The Investment Blog from Advantage 'zyaada'

Can conventional media survive yet?

The proposed $30-billion transaction is the fruition of a longtime ambition by Comcast’s 50-year-old chief executive, Brian Roberts, to recast his family-controlled Philadelphia company into a leading producer of movies and television shows and a purveyor of prominent cable and broadcast networks, including the venerable NBC.

Under terms of the deal, Comcast will contribute its entertainment channels, including E and Versus; nine regional sports networks; and about $6.5 billion in cash in exchange for 51% of the new venture, which will continue to be called NBC Universal for the immediate future.

The deal underscores how cable television — not a broadcast network or a Hollywood movie studio — has become the new profit center for media conglomerates.

GE, which has owned the NBC network for 23 years, will reduce its ownership in the company to 49%. The deal sets up GE for a gradual exit from the entertainment business, granting Comcast the right to buy out GE’s interest within eight years. GE placed a value of $30 billion on its NBC Universal businesses.

via Comcast deals to get GE out of NBC

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The Discussion on Citi, BofA results, GS bonuses and JPM’s growth is scheduled on the same Diwali weekend as well..

The ING Sale: Will OCBC grow into a larger Pan Asian role?

ING has sold the Asian private banking business to OCBC, which was having difficulty in growing in Asia but has made rapid strides in expanding in KL and can now focus again on Singapore. The $1.46 billion price ( Sing $ 2 billion) for assets that are not growing is based on the assumed scalability of the asset base of $15-16 billion. The unit was costed for $1 billion for the bank in its balance sheet. The N11 will thus provide a second chance to OCBC to grow.

OCBC has a healthy 60-40 split of interest and non interest income from its current assets ( economic assets or people assets in the case of fee based income) and as expected Q2 income went down with decrease in advisory and other fee based income to S$ 466mn or USD 335 million ( EUR 221 m). Also, interestingly OCBC currently has one of the most healthy cost-income ratios of 34% which can equip it with the necessary depth in absorbing any new costs and continue during the lean times where larger competition from US/Europe/India apart from JPM and GS is unlikely to withstand the current cost of business.

However its Private Banking acquisition may well add to its woes in the region as it has failed to grow beyond Malaysia and Singapore and PB assets may be offshore banking assets domiciled in these other ASEAN countries and even India. OCBC currently earns only 20% of its bank profits or $77 million from Consumer Financial Services where it has been hiding its Private Banking assets presumably. Even in that, as much as $ 10 million is from Islamic Banking in Malaysia (Bank Negara) The transaction adds just about $20 million to OCBC profits and margins may reduce further. However, it looks as if these assets would be lazy and no flight of assets to other competition in the region will ensue whether SocGen or Deutsche Bank

At this stage let me also reiterate that it is important to know that the final price is closer to the author’s estimation for this deal as well as the UBS captive sale, the Satyam sale , the AIG Investments sale, except for the Nan Shan Insurance unit for Life Insurance, Valuation premium is no longer for the selling brand ( Citi BPO assets for over $505 million just a year back) but for real business and real value delivered to the acquirer..The bear phase as always is a euphemism for the opportunity to deliver justice to buyers of economic value over noise)

Fortunately, Julius Baer is happy with its progress in Swiss assets from the acquisition as the Swiss pie is a little more localised and protected by Swiss banking law and does not expose the niche bank to new ( see ING sells Private Banking assets) Julius Baer has paid a half a billion dollars for the Swiss Assets

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We’ve all heard of the original RJR Nabisco KKR nexus, but it is still useful to remind people like us about runaway greed and when premiums on price become untenable. However in the fresh bid for Kraft from Cadbury’s, the opinion that the bid premium should only be dependent on cost savings is a little behind the times.  We all know Kraft and Irene Rosenfeld wouldn’t want to pay extra, but the Nabisco acquirer has one addl piece of knowledge, which they are going to find to be costly in the negotiated / hostile bid for Carr’s Cadbury empire.   Of the $2.7 billion sales in HY2009 (details here) over 40% is from growth markets and there sales growth would be easily in excess of 30%, with double digit margins, that have kept CBY’s 2008 net margins at 13% Thus the premium from the cost savings would just be GBP 736 million ($1.2 billion) , while the sales premium would be the additional 12% annual sales ( even if you assume the same for only 3-4 years, it amounts to another $2.4 billion from my estimates and so the price premium can easily cross 700 pence taking the price to well above 1260 pence.

