DealZone

A-courtin’ we will go

Wedding ornamentLike a bad soap opera, the Internet storyline is getting more and more convoluted. The tale so far: Microsoft Corp, spurned by Yahoo Inc, is courting Time Warner Inc to allow a union with Internet division AOL. But Yahoo, which turned its back on Microsoft’s $47.5 billion bid, also wants AOL’s hand. These talks have taken on a new urgency ahead of Yahoo’s Aug. 1 shareholders meeting, a source familiar with discussions told Reuters on Tuesday. How either marriage will work is not immediately clear, but any combination will likely redraw the landscape for advertising on the Internet. So why is AOL so attractive? Both Yahoo and Microsoft view it as beneficial to leverage their positions in the Internet marketplace, where search giant Google Inc dominates. Stay tuned.

But good soaps are not only made in America. It seems the Germans are good at them, too. Tires-to-brakes maker Continental rejected Schaeffler Group’s surprise 11.2 billion euro ($17.8 billion) bid, saying only the family owned firm stood to gain from the offer which was too low. Late on Tuesday, the ball-bearing maker announced the terms of its proposed takeover after winning control of more than a third of Continental’s shares through a web of options organized for it discretely by banks. Schaeffler’s bearings are found in London’s landmark Ferris wheel, the London Eye and it also makes high-precision bearing supports for the U.S. space shuttle and the European launch vehicle Ariane, not that that has any bearing on a deal.

Some suitors, however, do get lucky. Mining company Cleveland-Cliffs Inc said on Wednesday it would acquire Alpha Natural Resources Inc for about $10 billion in cash and stock to expand its coal assets. Stockholders of Alpha, an Appalachian coal producer, will receive 0.95 of a Cleveland-Cliffs common share and $22.23 in cash for each of their common shares when the union is completed. Based on closing stock prices on Tuesday, the deal values Alpha at $128.12 per share, a premium of 35 percent, the companies said in a statement. The combined company will be renamed Cliffs Natural Resources and will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia.

More deals of the day:

** Shareholders of utilities Suez and Gaz de France are set to approve a long-delayed 100-billion euro ($159.5 billion) merger, creating Europe’s second-largest electricity and gas group.

** The Co-Operative Group has agreed a long-awaited deal to buy Somerfield for 1.57 billion pounds ($3.1 billion) to strengthen its position as Britain’s fifth-biggest food retailer.

More Microhooey?

People walk past Yahoo! offices in Santa MonicaThe Wall Street Journal leads with a piece saying Microsoft is preparing a new bid for Yahoo‘s search business that could bring on board media giants Time Warner and News Corp and effectively lead to Yahoo’s breakup. The talks are preliminary and unlikely to result in a deal with Yahoo, the paper said, and although it all seems whimsical, Yahoo shares jumped more than 6 percent in early trade. Yahoo rejected a $47.5 billion takeover offer by Microsoft, and earlier this week questioned whether the software maker was ever serious about a full-scale merger. Carl Icahn, who is running a slate of directors to replace Yahoo’s board and has called for the removal of Chief Executive Jerry Yang, has met with Microsoft, which is encouraging him to press his proxy contest as a way to keep pressure on Yahoo to enter into a deal that would lift its share price, the paper said, citing people familiar with the matter.

British events organizer and publisher Informa said it was considering a 2.15 billion pound ($4.3 billion) bid approach from a consortium of private equity firms, sending its shares 10 percent higher. Informa said in a statement that Providence Equity, The Carlyle Group and Hellman & Friedman had made a bid proposal of 506 pence a share on June 26. “Discussions continue to be at an early stage and there can be no certainty that an offer will be made,” it said. When news emerged last month that the equity firms were working on a bid for the media company, the shares showed only modest gains as analysts questioned whether a deal would succeed in the current tight credit markets.

The markets took down another deal yesterday. Blaming grim market conditions Blockbuster abandoned its $1.3 billion offer to buy electronics retailer Circuit City. Shares of the video rental chain jumped more than 7 percent in extended trade after the news while Circuit City’s shares fell 1.6 percent, after declining nearly 12 percent at Tuesday’s close — hitting their lowest point in two decades. Speculation that a potential deal with Blockbuster would not happen gained ground after Circuit City posted a wider quarterly loss and cut its dividend in June.

