Mergers Etc | The Investment Blog from Advantage 'zyaada'

Dec 4, 2009 0

After AOL Warner, the new megalith?

Can conventional media survive yet?

General Electric And Vivendi Come To Tentative Agreement On NBC's Value

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

Dual Listing requests and other cultural 'absurdities'

Global businesses must have more of these war stories. We will see them again. If only that European and now African businesses are using recessionary conditions and development as excuses to bring down their hammer on the world. For this, they are using parochial and hithertho untenable institutions / policies that were at the root of all the misdemeanours of socialism and then for some of the backwardness of France, Western Europe and the black Continent that they successfully colonialised 200 years ago. MTN is not the onl one from South Africa. There is going to be more than one Dubai World..

But enough of the historical frisbee tour. We are at the corner of another new growth thrust, funded by liquid cash from all the elected governments. At least a chunk of this money will come to serious Infrastructure requirements of China, India, South Africa, Brazil, Russia and all the rest that work on foreign investors and that cater to their populace’s future needs at the policy level.

It is thus important that we do not allow such anachronisms as dual listing and funding of anti US / anti – Afghanistan sentiment, brokering war and such fancies that have titilated the French and the neo-socialists. I am not here to reiterate the freedom of free-speech but as a dealmaker and as an observer, I have always felt it sensible on the part of the decision makers to give in to the clauses that clinch the deal, even if only in the last mile. If you note any successful deals and growth initiatives of the 90s and the first decade now over, you will not the strong hand of political will showing where enablement of deals was required and not otherwise. Do not be fooled by the old China either. They have seen it and they have already changed their stance unknown to you and me, but showing in the increasing pace of dealmaking and in key reform stance being forced open by influential government denizens.

For me, that is a sure fire sign of guaranteed success and growth for the entire next decade just like any other. That, finally Arcelor bowed to commercial pressure to make Arcelor Mittal happen was made to happen by people who knew the need for change . Europe’s competition commission is not doing so badly either. However, these policy mis-steps would be used to weed out such losers from the plethora of emerging market investments..

The full story was first featured in the India Infrastructure feed here

Valuations! Valuations!

Three sales canceled, carried over, increased stakes and quick QIPs instead of IPOs, no one’s playing to the basement anymore..Wanted to sell, couldn’t get my price so bought some more. Whacky, emulating personal shopping habits of people more than corporate board tussles of the 1990s.

KKR now owns 80% of Aricent (79), WNS will still have Warburg and Axis bank is happy with $720 million where it could have easily absorbed another tranche of the same amount. And this is in the faster growing market of India that we have these white elephants.

In fact the 2007 majority view of these all private equity investments and tinny tiny private sector banks being as unproductive as the public sector white elephants may still be true. However, all these three companies should have spiffy new management in place soon.

KKR, CPP Investment Buy Flextronics’ Pie In Aricent For $255M

- TEAM VCC

Global private equity biggie Kohlberg Kravis Roberts & Co. has increased its investment in Aricent, following the completion of an agreement between KKR and CPP Investment Board with Flextronics to purchase certain securities. The transaction, valued at $255 million, closed on September 16, 2009.

WNS Halts Talks On Majority Stake Sale

- MADHAV A CHANCHANI

Outsourcing firm WNS (Holdings) Ltd has said that it will not pursue any further talks regarding the sale of majoity stake in the firm. Private equity major Warburg Pincus, which holds over 50% stake in the NYSE-listed firm, had put its stake on the block and was in discussion with other PE players and outsourcing firms.

Axis Bank Raises $720 Mn Via QIP, GDR

- MADHAV A CHANCHANI

The Indian QIP party, which kicked off with the real estate sector, has now assumed a diverse flavour. Private sector lender Axis Bank has raised $720 million throught its QIP (qualified institutional placement) and GDR (global depository reciepts) issue.

via

via VC Circle

China’s bold new 2009

China’s flip flop of 2009 | Confirms the expectation of leadership reversal in the world order?

Energy

Chinese Petro Corp CNPC ($PTR) is going ahead with $30 billion in loans to finance acquisitions despite the failed CNOOC bid in 2007, planned destinations being Argentina ( YSF Repsol) Brazil and Russia after state level discussions earlier in 2009 in Brazil and Russia.

PetroChina recently acquired a 45.5% stake in Singapore Petroleum from Keppel Corp. for 1.47 billion Singapore dollars ($1.02 billion). And it also signed a $41 billion liquefied natural gas deal with Exxon Mobil Corp. (NYSE:XOM) to import the LNG from the Australia-based Gorgon LNG project

Also CNPC’s pocket from this loan is a total of $50 billion including its Cash reserves, while its purchase in Libya has already been stopped by local state officials and the Repsol purchase is only $15 billion..

