Deals wrap: AIG’s $9 billion stock offer less than half of what was expected
American International Group and the Treasury will sell nearly $9 billion in stock as the bailed-out insurer begins its return to public control. This offering is less than half of what had been expected when Wall Street banks offered their services to manage the stock sale in January. The company was rescued in September 2008, receiving $182 billion in bailouts and managed to restructure while preserving two core businesses. At the time, few expected AIG would even exist today.
Professional networking service website LinkedIn is looking to go public, a move that could value the company at more than $3 billion. In this article, NYT’s Steven M. Davidoff explains why certain plans LinkedIn has for its IPO would “not only disenfranchise its future shareholders, but contains elements that have been heavily criticized by corporate governance advocates.”
The impact of AT&T’s proposed acquisition of T-Mobile on competition, pricing and consumer choice will be examined at a congressional hearing, where top executives are scheduled to appear to defend the deal. A successful merger would concentrate 80 percent of U.S. wireless contract customers in just two companies — AT&T/T-Mobile and Verizon Wireless.
Microsoft’s decision to acquire internet phone service Skype for a hefty $8.5 billion was immediately slammed by analysts, who questioned the logic of the deal and suggested the software giant paid too much. Reuters Breakingviews columnist Richard Beales thinks that, in theory, there are potential advantages to the deal but points out how Microsoft’s poor M&A track record and the high price means the transaction is unlikely to ever connect with investors.
Medco Health Solutions CEO David Snow says no biotech company is too big to be bought. He told the Reuters Health Summit he sees major drugmakers needing the growth potential of biotech more than ever.
from Breakingviews:
GM needs to double earnings to repay taxpayers
General Motors' much anticipated initial public offering filing finally landed on Wednesday. But investors shouldn't get too caught up in the hype. Sure, the automaker looks in pretty decent shape thanks to last year's bankruptcy clean-up, and car sales are motoring away from last year's lows. But to repay U.S. taxpayers in full, GM needs to at least double its earnings.
That's assuming the carmaker is valued at the same earnings multiple as Ford Motor. Granted, GM and its bankers could argue that it has advantages over its cross-town rival that may warrant a higher valuation. It has far less debt, for starters. And it has a stronger position in fast-growing China.
But operationally GM is still lagging: the pre-tax margin on its global autos business was 5.7 percent in the second quarter. After years of losses and in a fairly low-margin industry, that's worth shouting about. But it falls shy of Ford's 7.2 percent margin in the same period. There's an even bigger gap of more than three percentage points between the margins the two manufacturers make in the key North American market.
Being generous to GM, assume the company should trade on the same price-to-earnings multiple as Ford -- 6.4 times next year's consensus earnings estimates, according to Reuters. The U.S. Treasury converted $43 billion of emergency loans into a 61 percent equity stake in the revamped GM that emerged from Chapter 11. That means the Motown manufacturer has to be worth about $70 billion for Uncle Sam to break even.
On Ford's PE multiple, GM needs to earn just shy of $11 billion next year to hit the desired target. Extrapolating earnings in the second quarter, GM would make as much as $5 billion this year. But thanks in part to higher commodity prices and other costs expected in the second half of the year, that figure is probably flattering.
If car sales continue to improve GM reckons it can increase production without pushing costs up too much, meaning the bottom line should get a significant boost next year. But it would require a heroic combination of bumper sales and stringent cost control to more than double profit. Until the new GM can prove it's caught -- if not overtaken -- Ford, it doesn't merit a valuation that will make taxpayers whole.
CONTEXT NEWS
General Motors staff has IPO dreams
Ever wonder how General Motors is holding onto its top talent?
After a traumatic bankruptcy and series of federal bailouts, the company still owes billions of dollars to the U.S. and Canadian governments. It lost $1.2 billion in its latest quarter, and only sees a slight uptick in auto sales next year.
The days of banner-year profits and bonuses must seem far off for GM’s executives and finance staff. GM’s Chairman has already said pay caps imposed on companies by the U.S. government’s pay czar make it tough to hire executives.
While other job opportunities are obviously limited in Detroit, and they may have nowhere better to go in the industry, the company’s plans for a 2010 IPO has emerged as a key staff retention tool, one of its top executives said on Tuesday.
In comments to the Financial Executives International Current Financial Reporting Issues conference in New York, Nick Cyprus, vice president, controller and chief accounting officer at GM said:
“I have a tool that my peers don’t have. We have an IPO coming up in the next half-a-year to a year or whatever it takes. That’s a great tool, too. Getting the experience of taking General Motors public again is not only a great tool from an experience perspective and resume builder, but it’s also a great experience in that if things work out well there are potential wealth opportunities. In essence, the taxpayers get paid back and people who have delivered get an opportunity to make some money.”