This is of course rough estimates, but it is definitely worth someone like KKR to come in and keep the right management on top.

The Cadbury Balance sheet is entirely made of cash retained earnings making 99% of the Equity of $3 billion and it’s sales of $5.5 billion each year. There is no operating interest cost in its income statements.

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The US Coffee Chocolate Giant Kraft bid for the global leader Cadbury’s over the weekend with a $16.7 billion bid over the Labor Day weekend

Bournville, where Cadbury’s originated and Cadbury’s rejected the bid which sent traders hankering for chocolate and made the stock rise 40% in anticipation. This is the first Billion dollar deal tabled in 2009 with Toblerone maker Kraft bidding for Cadbury’s across the pond. Hershey’s and Nestle can’t be white knights because of Anti trust regulations while others seem small fry. Kraft offers only 300p ($4 and 80c) in cash and 0.26 shares of Kraft per Cadbury share, leaving the UK based giant short changed.

It also recommends that the integration of distribution etc will save the combined company a further $1 billion. However, i would seem intelligent on Cadbury’s behalf to ignore the deal and walk away if they can as synergies from the deal look unwieldy, and such easy peasy pipe dreams’ to get market share in Europe and Asia overnight have not fructified earlier, niether has someone like Deutsche Bank been able to make a dent in the US

Factors like Outsourcing and Geographical sensitivities anathema to Cultural and Social integration at large need a new integrative mechanism that may make such Global M&A still infeasible. In this case one however simply feels that Cadbury’s seems to have the more successful Corporate culture and organization and if there can be other private investors to back Cadbury’s and Nestle in the domain, the likes of Kraft and Hershey’s will be faster to learn subsidiary to these far superior expressions of Organization.

Analysts of course, are also hoping for a possible joint bid by Nestlé and Hershey, allowing Nestlé to take Cadbury’s gum business to compete with Mars with Hershey taking over the chocolate operation. (NYTimes.com) Even that wouldn’t be the best as we have seen in the aftermath of the BCS, RBS, ABN saga, but AOL has split its business lines recently and that may be fair. Also, Nestle at least would well leave acquiree ops alone to be without posting unnecessary hurdles in terms of rush hour integration

Will anything save this disaster for Cadbury? Can KKR Europe please step forward?

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The recent laundry list of asset sales planned by AIG (see here) continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. Morgan Stanley’s private equity fund apparently dropped out of the bidding due to a perceived conflict of interest because Morgan Stanley is advising and funding costs for AIG and the sale of the Nan Shan Life Insurance Co. auction along with Blackstone Group LP (NYSE:BX). Morgan Stanley owns 9.9% of Chinatrust.

So is Chinatrust still in the bidding? It was in a bidding group that also included Bain Capital LLC and Oaktree Capital Management LLC, according to the Bloomberg report. Reuters reports that Chinatrust may still ready to bid.

“We are capable of running Nan Shan,” said chief investment officer Daniel Wu in response to questions from reporters. “But I’m not going to say if we have an interest (in acquiring it) or anything else.”

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

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zyakaira notes: The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. So is Chinatrust still in the bidding?

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

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ANZ will buy Royal Bank of Scotland’s operations in six Asian countries for $550m A$687m in a deal that underlines the ability of Australia’s strongly capitalised banks to acquire assets for highly competitive prices from struggling international peers.

ANZ, which wants to generate a fifth of its earnings from Asian operations, will buy RBS’s retail, wealth management and commercial businesses in Taiwan, Singapore, Indonesia and Hong Kong, as well as the UK bank’s institutional banking businesses in Taiwan, the Philippines and Vietnam.