Nokia’s Symbianic relationship

nokia.jpgFresh from having Yahoo slip through its fingers, Microsoft‘s plan to leapfrog into Consumerville takes another hit with news that Nokia is paying 264 million euros ($410 million) to buy out other shareholders of Symbian, the dominant player in smartphone software. Nokia says it will dissolve royalty payments for the platform, making it more attractive when compared to Google‘s rival free platform, Android. Symbian’s operating systemis already used in two-thirds of smartphones; Nokia makes 40 percent of all phones sold globally. “This puts a lot of pressure on Microsoft right at a time when they are trying to really push into the consumer space,” said Gartner analyst Carolina Milanesi. “For operators this offers a good alternative to Android.”

British gas producer BG Group launched a hostile $13.1 billion bid for Australia’s Origin Energy, as it seeks to boost its position in Asia-Pacific’s fast-growing gas market. BG is taking its A$13.8 billion all-cash bid, valuing Origin at A$15.50 a share, direct to shareholders after Origin’s board rejected it last month. Origin claimed then that its coal seam gas reserves alone were worth over $15 billion. Shares in Origin, which have surged over 85 percent this year, rose 6.2 percent to a record A$16.48 before closing up 5.8 percent at A$16.42, indicating investors expect an even higher offer. If successful, the deal would be the second-largest foreign takeover of an Australian company after Cemex, North America’s largest cement producer, bought Rinker Group last year for $14.2 billion.

Russian oil major Lukoil bought a 49 percent stake in Italian refiner ERG SpA‘s Mediterranean plant for 1.35 billion euros ($2.1 billion), in a sign of the growing energy ties between Russia and Italy. Lukoil and ERG, Italy’s second-biggest refiner by market share, agreed a joint venture valued at 2.75 billion euros to control ERG’s Isab di Priolo refinery on Sicily. ERG will have 51 percent of the new company.

All aboard the Orient Express

barclays1.jpgJapan’s Sumitomo Mitsui Financial Group may invest about $926 million in British bank Barclays, people familiar with the matter told Reuters, the latest in a string of subprime-hit Western lenders increasingly turning to Asia for funding. Japan’s third-largest bank is also considering a business alliance in Asia with Barclays, which is expected to raise about $8 billion from sovereign wealth funds and other investors and then offer shareholders the right to buy on the same terms. If Sumitomo Mitsui opts to invest it would give the Japanese bank a stake of just over 2 percent. Up to five outside investors are also expected to participate, and backers may include existing Singapore-based sovereign wealth fund Temasek and China Development Bank, plus the Qatar Investment Authority.

Steve Ballmer insisted Microsoft will not seek to make a spate of other Internet acquisitions (Facebook, we’re looking at you) in the wake of its failed bid for Yahoo, according to the Financial Times. “People don’t understand what they’re talking about,” Ballmer said. “At the end of the day, this is about the ad platform. This is not about just any one of the applications.” Meanwhile, over at Yahoo, a spate of executives are reported running for the hills, just as the company is trying to justify its decision to go it alone and to repel Carl Icahn’s proxy fight. Among the departed: Flickr co-creator Stuart Butterfield, whose bizarrely hilarious resignation letter could best be summed up as: “There Will Be Tin.”

The fate of the world’s largest leveraged buyout hangs in the balance ahead of Friday afternoon’s decision by the Supreme Court of Canada on whether BCE treated its bondholders unfairly in agreeing to a $34.8 billion ($34.5 billion) takeover. Ontario Teachers’ Pension Plan, with U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, are offering C$42.75 a share to take BCE, parent of Bell Canada, private.

Chicken-and-egg time at Yahoo

chick.JPGA story in The Wall Street Journal about Yahoo’s “reorganization” plans even as executives are leaving had us wondering which came first, the reorganization or the departures. The cynical might envision two scenarios:

Scenario 1: Yahoo begins hemorrhaging executives the week after it chooses Google over Microsoft. Investors, already mad at CEO Jerry Yang and the board for not cutting a deal with Microsoft, are likely to see the loss of top talent as a fallout. So Yahoo decides to do some damage control by “reorganizing” its various products, such as mail and messaging, into something more centralized, and indicate that as the reason for some six departures this week.

Scenario 2: After failing to strike a deal with Microsoft, and with investors less than thrilled at the Google partnership, Yahoo needs to do something to show the world it’s worth more than $47.5 billion. It dips into a fast-depleting bag of tricks and pulls out, wait, a “reorganization” plan we’ve sort of heard before. Executives shake their heads, worry that may not save the company and that they’re better off as venture capitalists (or maybe they’re considering job offers at Microsoft), and begin deserting.