GM is planning to arrange a revolving line of credit in preparation for an eventual IPO, which would probably be one of the biggest in 2010 if it is able to keep up with its time schedule.
The GM stock owned by prefereds is GMGM.GT..It jumped $2.05 this week with the news of the up coming and better news for GM..What do you think about GMGM.GT???/
That’s Mr. Geithner to you, Jamie…
“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us. We hope you enjoyed the experience as much as we did.”
That’s JPMorgan Chase CEO Jamie Dimon’s biting sense of humor on display yesterday as he read a mock letter to U.S. Treasury Secretary Timothy Geithner before the Annual NYU International Hospitality Industry Investment Conference in New York. Dimon’s sarcastic tone shocked some participants and cheered others, according to sources who attended the meeting.
“I congratulate him not only for his candor but for his wit,” said Mark Grant, managing director of structured finance at Southwest Securities in Dallas. “The fact that Jamie Dimon had the self composure, the sense of humor and the fortitude to make such a statement in public not only made me smile but it reminded me of days seemingly long past when men stood up on their own two feet and played the Great Game with style.”
The Wall Street Examiner, a blog of financial analysis and commentary, characterized Dimon’s remarks in a different light, calling it “the new and taunting face of state capitalism in America. ”
Dimon, a combative executive who took up boxing lessons before he joined JPMorgan, has in the past referred to TARP funds as a “scarlet letter” and also called the $25 billion that the Treasury forced JPMorgan to take as a “TARP baby.”
Dimon repeatedly has said the bank did not want to take the money. However, Wall Street banks including JPMorgan accepted the federal funds last year after the collapse of Lehman Brothers to help alleviate concerns about the health of bank balance sheets.
(Picture of Dimon at Business Council in Dallas by Reuters photographer Jessica Rinaldi; Geithner in China shown in pool photo)
from Photographers Blog:
Tim Geithner : What’s In Your Wallet?
What's in U.S. Treasury Secretary Timothy Geithner's wallet? Not much.
While testifying in front of a House Appropriations Subcommittee on Capitol Hill Thursday Geithner was shown a $50 Billion Zimbabwean bank note (rendered worthless by Zimbabwe's hyperinflation) by U.S. Representative John Culberson (R- TX) and asked if he had ever seen one himself. Geithner immediately pulled a piece of Zimbabwean currency out of his own pocket and showed it off to the committee. At the next break in the hearing I approached Geithner and asked how he happened to have a piece of foreign currency in his pocket. His response was "I often have some foreign currency in my wallet. Want to see?" He pulled a very thin and mostly empty wallet from his pocket.
Amongst many empty slots in the thin weathered leather wallet there could be seen three credit or debit cards with Visa and Mastercard logos (all inserted into the wallet upside down so that the card issuers could not be seen) and an old and yellowed looking identification card of indeterminate origin.
From inside the wallet Geithner extracted a small pile of receipts and paper including a New York City MTA farecard, pointing out that there were European Euros tucked amongst the paper.
Notably not seen in the U.S. Treasury Secretary's wallet? Any U.S. dollars.
Post Traumatic Stress Test Order
A week ago, when the Fed and Treasury mesmerized the financial world with the results of “stress tests” and capital-raising targets for banks, nobody spent much time asking “what if they can’t raise the money?” There was a sense that authorities had washed away enough uncertainty in the sector to satisfy investors. In short order, healthier institutions started raising capital. Those that didn’t need any stepped up efforts to rid themselves of onerous state support.
Bank of America shares are on a tear after the bank raised nearly $13.5 billion through a stock sale. Along with money it raised by selling part of its stake in China Construction Bank, this put Bank of America about half way to filling its stress-test gap.
But when Regions Financial, a large U.S. Southeast regional bank that was stress-tested, announced plans this morning to raise $1.25 billion through stock offerings — also about half of what federal regulators told it to raise — investors balked, sending its stock down more than 8 percent.
Just goes to show that not everybody can fail a stress test and impress shareholders with massive ownership dilution. Regions’ trouble may be that aside from selling stock, it has far less to offer than bigger banks in terms of asset sales to make shareholders feel better about doubling down. If nothing else, the market reaction could put a scent in the air that might interest an acquisition-minded lender needing exposure in the U.S. Southeast. If such a creature exists, it might find many more stressed-out lambs in the U.S. financial pasture.
GMAC, I mean Ally Bank can not raise money, they will call the Treasury, ask for a (many)few more billions. Why do we keep giving this worthless firm anything. Fold it. Many bank already availible to loan. . . Who cares, fake company, fake bankruptcy, fake about everything, makes me sick. Billions down a rathole.