Aviation

Boeing Co. (BA) expects orders from Chinese airlines to account for around 40% of its forecast of 8,960 commercial jet orders from Asia over the next 20 years, a senior Boeing executive said Wednesday. ( zyakaira niotes: this estimate is already 2 years behind, with all this heave ho on, and no aircrafts having sold)

Randy Tinseth, Boeing’s vice president of marketing for its commercial aircraft division, told this WSJ report that China will grow at 8.6%, NA at 2.5% and the intra-Europe market to grow 3.4% annually, as measured in revenue passenger kilometers, a key metric for gauging passenger revenue.

Tinseth said the recent economic downturn has prompted some airlines to defer deliveries of new aircraft. For 2008, Boeing recorded 100 deferrals, mostly from North American customers.

Tinseth said the number of deferrals this year is “something greater than” the 2008 number, but declined to elaborate. The Energy news here is courtesy TheDeal and silobreaker

State Money

While state-owned China Development Bank financed CNPC, the $300 billion China Investment Corp (SWF) is moving in to purchase distressed real estate in the US with the help of the US government

Commodity Derivatives and the excessive lending

Meanwhile Foreign banks continued to suffer in China and probably move faster to N11 and North American Markets as Chinese Aviation and Oil companies continued to threaten 100% default on Commodity derivatives because prices have dropped sharply and new loan growth has slowed down after a state wide change in policy closing down the long term fund window on stimulus and planning to save its economy from spiralling bad debt. On the other hand, JPM just opened a retail shop in Chengdu.

Other MNCs like Unilever continue to plan far a longer innings at the cost of profits according to the new Chinese edition of WSJ

More Real Estate Blues?

China Investment Corporation, the country’s sovereign wealth fund, has joined a consortium to bail out the majority owner of Canary Wharf, the London office complex, which was facing a potential breach of an £880m ($1.3bn) loan. In its first big UK real estate investment, CIC (listed in Paris) will join several existing shareholders in Songbird Estates (LSE: SBDB.L) in providing more than £800m in new equity to pay back the Citigroup (NYSE: C) loan.

Other groups taking part in the placing include Morgan Stanley Real Estate Funds, Qatar Holding and Simon Glick, the US private investor. British Land (LSE: BLND.L) , also one of the original shareholders, faces significant dilution, having opted not take part in the fully underwritten placing.

CIC and Qatar will become the largest shareholders in the group. Meanwhile Istithmar, the Dubai Fund that is going down has sold two of its buildings on Park Avenue and another it recently purchased and houses amongst others the NFL. Dubai World’s Istithmar World has been the other government agency like CIC and Temasek, which has been in most crisis investments since 2005, though mostly financed by debt ($27 billion portfolio) and may act as an early warning signal for other SWFs including CIC

The world needs candy

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.

Airtel MTN deal comes through | Reuters

zyakaira notes: While leading media analysts were continuing discussion on the various touchy edges of the deal, Bharti and MTN finalised the first phase of the deal yesterday, avoiding control issues and closing well before the deadline. Airtel upped the offer to $14 billion for MTN for 49% while MTN is now likely to acquire 33% of Airtel for $10 billion. The MTN take includes added cash in return for lesser discussions on control issues. Being adequately funded the cash rich Airtel still walks away with a great deal combining Singtl, Airtel and the kingdom of South Africa

As Prahalad Santigram of Stanchart mentions, Telecoms remain a hot bed of M&A activity making sure India continues to figure at the top in the Deal tables in 2009 and 10

Indian mobile-phone company Bharti Airtel (BRTI.BO) and South Africa’s MTN (MTNJ.J) have reached a preliminary agreement for their planned $24 billion share and cash swap, Bloomberg reported on Wednesday.

Bharti sweetened its bid to buy 49 percent of MTN by increasing the cash portion of its offer, Bloomberg said, citing three people familiar with the situation.

“MTN doesn’t comment on market speculation,” said MTN spokeswoman Marina Bidoli, adding that the two companies are still in talks until the end of the month.

An earlier tie-up collapsed over sensitivities over who would control what and the new deal — in which both companies will hold a large stake in each other’s businesses — seems carefully crafted to avoid a repeat.

Bharti is the leading partner in the deal. It will consolidate MTN’s business and hold 49 percent in its South-African rival. But MTN will likewise hold 36 percent in Bharti Airtel once the deal completes (This precentage was revised?)

via Bharti, MTN in early agreement on tie-up-Bloomberg | Industries | Technology, Media & Telecommunications | Reuters .

The Chocolate Nut fudge for Labor day

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?

Airtel and MTN will it happen?