Getting Sirius

howard.jpgOprah, meet Howard. Reports in the Washington Post and The Wall Street Journal say the head of the FCC will support the merger of XM, home to Ms. Winfrey, and Sirius,  where Mr. Stern holds court, removing the last regulatory hurdle to the long-awaited merger of the country’s only two satellite radio operators. Aides to the FCC chief said he decided to give his support after the companies agreed last week to concessions intended to prevent the new company from raising prices or stifling competition among radio makers, the Post reported.  As of last week there was still some static coming from members of Congress, but with the FCC backing the deal it’s unclear how they will make themselves heard.

In his first public comment on the end of the Yahoo/Microsoft merger talks, billionare financier Carl Icahn, said on Sunday the subsequent deal Yahoo forged with Google “might have some merit.” He had previously said a Google deal should be considered a secondary alternative to the Microsoft offer. “While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it,” Icahn told Reuters. Icahn declined to comment on whether he would continue to press his proxy battle to replace the board of Yahoo.

Belgian brewer InBev warned U.S. rival Anheuser-Busch that it should fully explore its $46 billion takeover offer before doing a deal with Mexico’s Modelo. In a letter that appeared to be aimed at Anheuser-Busch shareholders, InBev suggested that doing a deal with Modelo could impact the value of its $65-a-share takeover offer. Inbev’s Chief Executive Carlos Brito wrote to Anheuser-Busch’s CEO August Busch IV that he was committed to a “friendly combination,” and “we would expect that prior to proceeding with any alternative transaction, especially if your shareholders will not be given the opportunity to vote on it, you would first fully explore our offer and the potential adverse consequences any such transaction could have on the ability of your shareholders to receive our premium offer.”

Game, Google

google.jpgWith Google looking like the big winner after doing an ad search deal with Yahoo, pretty much everyone else involved is looking like a loser. Microsoft will have to take its mammoth war chest and try to find another way to make a meaningful stab at the coveted online ad space — or concede the market altogether. Though Yahoo is waving enhanced revenue and cash flow figures around, the deal is seen as better for Google, which is the undisputed heavyweight champion in ad search and just gets a juicy space to show how mighty it is. “Google has made an enormous gain strategically. This move might well have shut Microsoft out of the online space altogether,” said Sanford Bernstein analyst Jeffrey Lindsay. Speculation is rising that the Yahoo/Google deal could provoke antitrust scrutiny, and Carl Icahn still has his troops massing to oust Jerry Yang and the Yahoo board. But if he had any clout to force Yahoo into a deal with Microsoft, it wasn’t on show yesterday. Did he lose cred, or does he plan to keep fighting? He may say soon, but probably not on his blog.

With signs that its wealthy clientele are growing nervous, UBS has wrapped up a 16 billion franc ($15.4 billion) rights issue. Flows into its wealth management business slowed to a trickle in the first three months of the year, and this is the Swiss bank’s second effort to resuscitate finances ravaged by the global markets crisis. Dieter Ewald, a fund manager at UBS shareholder Frankfurt Trust, said such concerns had prompted him recently to pare back his investment in the Swiss bank. “UBS is handicapped,” he said. “We are worried that wealth management will be hit. We want to see that the new management can bring it back on track, and then we would invest more again.”

Pfizer may bid for Ranbaxy Laboratories, countering a $4.6 billion offer by Japan’s Daiichi Sankyo for the Indian generic drug maker, the Business Standard newspaper said. Ranbaxy’s shares jumped nearly 5 percent on the report while Daiichi Sankyo’s shares dropped 2 percent. Daiichi Sankyo and Ranbaxy are seeking to become a pharmaceuticals powerhouse that sells both branded drugs and generics. The newspaper added Pfizer had held talks with the Ranbaxy founders for a possible acquisition a year earlier.

Wrigley Field deal hits the wall

tribune.jpg A plan to sell the Wrigley Field, home of the Chicago Cubs, has failed to make progress after an Illinois state group said it could not agree to terms set by Tribune Co, the field’s owner. The proposed deal hinged on a plan to sell fans “equity seat rights” which they could then split or trade.

