M & A wrap: Glencore and Xstrata in mega merger talks
Xstrata and Glencore are in talks over an all-share merger that could create a combined group worth more than $80 billion, shaking up the industry with its biggest deal to date.
Glencore, the world’s largest diversified commodities trader, already owns 34 percent of mining group Xstrata and a tie-up between the two Swiss-based companies — in a deal which would trump Rio Tinto’s $38 billion acquisition of Alcan in 2007 — has long been expected, as Glencore aims to add more mines to its trading clout.
Now that Facebook has filed its hotly anticipated initial public offerings, analysts told Reuters correspondents Alexei Oreskovic and Alistair Barr that the social networking company’s honeymoon with investors may already be over.
Despite the massive IPO, CEO Mark Zuckerberg will exercise almost complete control over Facebook. Here is Zuckerberg’s letter to investors.
The graffiti artist who took Facebook stock instead of cash for painting the walls of the social network’s first headquarters made a smart bet, The New York Times says.
Venture capitalists are flocking to to China, leaving Europe behind, Deal Journal says.
Deals wrap: Nasdaq and ICE sweeten bid for NYSE Euronext
Nasdaq OMX and Intercontinental Exchange (ICE) said they have lined up a commitment to finance their rival bid for NYSE Euronext and have offered to pay a breakup fee if the deal fails to go through. This article from The Wall Street Journal lists the details of how Nasdaq and ICE is plan to sweeten their offer for the exchange even more.
Samsung Electronics is selling its hard-disk-drive (HDD) business to Seagate Technologies for 1.4 billion in cash and stock as Samsung looks to back out from the industry and focus on its core money-making memory-chip business. The acquisition will help Seagate, the world’s largest maker of hard drives better compete with rival Western Digital, which has plans to buy Hitachi’s HDD unit for $4.3 billion.
Leading corporate governance body PIRC is telling Xstrata shareholders ahead of their board vote they should reject the election of three directors nominated by its top shareholder Glencore because it does not perceive them as independent. The world’s top commodities trader is in the process of completing a $12.1 billion duel-listing in London and Hong Kong.
Wal-Mart Stores will buy social media company Kosmix for an undisclosed sum, as the world’s top retailer looks to gain a footing in e-commerce and win over more tech-savvy consumers. Wal-Mart said Kosmix’s founders and team will operate as part of a newly formed group called @WalmartLabs that will create technologies and businesses around shopping online or with smart phones.
Hostilities resume
(Acquisitions Monthly) The past year has seen the return of the hostile bid approach, requiring advisers to deploy their full range of defensive skills to fend off such opportunistic offers, or force the bidders to raise their price.
Finding the right balance between those two goals can be notoriously tricky. In theory, National Express defended itself successfully from a series of approaches this year, initially from transport rival First Group then from private equity group CVC in conjunction with major shareholder the Cosmen family and latterly Stagecoach.
However, this victory looks Pyrrhic. The company’s share price is 25% below the high point it reached during the offer period. Added to that, the board also now faces a disgruntled shareholder base. Hedge funds are seeking quick profits while its largest investor is at strategic odds with the directors and unwilling to support a rights issue.
That is far from ideal. A better outcome has transpired for Anglo American after rival miner Xstrata suggested a merger of equals in late June. Since the latter decided in mid-October not to submit a formal proposal, after a prompt from the Takeover Panel, Anglo’s shares have risen 17%. The company also remains independent.
In a sense, Anglo American was in a strong position. Xstrata’s nil-premium offer was not particularly compelling and Anglo had key South African shareholders that were never likely to support an alternative proposal.
Nevertheless, the opportunistic approach did force investors to assess the relative merits of the two companies’ management. On this occasion, Anglo and its advisers were successful in persuading them to back chief executive Cynthia Carroll’s existing plans rather than those of Xstrata’s Mick Davis. New chairman Sir John Parker was instrumental in this campaign.
That said, Xstrata or another predator could return with a fresh approach next April under the Panel rules.
Keeping score: Withdrawn M&A and private equity buyouts
Highlights from the Thomson Reuters Investment Banking Scorecard:
Corporate M&A loses out …
Xstrata abandoned its $42.5 billon merger with Anglo American on Oct. 15, making it the largest withdrawn transaction this year. Withdrawn M&A has reached $205 billon so far in 2009.
