TMT is heating up. Vodafone, the British mobile phone operator, is pondering a bid for T-Mobile UK, while Microsoft has hired Morgan Stanley to sell its digital agency Razorfish. Both stories are in the Financial Times. Private equity group Candover says it has ended talks with potential acquirers, confident it can meet debt covenants. For all Reuters Deals news, click here.

And here’s what other media are writing today.

* Anglo American (AAL.L) is building its defences against a 41 billion pound ($67.74 billion) merger approach from Xstrata (XTA.L) by plotting talks about a major Chinese investment, the Sunday Telegraph reported.

* Switzerland’s UBS (UBSN.VX) is to pay 3 to 5 billion Swiss francs ($2.77-$4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported on Sunday.

* China National Offshore Oil Corp (CNOOC) (0883.HK) and Petrochina are planning bids for a stake in Canadian oil firm InterOil Corp’s (IOC.N) natural gas project that could be worth up to $500 million, the South China Morning Post reported on Monday.

* The potential buyer of General Motors Corp’s (GMGMQ.PK) Hummer division will begin formal talks with Chinese regulators on Monday in an effort to win approval for its acquisition, The Wall Street Journal said on Saturday.

* British train and bus operator National Express Group Plc <NEX.L> has rejected an unsolicited takeover bid from rival FirstGroup Plc <FGP.L>, the Financial Times reported on Monday, without citing sources.

UBS received a temporary restraining order earlier this week against Jefferies and two of its former health care bankers, Benjamin Lorello and Sage Kelly, preventing them from starting work at Jefferies for 30 days. The order also prevents Jefferies from poaching other UBS bankers until July 20.

This is not the first time UBS has gone to court to make sure its employment contracts are honored. The Swiss bank sought an injunction against rival Vestra Wealth last year in London, after 75 of its wealth managers left for the start-up.

The order against Jefferies and the bankers is posted below.

UBS/Jefferies order

(From Sarah Young at Acquisitions Monthly)

This week has seen policy-makers on both sides of the Atlantic contemplate the future of the banking industry.

Yesterday, Switzerland’s central bank joined the discussion. It is one country that truly knows the meaning of too big to fail – the combined assets of Credit Suisse and UBS were last year equivalent to six times Swiss GDP.

The restructuring and M&A activity that would come about should regulators introduce restrictions on the size of banks, or push for the division of investment and retail banking, must have deal advisers’ eyes watering with the thought of the fees that would be up for grabs.

But enforced disentangling of enormous banking groups seems somewhat improbable, or at least a long way off, so for now advisers will have to content themselves with the prospect of heightened disposal activity by banks.

It’s no secret that banks such as Lloyds Banking Group and RBS will consider selling off assets in the coming years to satisfy the conditions of the UK government’s investment – to boost capital and free up lending capacity – in both institutions.

After taking on HBOS, Lloyds has an enormous range of assets that it could divest. Already in the frame is fund management business Insight, previously part of HBOS.

There’s no doubt that there is, and will in the future continue to be, appetite for the assets banks want to offload. There isn’t a buyout firm in sight that isn’t beefing up its financial services team.

Chinese banks, too, could want to acquire some assets. Buying in specific expertise in the investment banking or private banking space would certainly appeal to them.

Asian appetite for European financial assets was shown last month when Japanese investment bank Daiwa Securities SMBC bought the corporate finance unit of merchant bank Close Brothers.

But this deal and the BGI sale are rare agreements in today’s market. As with other sectors, before a wave of M&A in financial services can kick off, there needs to be some accord on price.

As one sector banker said recently: “Price is the biggest inhibitor. At the moment no-one knows what anything is worth.”

Investors have welcomed the prospective £3bn (US$4.4 billion) sale of iShares by Barclays, which gives strong hope that the bank can avoid accepting a UK Government bailout and its implicit restrictions.