The Chicago Tribune had slightly different take on the story, saying “the state’s efforts to purchase Wrigley Field slammed into an ivy-covered wall Monday when owner Tribune Co. rejected a no-tax proposal.” Regardless of who rejected whom — perhaps the Curse of the Billy Goat is to blame? — it looks like the deal isn’t happening, which could be good news for Internet billionaire Mark Cuban, who has said he wants to buy the Cubs together with Wrigley Field.

A Yahoo employee severance plan meant to protect workers after a merger or change of control should be scrapped, according to a new shareholder lawsuit against the Internet company and its directors, The New York Times reported on Tuesday.The plaintiffs, two Detroit pension funds, and billionaire investor Carl Icahn, who is waging a battle for control of the Yahoo board, have criticized the severance plan as costly and said it was an obstacle to any merger. The lawsuit claims Yahoo could be faced with up to $2.4 billion in potential severance payouts under the plan — which was put in place as the prospect of a Microsoft acquisition was looming, but would also be triggered if Icahn were to take control of the company.

What goes around…

lehman3.jpgLehman Brothers is looking for fresh capital in South Korea, the Wall Street Journal reports. If the investment bank does end up tapping South Korea, it will have taken slightly over a decade for the 1997 multibillion loan from the IMF, backed by Wall Street and the Federal Reserve, to come full circle. The Journal says Lehman is looking to state-run Korea Development Bank and Woori Financial Group as it searches for funds to ward off a Bear Stearnsian crisis of confidence. The IMF demanded strict economic reforms for its money. A South Korean lender, like the Chinese and Arab investors bailing out Citi and Merrill Lynch, might just want a juicier cut.

The best part of waking up is Folgers in your cup — with a side of Smuckers jelly. The maker of Jif peanut butter and Crisco oil said it would buy Folgers from Procter & Gamble for stock valued at $2.95 billion plus the assumption of $350 million in debt. J.M. Smucker & Co also acquired Jif and Crisco from P&G.

Yahoo set its annual shareholder meeting for Aug. 1 in the heart of Silicon Valley, as it braced for a proxy showdown with billionaire activist investor Carl Icahn. Earlier, The Wall Street Journal reported that Icahn would seek to remove Jerry Yang as Yahoo chief executive, citing the company’s failure to reach a merger or partnership deal with Microsoft. Icahn had proposed an alternate slate of directors for Yahoo’s board, but until now had not directly targeted Yang. “It’s no longer a mystery to me why Microsoft’s offer isn’t around,” the Journal quoted Icahn as saying. “How can Yahoo keep saying they’re willing to negotiate and sell the company on the one hand, while at the same time they’re completely sabotaging the process without telling anyone?”

The Yahoo lament

yang.jpgMicrosoft‘s $47.5 billion bid may not have met Yahoo’s price target, but the deal sure had a lot of promise, Yahoo’s Chief Executive Jerry Yang lamented during an on-stage interview at the D: All Things Digital conference. Yang said the software giant appears no longer interested in a full merger. “We did not walk away from that proposal. Microsoft did,” Yang said. This might just be a brave face for Yang, who will need one to face a potentially hostile board filled with activist agitators hand picked by Carl Icahn. Then again, Yang may feel emboldened by reports that Icahn may not be able to muster the votes to change Yahoo’s position. News Corp Chairman Rupert Murdoch, also at the D, was quoted by Dow Jones as saying: “Icahn? That’s not serious. It’s just a lot of helpful noise.”

Royal Bank of Scotland extended yesterday’s deadline for the auction of its insurance arm, which includes its Direct Line and Churchill brands, the Daily Mail reports. First-round bids for Britain’s largest motor insurer are expected to come within days, the paper said. RBS declined to comment on the auction for RBS Insurance, expected to be valued around 7 billion pounds ($13.8 billion). Italian insurer Generali, which had been seen as a strong candidate, pulled out of the running because of the hefty price and RBS’s unwillingness to consider breaking off parts of the unit, sources close to the situation told Reuters.

A member of the founding family of Anheuser-Busch said any talks with Belgian brewer InBev should be based on shareholder value rather than the Busch family’s legacy, the Wall Street Journal reports. The comments signal a hardening of the split within the family, which could embolden InBev to make a bid for the St. Louis brewer, the newspaper said. InBev is weighing an offer that could top $45 billion, the Journal reported, citing people familiar with the matter. “A possible merger is not a family issue,” Adolphus Busch IV, an uncle of CEO August Busch, wrote in a release to the newspaper. It is not “a matter of family solidarity or legacy. It is strictly a matter of shareholder value.”