake at a discount to market prices since January.

In for a penny…

Merrill Lynch CEO John Thain poses before a news conference in MumbaiSingapore’s Temasek made clear how bullish it is on Merrill Lynch in a Bloomberg TV interview, expressing great confidence in CEO John Thain. The news service reported that the Singapore wealth fund has U.S. clearance to raise its stake in the brokerage to as much as 14 percent. That would be worth roughly $1.7 billion on the open market. Though less if they issued new shares, it would certainly help Merrill deal with the $5.7 billion in write-downs it said it would take in the third quarter, and would probably be worth even more as a sign of steady capital support from its biggest share holder.

Such lifelines are likely to keep pumping funds into struggling Western banks, according to a regional executive at one of the world’s biggest institutional money managers. Hon Cheung, regional director of the Official Institutions Group in Asia at State Street Global Advisors said he expects the funds increasingly to adopt passive investment approaches, given the need to move large amounts of money without disrupting markets. “Their purpose is not to support the U.S. taxpayer or the U.S. economy or to ensure stable global markets. If by doing that, they get a side benefit that’s great. But their principal job is to benefit the stakeholders,” said Cheung. And as these sovereign wealth funds aren’t even really beholden to share holders, they may have stomach for even more stunning losses.

Lehman Brothers has asked three private equity firms to remain in the bidding for its asset management arm even though the investment bank has yet decide on whether to sell the unit, the Financial Times reported. Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital have been told by Lehman that their bids are high enough to go forward, the paper said, citing people familiar with the matter. Although Lehman has not reached a decision, it has been soliciting bids from private equity firms to gauge interest in its asset management arm, which includes Neuberger Berman, the fund manager, and minority stakes in several hedge funds.

Temasek’s strong stomach

temasek2.jpgSingapore wealth fund Temasek may have gotten hold of some bad stuff this year when it bought a 9 percent stake in Merrill Lynch. The stock has lost more than half its value since the purchase was announced in late December. But far from swearing off noxious bank assets, the flush Asian fund says it wants more. And why shouldn’t it? It just doubled its full-year profit by selling assets in local power and its national telecoms and airlines companies, as well by cutting a stake in Bank of China, so the toxicity of Merrill’s share price is not making it sick. Financials grew by two percentage points to 40 percent of its portfolio in the year through March and are likely to grow further, with Temasek saying it expects contagion from the credit crisis to spread. That should keep prices down for a while. Temasek said it will not cap its investments in the sector, but it was mum on whether it was thinking of taking on any Lehman exposure.

India’s largest oil producer ONGC has agreed a 1.4 billion pounds ($2.6 billion) takeover of Russia-focused oil explorer Imperial Energy Corp as it works to secure energy to fuel India’s booming economy. Imperial said ONGC’s overseas arm, ONGC Videsh, would pay 1,250 pence in cash for each of its shares in a deal that could double state-owned ONGC’s proved and probable reserves. This is less than the 1,290 pence approach Imperial said last month it was discussing with an unnamed bidder, which sources close to the matter identified as ONGC. Investors aren’t wholly convinced though, with the shares trading down more than 1 percent this morning after rising sharply in recent weeks on hopes for a bidding war.

Infosys Technologies agreed to buy British consultancy Axon Group for 407 million pounds ($753 million) as India’s second-biggest software services exporter looks for growth beyond an uncertain U.S. market. The cash deal values Axon at six pounds per share, a 19.4 percent premium over Friday’s close of 5.025 pounds and 33 percent over the average price of the last six months, Infosys CEO Kris Gopalakrishnan said. The stock has risen to 611, and Infosys shares have taken a hit as expectations rise another bid will emerge. Altium Securities said in a note it believed there was room for a counterbid closer to 700 pence.

Lehman’s long march

Staff member displays Chinese yuan notes to media at currency exchange booth at Songshan airport in TaipeiAsia’s sovereign wealth funds may be loaded, but they don’t need long memories to recall the big losses they’ve suffered on seemingly sure-thing investments in Wall Street’s troubled banks. So with reports that Lehman Brothers came up empty in efforts to win funds from top Chinese brokerage CITIC Securities and state-owned Korea Development Bank, it’s anybody’s guess where it will come up with the cash it needs to deal with an expected $4 billion in writedowns before announcing results in September.  