A combination of Bharti and MTN would be a godsend for the Singapore company — Tuesday SingTel said it will “continue to be actively involved in due diligence and key aspects of the transaction,” emphasizing its interest.

If the $23-billion merger deal goes through, SingTel could own a piece of an outfit that would have more than 200 million subscribers in Asia, the Middle East and Africa combined, generating more than $20 billion in annual revenue. That’s almost twice SingTel’s revenue during the fiscal year that ended March.

Although the deal could dilute SingTel’s holding in Bharti to 19%-20% from the current 30.4%, SingTel could get as much 12% of MTN.

zyakaira’s update on the deal: Singtel is financing the sale as per its stake and additionally, planning to buy back the 10% odd that is being diluted from MTN as MTN looks for more cash from the deal. MTN is definitely the more profitable partner in a hyper growth market where India’s growth and that of Airtel is currently sluggish comparitively and EBITDA also compares favorably for MTN. Airtel’s expertise and hold on the sector is significant of course, and the requirement of good management may weigh over the ‘zyaada’ desire of MTN to exercise cash and control from the deal. Also, both parties would be having a harrowing time trying to handle the pursuant tax implications

On the telecom front the other ‘investment’ news to watch out for is the funding of the JV stakes in new circles and the 5000 crores reserve price worth auctions of 3G and WiMax spectrum. One feels they could easily have been combined instead of two different reserve prices as buyers are the same. Airtel in any case, would be one of the more forthcoming bidders and one of the first to roll out.

Airtel and MTN, will it happen?

After a long and fruitless hunt for acquisitions, Singapore Telecommunications is in sight of a growth booster. And going by its involvement in the Bharti Airtel-MTN Group merger talks, it is determined to grab it.

SingTel’s current business model depends on its foreign holdings, including Indian associate Bharti Airtel, to generate profit growth, with operations in Australia and Singapore yielding cashflow. But some of its foreign mobile associates are under pressure from increasing market competition while others are posting losses.

Bloomberg News/Landov

A Bharti-MTN merger would be a godsend for SingTel.A combination of Bharti and MTN would thus be a godsend for the Singapore company — Tuesday SingTel said it will “continue to be actively involved in due diligence and key aspects of the transaction,” emphasizing its interest.

Although the deal could dilute SingTel’s holding in Bharti to 19%-20% from the current 30.4%, SingTel could get as much 12% of MTN.

via Bharti-MTN a Dream Deal for SingTel – WSJ.com.

Indian Infrastructure:: Limited Seats, Pay up or Fly

IDFC Private Equity, India’s largest infrastructure focused private equity fund, is getting equity shares in the publicly listed GMR Infrastructure Ltd through a share swap. The board of infrastructure major has approved issue of preferential shares to IDFC Infrastructure Fund – India Development Fund, the firm said in a filing to Bombay Stock Exchange.

When contacted by VCCircle, Raja Parthasarathy, MD at IDFC PE, said that the shares being allotted are in respect to shareholding previously held in Delhi International Airport Pvt Ltd (DIAL). DIAL is a subsidiary of GMR Infrastructure.

The share swap will provide IDFC PE with greater liquidity as GMR Infra is listed. Even though stock markets have somewhat revived, opening of primary markets is still a little far away. This has blocked private equity exits through the IPO window.

The move is similar to the one IDFC PE used to exit GMR Energy. IDFC PE swapped its 15% stake in GMR Energy, Another GMR Group firm, for a little more than 4% stake in GMR Infra in 2006.

GMR Infra, along with Frankfurt airport operator Fraport AG, Malaysia Airports Holdings Bhd and IDFC PE had won the bid for DIAL in 2006. IDFC PE had picked up an 8% stake in the airport at the time of bidding.

DIAL has recently faced trouble raising funds for the continued modernisation of Delhi airport. Then the government had allowed DIAL to implement airport development fee on passengers, helping it meet the funding gap.

Completely Exits Gujarat State Petronet

IDFC PE has also completely exited state-run gas distribution firm Gujarat State Petronet Ltd (GSPL). The fund has sold its last 1.9% stake in the company for a total sum of between Rs 40-42 crore through open markets on BSE and NSE.

The fund had invested Rs 90 crore in GSPL in late 2004 for a little more than 20% stake. The stake got diluted as GSPL roped in more investors and also went for an IPO in 2006 after which IDFC PE’s stake went down to 13.28%.

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The Investment Blog from Advantage 'zyaada'

After AOL Warner, the new megalith?

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Dual Listing requests and other cultural 'absurdities'

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Valuations! Valuations!

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China’s bold new 2009

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The world needs candy

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Airtel MTN deal comes through | Reuters

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The Chocolate Nut fudge for Labor day

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Airtel and MTN will it happen?

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