Summit Notebook

Skeletons in the closet, sprawling ownership stymie Gulf bank consolidation

Anyone waiting for Gulf banks to consolidate — a long talked about prospect — can forget about it for now.

With debt markets shut, leaving only pricey equity financing, budding suitors are standing frozen, unable to make a commitment.

But the lack of reasonable financing for mergers is not the only obstacle, according to Frederick Stonehouse, head of strategic mergers and acquisitions at Bahrain’s Unicorn Investment Bank .

Valuing the assets of privately-owned banks, the best candidates for consolidation, is no easy task.

“Many of the banks which I feel should be looking for consolidation are unlisted, so how do you value those?” he says.

 And then there is the old, familiar issue of transparency — as in, the lack of it in the region. 

“You think everything may have come out of the woodwork but maybe it hasn’t. You could be going into an institution and paying quite a price for it and then finding that the problems are a lot deeper than you imagined,” he says.

Expect action in Japanese M&A

After falling off a cliff at the start of this year as the global financial crisis gripped, mergers and acquisitions by Japanese companies overseas are likely to pick up again in the second half of this year, according to boutique Japanese M&A advisory firm Recof Corp.

There won’t be a flood of deals, Recof President Hikari Imai says, but the ones there are, are likely to be chunky as Japanese companies expand their frontiers beyond domestic markets where growth prospects are limited.

Geographically the focus is likely to be Asia — China, India in particular and possibly the Philippines or Australia. And the types of companies looking abroad will broaden as well, Imai told the Reuters Japan Investment Summit.

Recof expects Japanese power utilities, paper, food and beverage and retailing firms to look abroad at markets where they can put their advanced technology and inventory control systems to use.

The sort of companies that up till now have been focused on their home base. Driving all of this will be expectations of lack of growth in Japan’s own markets as it climbs slowly out of recession and its population ages — and saturation domestically.

So Imai reckons yen strength and the big drop in stock markets everywhere mean it may be an opportune moment for companies with overseas ambitions.

IBM: No Sun, but there are other fish in the sea

IBM’s Chief Financial Officer Mark Loughridge didn’t have much to say about Oracle’s planned purchase of Sun Microsystems at the Reuters Global Technology Summit.

I don’t see that much has changed in this. They have been partnering for decades. It doesn’t fundamentally change the position” in the industry.

Loughridge also wondered aloud how Oracle was going to handle Sun’s hardware business, given that its expertise is in business software.

I think it’s going to be pretty tough to just announce that you’re now going to be a hardware business. It’s a fundamentally different business… it’s not like you have a track record in managing that kind of acquisition.

As you may recall, IBM lost out to Oracle in the bid for Sun Microsystems. The world first came to know a couple of months ago that IBM and Sun were in exclusive acquisition talks, but those discussions fell through because of differences on deal guarantees and fears of extended antitrust scrutiny. Soon after, Oracle and Sun announced their $7.4 billion deal, and sources told Reuters at the time IBM didn’t know this would happen until the night before the announcement.

Were Loughridge’s comments to Reuters a case of the proverbial sour grapes? Analysts have already said they expect IBM to now be even more acquisitive. Big Blue has the cash to do it and Loughridge said the M&A landscape was “fertile” at the moment, with valuations very attractive.

We looked at acquisitions back in the mid-1990s as opportunistic.

Audio – Kinross in the ‘Sweet Spot’

In the M&A world, this is where you want to be.

Kinross Gold’s CEO Tye Burt said at the Reuters Global Mining and Steel Summit on Wednesday that as far as mergers and acquisitions go, his company is in a pretty good place — there are more deals hitting his desk, sellers are getting more motivated and Kinross, the third-largest of the Canadian gold miners, has the cash to do a little shopping.

While Burt did not expect to be party to one of those huge mega-deals, he did indicate the company was keeping its options open — and was listening for bargains.

Burt was one of the featured speakers at the summit, which continues through Thursday in New York, London and Sydney. The Summit program is in its fifth year, and in 2009 will include top-level executives from  industries and sectors including everything from Infrastructure; to Global technology; to Investing in India, China, Japan and Russia; to Food and Beverages.

The Summits continue next week at the annual Global Food and Agriculture Summit with guests in the U.S. and Asia from March 16-19; and the Funds Summit in Luxembourg on March 17-18.