Since the deal announcement, Barclays’ shares have risen by 26 percent to 198.8p, their highest point since October, when a rescue £7.3bn financing was arranged with royal potentates from Qatar and Abu Dhabi. These Gulf investors agreed to subscribe for an effective 31percent stake through separate issues at 153.3p and 197.8p. Now, both slugs are “in the money”. However, that cash has not come cheaply.

The £4.3 billion of mandatorily convertible notes, which must be converted into shares at 153.3p by the end of June, receive a 9.75 percent coupon. And the £3 billion of reserve capital instruments pay 14 percent annually, or £420 million, for 10 years. They have warrants convertible at 197.8p.

The iShares proceeds could neatly pay off the holders of the reserve capital instruments. Removing that shackle is the aim of chief executive John Varley, and Barclays Capital boss Bob Diamond in particular. Then dividends could flow freely again. Diamond’s other goal is to make Barclays Capital an investment bank to challenge the few remaining serious players with global scope, such as JP Morgan, Goldman Sachs, Morgan Stanley, Deutsche and the Swiss banks.

The purchase of Lehman’s US advisory business, together with heavy recruitment across the Middle East and Asia, are helping Barclays catch up. But Goldman is extending its lead, after Monday’s strong first-quarter results and $5 billion share sale plans. The money Goldman raises will help pay back US Government funds. Barclays wants to pay off its Gulf rescuers too. However, the iShares sale will only add £1.5 billion net to Barclays balance sheet, bearing in mind iShares’ £1.5 billion book value.

So to pay off the reserve capital instruments and keep Tier 1 capital above the expected 7.2 percent, a higher bid needs to be found. The novel “go-shop” deal structure gives Varley and Diamond until June 18 to solicit such offers. However, a higher bid is unlikely. CVC has offered a generous 10 times historic EBITDA and Barclays is already putting up debt worth 70 percent of the sale price.

Selling all of Barclays Global Investors is an alternative. That could raise £6.73 billion on the same valuation as CVC’s offer for iShares, the smaller but higher margin part of the business.

Reporting by Chris Spink, from Acquisitions Monthly

(PHOTO: A video grab image shows Chief Executive Officer (CEO) of Barclays, John Varley, speaking to the House of Lords Economic Affairs Committee in London March 17, 2009.  REUTERS/Parbul TV via Reuters TV)

Die-hard UBS investors who have stayed with the bank through thick and thin are hoping new boss Oswald Gruebel (sitting) will return the Swiss icon to its former splendour thanks to a bitter medicine of thousands of new layoffs and heavy cost cuts announced on Wednesday.

But their patience is running out.

“The only reason why we are still with UBS is because hope dies last. But if this carries on, we will not tolerate it anymore,” said Blandina Heyne, a UBS investor for seven years, as she and her husband came to attend the bank’s annual general meeting in Zurich.

Both clients and shareholders have turned their back to Switzerland’s largest bank after the crisis forced UBS to post the biggest loss in Swiss corporate history and shares plummeted to historic lows.

Shareholder anger forced former CEO Marcel Rohner to quit in February and chairman Peter Kurer (standing) was giving his last speech on Wednesday before leaving his job after just one year of what some investors say are empty promises.

“When I was little my mother used to read me one of these bedtime stories from the Grimm’s brothers and she said they were the greatest fairytales ever written,” shareholder Rudolph Weber says.  “She got it wrong. It was Mr Kurer who wrote the greatest fairytale.”

Gruebel, a no-nonsense German who once turned around UBS’ rival Credit Suisse, told the shareholder assembly the bank would post yet another loss and announced thousands of job cuts.

“I have been with UBS for almost 20 years and never thought they would disappoint me,” said 68-year-old Christina Sutter.  “Despite all this talk of crisis I always had the impression that UBS’s “Swissness” gave it a degree of immunity.”

 - Josie Cox and Lisa Jucca

(Reuters photo: Arnd Wiegman)

Well maybe not yet, but it was a good week for IPOs, with hopeful signs the market is beginning to awaken from its long slumber.

