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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DealZone Daily
Wednesday’s top stories:
Japan’s Suzuki Motor will sell a 19.9 percent stake to Volkswagen for $2.5 billion and use half the proceeds to buy shares in the German automaker, as the two firms form a formidable force in the auto industry.
Dutch mail group TNT (TNT.AS) needs to be a part of consolidation in the fragmented European courier market, a new shareholder says, fuelling investor pressure for TNT to sell its express business.
Canadian miner First Quantum Minerals (FM.TO) agrees to buy BHP Billiton’s (BHP.AX) (BLT.L) closed Ravensthorpe nickel mine for $340 million, paving the way to revive 5 percent of world nickel capacity.
U.S. dealmakers expect merger and acquisition activity to pick up in the first six months of 2010, with manufacturing, health care and financial services positioned to benefit most in the near term, a survey says.
In the Reuters Breakingviews corner, Jeffrey Goldfarb says Morgan Stanley’s James Gorman is off to a good start. “In his first big decision as Morgan Stanley’s CEO-to-be, Gorman has surrounded himself with veterans of the firm rather than bring in an outsider. This should help preserve the culture and ease internal fears about Gorman’s pedigree,” Goldfarb says.
For the rest of latest deal-related news from Reuters, click here.
Magnum’s Opel
General Motors may soon get the long-delayed green light to sign over carmaker Opel to Canada’s Magna. EU antitrust regulators have no plans to block Magna’s acquisition of GM’s European arm, a European Commission spokesman said in Brussels, easing fears the transaction could run out of gas in debate over German state aid to the mostly German-staffed company.
Magna hopes to conclude the deal within weeks of signing a contract. That should be that, right? Well, hardly. For one thing, Spanish workers at Opel’s plant at Figueruelas have voted to strike in protest at cuts included in the Magna package. And European politicians say GM and the Opel Trust should have the option of reopening the bidding process.
But the jilted other bidder, RHJ, says it is no longer interested in doing a deal, so going back to the auction block is probably a nonstarter. And with European auto titan Volkswagen saying sales will likely stay stalled next year, the political will to get a deal done is about all Opel has going for it right now. The company is poised to run out of cash by mid-January.
from Breakingviews:
Norway SWF wages lone governance crusade
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.
from Commentaries:
Should Volkswagen demand a Magna Carta?
Magna International seems to be taking seriously threats from Volkswagen to pull its business following the Canadian car parts maker's Opel victory.
Magna's co-CEO Donald Walker is saying that after talking to them, most of his other customers are happy that the car parts group -- which along with Russian backer Sberbank is buying a 55 percent shareholding in GM's Opel -- is able to protect their technologies.
Apparently VW is still unconvinced, so Magna will "finalising the internal procedures" and will have more talks with the German carmaker.
Walker is also stressing that Magna is not looking to compete with its clients but is simply aiming to get a good return on its investment in Opel, reiterating that Magna will remain a parts company.
There seems little doubt that Magna can manage potential conflicts, after all it already builds cars for BMW, Chrysler and Mercedes as well as making parts for Toyota, Ford and VW.
But to say Magna won't be competing with other carmakers once it starts building Opel cars is stretching the point. Why else would you buy Opel if it wasn't to take market share from VW and others?
Deals du Jour
Kraft’s bid for UK confectionary company Cadbury continues to generate headlines. And given the personalities involved, this should not be a surprise. Some of London’s top rainmakers are set to square up against a superstar of the 1980s merger era, Reuters’ Victoria Howley notes.
And here’s a round-up of deal-related stories from Thursday’s press:
* Volkswagen is considering overhauling its trucks business in a move that could herald a tie-up with German truckmaking and engineering group MAN AG, the Financial Times said. Reuters story here.
* Twitter is closing a round of funding that will value the company known for its 140-character, stream-of-consciousness blogs at $1 billion, technology news site TechCrunch said.
* British Airways is interested in rival UK airline bmi and has spoken with bmi’s German owner Lufthansa, BA’s chief executive told the London Evening Standard.
* Steel-to-property conglomerate CITIC Pacific Ltd aims to list in China, joining other Hong Kong-listed top Chinese firms that would like to list in their home market, media reports said.
For the latest Reuters deals news, click here.
from Commentaries:
Investors ignore ratings at their peril
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.
from Commentaries:
Wiedeking Porsche exit paves way for VW
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.
hat Dr. Wendelin Wiedeking nicht mal bei der Siemens Nixdorf Computer AG Paderborn gearbeitet?
VW-Porsche deal stalls
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.
i completely agree with nikkei’s opinion,it will come ture not long time!!!!
Deals du jour
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