The news sent ANZ shares up 1.5 per cent to A$19.28. RBS shares opened 1p or 47.47p in London.RBS, which reports first-half results on Friday, has been in talks with ANZ and the UK’s Standard Chartered for months over the sale of its retail assets in Asia as it tries to shrink its balance sheet.

The assets include 170 branches, with 28 in India and 13 in China. StanChart has been interested in acquiring RBS units being sold in China, India and Malaysia.In total, the assets were expected to fetch about $1bn-$1.5bn.

RBS said on Tuesday it was in “advanced discussions” with bidders for the remaining assets in Asia it had decided to sell. It said the sale to ANZ was at a $50m premium over book value.

Australian banks have completed a number of transactions with UK financial services groups over the last year, led by Commonwealth Bank of Australia’s purchase of HBOS’s Australian subsidiary Bankwest for A$2bn.

Mike Smith, ANZ chief executive, said the acquisition of the RBS businesses was a stepping stone in the bank’s “super regional strategy” and created a new platform for its retail and wealth operations in Asia.

via FT.com / Companies / Banks – ANZ to buy RBS Asian assets for $550m.

ANZ wd have had to divest the India China Malaysia assets later if Stanchart had not stepped forward. Now the middling Stanchart has 41 new branches in India and China. The private banking and corporate investment banking business has not been sold

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zyakaira notes: Volkswagens unlikely to fall for an extra EUR 5 Billion in cost and the Prosche owners have to cough the added debt in this week itself!

Deutsche Bank (DBKGn.DE) CEO Josef Ackermann has told Porsche’s (PSHG_p.DE) owner families of the urgency to stump up cash in order to pay down the company’s debts, which have risen to 14 billion euros ($19.88 billion), a German magazine said on Saturday. Ackermann himself told Porsche supervisory board chairman Wolfgang Porsche that a mere capital increase from the Porsche and Piech families would not be sufficient to pay for the carmaker’s financial obligations, a pre-release of Der Spiegel said, citing banking sources. The debts include some bonds that needed to be paid, it added. Porsche on Thursday agreed it would increase its capital by at least 5 billion euros ahead of a planned integration with Volkswagen (VOWG.DE). A Porsche spokesman told Reuters he could not confirm the 14 billion euros figure. He said Porsche’s net debts total around 10 billion euros. In January, the total was around 9 billion euros. via Porsche told by Deutsche Bank to pump in cash quickly: report | Reuters

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Dutch bank ING Group ING.AS has hired JPMorgan JPM.N to advise on the sale of INGs private banking business in Europe and Asia, which could fetch more than $1 billion, sources told Reuters on Thursday.The sale is part of INGs move to raise cash after being hit badly by the global credit crisis, which forced it into a loss in 2008 and led to the Dutch government injecting 10 billion euros into the bank.”The deal could be over a billion dollar,” said a source with direct knowledge of the deal, adding JPMorgan is advising the firm. “But its a bit early in the process.”ING declined to comment and JPMorgan was not available to comment.The Dutch bank has been working on a program to reduce risks, raise up to 8 billion euros from asset sales and exit from 10 of 48 countries where it operates.”I think it is a good sign that will give an extra buffer to ING. Secondly, in private banking, ING will never become a world leader. Strategically it makes sense to sell,” Rabo Securities analyst Cor Kluis said.Kluis said he did not expect ING to sell its Dutch private banking business, which administered 20 billion euros in assets out of the total 62 billion euros the Dutch bank had under management at the end of 2008.

via ING hires JPMorgan to sell private bank units: sources| Deals| Reuters.

Meanwhile, RBS has completed sale of the RBS Asia Pac units including ABN AMRO to StanChart and Goldman Sachs & BofA have earlier sold one third of their stakes in ICBC and China Construction Bank

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American International Group Inc AIG.N, the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.Potential markdowns in AIG Financial Product units regulatory CDS portfolio may result in collateral calls that would again put pressure on AIGs liquidity, Citigroup analyst Joshua Shanker said.”Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter,” Shanker wrote in a research note.Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.Shanker said despite AIGs efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.The analyst cut the price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a “hold” rating.Once the worlds largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.

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