Thursday’s IPO by Chinese video games maker Changyou.com had a first day “pop” of 25 percent, the strongest debut in a year, making it the third IPO in a row, after Mead Johnson in February and Grand Canyon in November, to do well.

Two more companies, language instruction provider Rosetta Stone and Bridgepoint Education, apparently buoyed by all the advance buzz around Changyou, scheduled their IPOs for pricing in two weeks.

All well and good, but this burst of activity shows what the still-finicky market is interested in as much as what it still avoids: riskier, debt-laden firms that make up the bulk of IPOs in flush times.

In contrast, Rosetta Stone and Bridgepoint, fast growing and profitable, operate in an industry that is faring the recession relatively well, as evidenced by Grand Canyon’s solid performance since its IPO. And Changyou and Mead Johnson were money-making carve-outs of large companies, with well known brands.

Perhaps more instructively, both Changyou and Mead Johnson settled for IPO’s that could have been larger and more aggressively priced.

And as UBS’s Tom Fox, head of equity capital markets for the Americas, told Reuters last week, once more companies accept that lower valuations are now the rule of the day, more will try for an IPO

Analysts and bankers have been saying for months that the recovery will start with a trickle of deals by only the most solid companies, and smaller valuations, if the overall market starts to recover. Judging by that scenario, it sounds like the rebound is underway, but it’s early days yet.
(PHOTO: Vivek Prakash/REUTERS)

With just a few days left, the first quarter of 2009 has been as miserable for the U.S. IPO market as the last few quarters were.

The first three months of the year saw one solitary IPO- a grand slam to be sure, an $828 million (including over-allotments) deal by kids food maker Mead Johnson Nutrition. In contrast, the first quarter of 2008, when IPO flow was already starting to fall off a cliff, had 10 deals yield a total of $20.6 billion.

It was the second quarter in a row to see only one deal, the first time such a six-month drought has happened this decade.

(U.S. IPO investors might find some solace knowing things were even worse outside the U.S.- total IPO volume for the first quarter was $510.6 million on 41 deals, down from $15.4 billion from 150 deals in the first quarter of 2008, according to Thomson Reuters data. Ouch.)

But the Mead Johnson IPO was an anomaly: it was spun off by a well known company, Bristol Myers Squibb, and has robust sales in an industry considered relatively recession proof.

Part of the problem is that some companies are still in denial about how much their IPO can raise, leading them to wait for the better times that are taking a long while to get here.

Here’s what Tom Fox, the head of equity capital markets at UBS told Reuters: “With the markets off by 50 to 75 percent, depending on the sector, there’s a recalibration that has to take place. People have to get used to the levels at which stocks are trading and companies being valued at lower levels. That makes it more digestible to think about going out.”

And even with this week’s rally, the markets remain jumpy. The VIX volatility index is still above 40, far above the 20 range many bankers say is conducive to IPOs.

So his outlook is not very promising: “Our expectation is that the earliest we’ll see a more active IPO market is in the fourth quarter. And that presumes companies are ready to press the button in September or October. But it’s very likely we won’t see a truly active market until 2010.”

Sure enough, there were only three new IPO registrations during Q1 (and only one since the Mead Johnson deal), while 14 companies pulled themselves out of the pipeline.

But one of those new registrations, by Changyou.com, a Chinese online game company being spun off by Sohu.com, is set to price April 1. So it may well be that Q2 will see one deal. But maybe one deal only.

(PHOTO: Foreign tourists near Dakhla oasis in Egypt’s Western Desert, in Sept. 2008. REUTERS/Goran Tomasevic)

They say that if you want to find an outlaw, you hire an outlaw. This may be the thinking behind UBS’s move to put some political muscle into the chairman’s office. The bank, facing a U.S. inquisition over providing sanctuary for wealthy U.S. tax dodgers, says former Swiss Finance Minister Kaspar Villiger will succeed Peter Kurer as chairman. Later this morning, a U.S. Senate panel holds a hearing on offshore tax havens and IRS attempts to get names of U.S. clients from UBS. Mark Branson, chief financial officer of UBS Global Wealth Management, is scheduled to testify.