Stress Management
Perhaps the best that can be hoped for from the upcoming week of stress test anxiety is that once it is over, a modicum of uncertainty will be gone as well. Sometime today, we should know how heavy the yardstick used in the tests was. The banks either already know or will soon find out whether they passed, and on May 4, expect all kinds of whooping and hollering outside the Deans’ office when the results are officially posted. Of course, there is a pretty good chance that as the banks find out the test results, the news will find a way out, so May 4 may turn out to be somewhat anti-climactic.
What happens next is still a bit vague. There is much talk about officials force feeding more funds to stressed-out banks. And despite the bad press on shotgun marriages — what with NY AG Andrew Cuomo stomping his feet over alleged pressure applied to Ken Lewis for Bank of America to take over Merrill Lynch — financial matchmakers will certainly look at the failures as prime candidates for synergistic harmonization.
But for the optimist, the market truism that the end of uncertainty is always a good thing could come as a welcome spring break for the troubled financial sector.
(PHOTO: A man hits a punching bag depicting a “boss”, as part of a test to measure his stress level, in a Madrid hotel July 3, 2007. Spanish hotel chain NH organized the promotional event which involved the smashing up of one floor of the hotel before its remodeling. REUTERS/Sergio Perez)
Deals of the day:
* Italian power-grid operator Terna SpA sold a 66 percent stake in its Brazilian unit for 2.33 billion reais ($1.06 billion) to Brazilian power firm Cemig, as it focuses on developing the grid.
* China Huiyuan Juice said it is unaware of the source of news reports that suggested Coco-Cola has resumed discussion with the company.
from Funds Hub:
Blowin’ in the wind
The timing of the Alternative Investment Management Association's hedge fund disclosure initiative indicates just how strong the winds of change are blowing in hedge fund land.
Coming just a day after ECB President Jean-Claude Trichet called the credit crisis "a loud and clear call" for extending hedge fund regulation, the move shows the hedge fund industry feels it must be more active in deciding the future shape of regulation.
The move, which will include regular -- probably quarterly -- disclosure of systemically significant holdings and risk exposure to national regulators, goes further than that suggested at last month's Treasury Select Committee by Marshall Wace chairman and Hedge Fund Standards Board trustee Paul Marshall, who had proposed aggregating data through prime brokers.
"The international agenda is starting to gallop away... We can see which way the wind is blowing and we want to exercise leadership," said AIMA CEO Andrew Baker, adding the proposals had been in the pipeline since early in the new year.
But AIMA's drive to do this also serves to highlight the low number of funds that have signed up to the HFSB's voluntary code -- a fact seized upon by last month's Treasury Select Committee.
AIMA is proposing unifying all the industry standards -- AIMA, the HFSB, IOSCO, PWG and MFA -- into one code. Their fear is that regulators may do this for them.
from Funds Hub:
Saving Hendry? Thanks but no thanks, says Hugh
It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.
And in his latest letter to investors, Hendry has smartly rebuffed any attempt to 'save' him from his bond investments.
The letter in question -- Gregor.us's monthly note, entitled "Saving Hugh Hendry" -- praises the Eclectica co-founder and CIO as a "brilliant and colourful" hedge fund manager who saw the coming storm and took cover well in advance.
But it goes on to argue that the 27-year bull market in government debt, in which Hendry is a big investor, is probably coming to an end:
There are certainly few signs of inflation at the moment. Hendry makes an interesting point that maybe we’ve already had all that inflation that investors are expecting somewhere down the line. But do you think we could be in for the deflationary slump he talks about?
Taxpayer dollars losing appeal?
When the U.S. government started handing out taxpayer dollars to banks under TARP last fall, hundreds of banks lined up. To many, government money was cheaper than the terms they were getting in private and public markets.
“That really, in effect for several months, put a lot of our discussions with issuers really on hold,” said John Duffy, CEO of investment bank KBW, which specializes in the financial services sector.
Now, the pendulum may be swinging away from the government.
The Obama administration has made it clear that the recipients of more capital will have to live under dictates on what they can and cannot do with the money — dividend restrictions, executive compensation caps and such.
And now the private market may be becoming more attractive to banks, despite private equity seeking better terms like asking for a more senior position than just common shares in investments, Duffy said.
“The longer this environment exists, the more there will be capitulation on the part of banks or potential issuers that the government is forcing them to go get that capital,” Duffy said on a conference call after announcing results. “And I think the capital out in the public or private markets is maybe more appealing than the terms attached on the latest government plan.”
(Photo: REUTERS/Romeo Ranoco)