The path most traveled heads further east, to Singapore and the gulf, where investors could be equally, if not more gun-shy given the news flow. A ray of hope could shine from Singapore though. State investment firm Temasek said it was prepared to plunk more money into Western banks. An Singapore sling couldn’t come at a better time. This morning, Citi’s Prashant Bhatia became the latest big bank analyst to warn on Lehman and fellow investment banks Goldman and Morgan Stanley, lowering third quarter estimates for all three, and The Wall Street Journal says the Fed had called Credit Suisse last month to see if it had pulled a credit line from Lehman, acting to prevent a repeat of the cascading speculation that helped sink Bear Stearns.

U.S. private equity investor Lone Star is buying the rump of lender IKB, Germany’s most prominent casualty of the subprime crisis. The sale by state bank KfW closes an embarrassing and costly chapter for Europe’s biggest economy. IKB nearly collapsed a year ago under the weight of $24 billion in investments linked to risky U.S. home loans, making it Europe’s first major victim of the global financial crisis. The government brokered the first of three rescues to avert what the country’s banking watchdog warned could trigger Germany’s biggest financial crisis since the 1930s depression. But as the cost of the rescues spiraled towards 10 billion euros ($14.8 billion), Berlin started looking for a buyer.

Owning Merrill

wallst.jpgFresh capital from wealth fund Temasek Holdings may do plenty to clean up Merrill Lynch‘s balance sheet, and has the potential to boost the Singapore wealth fund’s stake in the struggling investment behemoth to 15 percent. That could be an uncomfortable level for U.S. politicians, and breaches a previously informal agreement to refrain from owning more than 10 percent of Merrill, according to a source familiar with the fund. A Temasek spokeswoman said on Tuesday that a portion of the deal is subject to regulatory approval. Citigroup is the other big U.S. bank to have gone to foreign wealth funds for big buckets of bail-out funding. If it ends up having to take more CDO-related write-downs to match the new bargain basement price one assumes Temasek is paying for its new stock of Merrill shares (they aren’t saying what the price might be) this whole thing could turn very political just as the race for the White House enters the final stretch.

British Airways says it is in talks with Spanish carrier Iberia about a potential all-share merger, sending shares in the UK airline up nearly 9 percent. Britain’s flagship carrier said in a statement the discussions had the support of both companies, although it expected it would take several months before terms could be agreed. BA’s chief executive, Willie Walsh, said the move made sense in current market conditions. BA owns 13.15 percent of the Spanish carrier, while Iberia has taken a 2.99 percent direct stake in BA, on top of exposure to a further 6.99 percent through contracts for differences linked to the BA share price. BA said both parties were confident of securing regulatory approval, adding that the European Union had already allowed the duo to cooperate widely.

Other deals of the day:

* Japanese TV and media group Tokyo Broadcasting System said it would spend $195 million to buy a majority stake in retailer StylingLife Holdings from Citigroup‘s merchant banking unit in Japan.

The Big Sale at Ford

Logos of the carmakers Jaguar and Land Rover are pictured during the first media day of the 78th Geneva Car Show at the Palexpo in Geneva

 Ford‘s soon-to-be-signed sale of Jaguar and Land Rover to Tata Motors could bring in as much as $2.65 billion, according to local TV, or $2 billion according to the FT. Though the stage appears to be set, a Tata Group spokesman told Reuters discussions were ongoing. Tata Motors, India’s top vehicle maker maker of trucks and busses, received union backing for the deal and was named the front-runner in January by Ford, which is seeking to shore up its balance sheet and reduce debt.

JPMorgan‘s revised takeover offer for Bear Stearns is a “high risk transaction,” Punk Ziegel analyst Richard Bove said after JPMorgan boosted its all-stock offer five-fold to about $10 a share. “What is most disturbing about this deal is that it uses a great deal of Morgan capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that is best described as sclerotic,” the veteran bank watcher wrote in a note to clients. “Investors believe that JPMorgan is underbidding for Bear Stearns… I do not. … Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out.”

China’s state-owned aluminum giant Chinalco - which teamed up last month with Alcoa to buy a $14 billion stake in Rio Tinto - may spend more than $4 billion this year on acquisitions at home and abroad, according to the South China Morning Post. That’s no great pile of investment. BHP has bid $147 billion for Rio. Though the company did not specify targets, it said non-ferrous metals would be the main focus.