On Monday, legislators took aim at offshore tax havens in Switzerland, the Cayman Islands and other nations, targeting them for shutdown with bills introduced by Democrats in both chambers of Congress. The whole sordid business has become very public, and very un-Swiss-bankish.

Villiger will have to deal with the scandalous allegation that USB kept its clients’ financial information secret. Given that secrecy is perhaps the biggest marketing plank of Swiss banking, he may find it hard to distance UBS from the political fallout. Perhaps the best he can do is keep secret the details of any deal the bank makes with U.S. authorities.

On Monday, Switzerland’s top justice official met with her U.S. counterparts and said the Obama administration is not interested in escalating a dispute with Switzerland over bank secrecy laws. So a more private sort of arrangement may yet be agreed over coffee and chocolate. But the bill may be steep for UBS, as there appears to be little incentive for Washington to play ball.

Deals of the Day:

* General Motors’ Saab brand has received interest from several potential bidders including China’s Geely Automobile and Dongfeng Motor Group, sources with direct knowledge of the sales process said. But a senior Geely executive said the company is not interested in foreign brands.

* Rio Tinto shareholders are warming to the miner’s proposed $19.5 billion tie up with China’s top aluminium maker Chinalco, Chief Executive Tom Albanese said.

* Royal Bank of Scotland said it plans to sell the retail and commercial banking businesses of newly acquired ABN AMRO China, part of efforts to exit from these operations in Asia.

* U.S. Hartford Financial Services Group is in talks to sell most of its life insurance unit to Canadian Sun Life Financial Inc, Bloomberg reported, citing three people with knowledge of the matter.

* J Sainsbury, Britain’s third-biggest supermarket group, said it has bought 24 stores from smaller rival the Co-operative Group for 83 million pounds ($117 million).

* Private Greek carrier Aegean Airlines submitted a surprise offer to buy ailing state carrier Olympic Airlines, to rival a previous bid from Marfin Investment Group (MIG).

* Israeli flavors and fine ingredients maker Frutarom Industries Ltd said it agreed to acquire the U.S. company Flavors Specialties Inc (FSI) for $17.2 million.

* South Africa’s fourth-biggest bank Nedbank said it is in talks to buy Old Mutual Group’s interests in certain joint ventures in exchange for its shares.

* Australian coal seam gas firm Arrow Energy is considering its position in relation to its stake in and bid for rival Pure Energy Resources Ltd after Pure shareholder Royal Dutch Shell decided to sell to a rival bidder.

(PHOTO: Former Swiss finance minister Kaspar Villiger talks to the media after a briefing in Zurich March 4, 2009. REUTERS/Miro Kuzmanovic)

Embattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.

Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents – estimated to number 250 — avoid paying income taxes over an eight year period.

The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business — of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice — and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .

But it will not pay a penalty. In addition to wining points for its cooperation, Uncle Sam evidently took pity on a bank that has already suffered billions of losses from fixed-income trades and investments during the credit crunch. Halfway down Page 3 of the agreement Reuters found this little nugget:

“In recognition of the current international financial crisis and after consultation with the Federal Reserve Bank of New York, the government will forgo additional penalties.”

Not bad considering the 43-page agreement spells out some seriously naughty behavior.

“Beginning in 2000 and continuing until 2007, UBS, through certain private bankers and managers in the United States cross-border business, participated in a scheme to defraud the United States and its agency, the IRS…”

Maybe the moral of the story is: if you have to get caught, do it during a financial slump.

UBS officials declined to comment on the absence of punitive damages.

(PHOTO: Swiss President and finance minister Hans-Rudolf Merz gestures during a news conference on UBS in Bern February 19, 2009. REUTERS/Pascal Lauener)