The banks advising both parties would have earned an estimated $150.7 millon if the transaction had gone through. Deutsche, Lazard and UBS each lose a place in the global M&A rankings, falling to sixth, eighth and ninth, respectively, due to the failure. In Europe, Goldman Sachs loses the top spot, falling to third, while Normura drops out of the top 25 from 12th spot.
Morgan Stanley and Credit Suisse take first and second position in the year to date European rankings.
… but private equity scores a hit:
CVC Capital Partners agreed to acquire the Central European operations of Anheuser-Busch Inbev for $3 billion, in a leveraged buyout transaction on Oct. 15.
This is the second largest European private equity backed M&A deal year-to-date
DealZone Daily
Mining group Xstrata did not support hopes of a more general M&A rebound on Thursday, announcing it had no intention of offering for rival Anglo American and that it continued to assess a range of alternative growth options. Read the Reuters report here.
OCBC , the smallest of Singapore’s three local banks, has agreed to buy ING‘s private banking unit in Asia for $1.5 billion, a surprise outcome in a complex drawn-out auction.
CIT Group is getting closer to finalizing the terms of a new loan that would give the commercial lender, trying to avoid bankruptcy, $3 billion to $6.5 billion, two sources familiar with the matter told Reuters.
In other news on Thursday:
The British government will not underwrite a planned rights issue by Lloyds Banking Group, the Financial Times said on Thursday.
Japan’s securities regulator is probing allegations of market manipulation in share trading by BNP Paribas, the Asahi newspaper reported.
The founder and other senior officers of hedge fund Cadogan Management LLC, who quit the firm two weeks ago, have now agreed to buy back the business from Fortis Bank, the Wall Street Journal said, citing people familiar with the matter.
from Commentaries:
If Xstrata is to shut up on Anglo it should say so
Only a week to go before decision time and it looks increasingly as though Xstrata boss Mick Davis has already made up his mind and opted to walk away from making a formal bid for mining rival Anglo American.
Reuters correspondent Raji Menon quotes an unnamed top-10 shareholder in Xstrata saying: "They have pretty much indicated to us that they will be walking away".
This makes sense -- nothing has changed since Xstrata got a "put up or shut up" notice from the UK's Takeover Panel, giving it until October 20 to make a formal offer or walk away for six months.
If Xstrata has indeed made up its mind, it should waste no time in telling investors that it has no plans to make an offer. Why wait?
Keeping score: UK M&A, Asian tech and US debt
Here are the highlights from this week’s Thomson Reuters investment banking scorecard:
Cadbury deal lifts UK M&A to $168.8 billion
The $19.3 billion offer by Kraft Foods for UK confectioner Cadbury lifted UK target M&A to $168.8 billion for the year-to-date period, an increase of 19% over last year. The transaction could rank as the second largest non-government acquisition in the UK this year after Xstrata’s $42.5 billion bid for Anglo American in June.
UBS, which advised on both the Cadbury and Anglo deals as well as the UK government investments in Lloyds Banking Group and RBS, leads the year-to-date UK target league table with $124.6 billion from 21 announced deals.
Biggest week for U.S. corporate debt since May
Bolstered by multi-billion dollar deals in the financial and insurance sectors, the market for U.S. corporate investment grade debt saw its biggest week for news issues since May. Hong Kong’s Hutchison Whampoa topped the list of global debt offerings this week, raising $3 billion in the U.S. markets, while insurers Prudential Financial and Met Life each raised over $1 billion.
JP Morgan holds first place with 13% of the market, while Bank of America has 12.8% of investment grade underwriting in the U.S.
from Commentaries:
Anglo dresses interims up as a defence
Anglo American hasn't yet received a formal bid from Xstrata. But the miner's interim results read very much like a defence document. The highlights alone give a pretty good idea of what chief executive Cynthia Carroll and new chairman John Parker will focus on if Xstrata does eventually pounce. Anglo's case hinges on four things. First, that its plan to cut $2 billion of costs by 2011 is ahead of target. Second, that it is getting on top of its $11 billion net debt, and third, that progress is being made in restructuring its problem child Anglo Platinum <AMSJ.J>. Lastly, Anglo acknowledges that it is an objective to reinstate the dividend. Added to these elements, lest they appeared to have too defensive a flavour, is the promise of growth, largely through its Minas-Rio iron ore project in Brazil and its Los Bronces copper development. Of these, cost savings are a crucial point of contention in the Xstrata debate, with the rival miner's chief executive Mick Davis confident he can squeeze a further $1 billion out of a combination with Anglo, taking the total to $3 billion. Anglo isn't making any promises beyond those already given but the tone of the language -- which includes talk of being ahead on "asset optimisation", procurement and job reductions -- hints that it may be able to find more savings on its own, without handing anything to Xstrata. So far the market seems largely happy to let Carroll stick to her plan -- highlighting Anglo's leading position in platinum, diamonds and iron ore alongside its cost cutting success. But investors might ask more searching questions in the event that Xstrata did come back offering a premium.
from Commentaries:
Friends will find Pac-Man out of fashion
The 1980s revival continues. Music fans have been flocking to see the Human League and Spandau Ballet on their reunion tours. Now M&A aficionados can savour their own mini revival. Yes, it's the return of the Pac-Man bid. Two mid-sized British insurers, Friends Provident and Resolution have revived this gambit, named after a mind-bogglingly dull computer game where the objective is to eat your pursuers rather than be eaten yourself. In M&A, this involves the target of a bid approach (in this case, Friends) turning on the bidder and launching an offer itself. In the case of Resolution there was a certain logic in so doing. Resolution is effectively a cash shell company, which has opaque governance. Its nil premium share for share approach offered little to Friends other than the chance to hand over 10 percent of the combined company's profits to Resolution's management. The proposed nil premium counterbid made little sense (other than to eliminate the 10 percent profit share). But it did at least tease out a slightly more generous bid proposal from Resolution. Pac-Man defences are rare in M&A -- and for good reason. They're wholly unconvincing. If you get a bid for your company, and think that the combination has merit, squabbling over who bids for whom seems to miss the point. At worst it smacks of management self interest. This is not the only reason there have been very few Pac-Man defences. The bigger problem is that they are uniformly unsuccessful. The target never actually gets to gobble up the predator. It is 10 years since Elf Aquitaine's desperate attempt to see off an ultimately successful bid by fellow French oil major Total. The same year, British regional brewer Marston's also used the defence against a bid from Wolverhampton and Dudley Breweries. It too failed. That doesn't stop it from rearing its ugly head from time to time. Pac-Man defences were raised as a possibility for Rio Tinto to turn the tables on BHP Billiton and more recently as a means for Anglo American to round on Xstrata. But generally that's all it is: talk. The Resolution-Friends situation is an unusual one. Resolution is a cash company that is desperate to do a deal, while Friends rejected a 150 pence per share bid from J.C. Flowers last year. There are particular reasons they have ended up in a sort of death embrace. So while the Spandaus may be back in favour, the Pac-Man bid is likely to remain consigned to the archive.
Volkswagen are putting up an interesting version of the Pac-man defence against Porsche at the moment.
Deals du Jour
Despite the sluggish performance of the stock markets recently, there is no shortage of deals to report.
Some corporate finance stories in the newspapers include:
* AIG (AIG.N) has resumed talks to sell its American Life Insurance Co unit to MetLife Inc (MET.N) in a deal that could help the stricken insurer raise more than $15 billion, according to the Financial Times.
* Datang Telecom (600198.SS) is in talks to sell a 20 percent stake to China’s national pension fund worth as much as 3 billion yuan ($428.6 million), China Daily reported.
* CIT Group (CIT.N), the U.S. commercial lender struggling to finance its business, is pressing U.S. regulators to allow it to issue government-backed bonds to allay concerns over its financial health, the Financial Times said.
* Xstrata’s proposed 40 billion-pound merger with Anglo American has effectively collapsed after Anglo’s shareholders rejected the approach, The Times reported.
* Metalloinvest, the Russian iron and steel firm founded by tycoon Alisher Usmanov, has agreed a four- to five-year extension with some creditors on repayment of $2.2 billion in debt, Vedomosti business daily reported.
