Deals wrap: Wanna buy an Irish bank?
Ireland’s banks are up for sale, the country’s central bank chief said, as the government seeks to cut them down in size after their reckless lending forced the country to seek an international bailout.
Shares in Bank of Ireland tumbled 29 percent and Allied Irish Banks lost 17 percent as shareholders face dilution from more capital injections, that could see AIB effectively nationalized.
Fortune’s Dan Primack observes how Republican Senator John McCain once used Ireland’s low corporate tax rate as a fiscal beacon, during his presidential run against Barack Obama. “Ireland considers the corporate tax rate to be a cornerstone of its economic well-being, but today that’s like saying that the Vikings consider Brett Favre to be a cornerstone of this year’s Super Bowl hopes,” writes Primack.
While the Irish economy is crashing, it’s Norwegian friends to the east are preparing for the country’s biggest IPO in nearly a decade. Mutually owned insurer Gjensidige launched a long-awaited initial public offering on Tuesday that could value it around $5 billion, making it the biggest in Norway since oil company Statoil floated in 2001.
In the U.S., GM’s IPO keeps trucking along with the news that Saudi investment firm Kingdom Holding and its Chairman Prince Alwaleed purchased $500 million in GM shares, representing about 1 percent of the value of the company. The GM offering raised $20.1 billion and ranks as the largest IPO in U.S. history.
Pipeline company Kinder Morgan Inc, which was taken private in a $14.6 billion management buyout in 2007, said on Tuesday that its parent had filed with U.S. regulators for an initial public offering of up to $1.5 billion.
from Breakingviews:
Investors shouldn’t get too sweet on dolled-up GM
The impressive third-quarter showing from General Motors shouldn't wow prospective investors too much. Sure, the automaker's $2 billion profit beat Ford's. It even eked out a slightly better pre-tax margin than its rival. But GM's last set of earnings before next week's initial public offering aren't as flattering as they look.
The company stuffed its dealers with 10 percent more inventory than it did at the end of June. There's nothing inherently wrong with that. Car sellers have kept fewer vehicles on lots over the past couple of years. Demand was lacking, as was financing. But in GM's case, many dealers also held stocks down in case the Motown manufacturer cut them loose in its restructuring. Rebuilding those levels now makes sense as the 2011 season approaches and sales pick up.
GM also sharply curtailed less profitable fleet business from 34 percent of sales to 26 percent, the low end of the range GM expects for the year. And it churned out more trucks than in recent periods. At 27 percent, full-size pick-ups accounted for a fifth more of U.S. production than in the second quarter. That's fine if buyers are there: margins are higher on these and SUVs. It helped GM rake in more cash in the United States in the three months to September even though vehicle sales actually fell almost 8 percent.
It all paints a pretty picture. But it's unlikely that notably less profitable compact cars will remain a paltry 1.2 percent of U.S. production, as they were in the third quarter -- some 80 percent lower than in the second quarter. When the trend reverts, margins will drop.
It's perfectly natural to get all dolled up ahead of a big event. Companies facing hostile takeovers often experience a sudden burst of revenue as they push out more product to showcase their value. Cadbury and Potash are two recent examples. The myriad banks advising the U.S. Treasury and GM on the IPO know the drill all too well. JPMorgan, for one, made excellent use of it in the one quarter it managed to hit its 20 percent return on equity target back in 2000 by selling to Chase.
GM's third-quarter results might not be quite so contrived. And the company is certainly in healthier shape than it has been for years. But such make-up cannot be applied every quarter.
Of course GM worked on the numbers to make the IPO look attractive. Let the buyer beware.
Deals wrap: GM back in the driver’s seat?
General Motors Co posted a $2 billion third-quarter profit on Wednesday, driven by an accelerating turnaround in North America as it rushes to complete an initial public offering of stock set for next week.
The quarterly profit was the largest for GM since it emerged from bankruptcy in July 2009 and provides the last piece of financial data for investors evaluating the automaker’s $13 billion IPO.
The Sanofi-Aventis hostile bid for Genzyme is likely an anomaly in the pharmaceutical M & A scene, according to Reuters’ Jessica Hall. “Barring Sanofi’s overture for Genzyme, few large-scale mergers above $20 billion are likely afterward,” writes Hall.
There have been $152.7 billion in healthcare deals so far this year, down from $203.4 billion in the same period last year, according to data from Thomson Reuters.
China should relax its protectionist policies toward foreign investment and allow British alcoholic beverage giant Diageo to pursue its $1.1 billion bid for producer Shui Jing Fang, says Reuters Breakingviews columnist Wei Gu. “Approving the deal would send a positive message about openness, which may win China friends at a time when it is under attack for its trade imbalances,” writes Gu.
Is upstart venture capital firm Andreessen Horowitz overhyped? PE Hub columnist Connie Loizos says the firm’s glowing media reviews may not yet be deserved, until Andreesen Horowitz first generates some “cash-on-cash” returns. “It’s wildly enthusiastic by even Silicon Valley standards to place them in the ‘top ranks of venture capital firms,’ as the New York Times did last week,” writes Loizos.
from Breakingviews:
U.S. still faces a big breakeven hurdle on GM stock
Taxpayers will have to wait a while yet to get back the money invested to keep General Motors out of the scrap yard. The Detroit carmaker is running far more smoothly thanks to its stint in bankruptcy last year—it earned as much as $2.1 billion in the three months to September, its third straight quarter of profits, according to preliminary results. But the terms of GM's upcoming share sale show that, once public, the stock will have to as much as double before its biggest shareholder, the U.S. government, gets close to breaking even.
Assume GM's initial public offering launches at $26, the bottom of the projected price range on the deal. That would mean the U.S. Treasury, which today holds 61 percent of GM, would be taking a 42 percent loss on any stock it sells in the offering. It is planning to sell 263 million shares, or around 28 percent of its holdings. If it does, to get back into the black on its investment GM shares would need to more than double, to above $52 a share, according to a Reuters Breakingviews analysis.
The hurdle for GM's aftermarket performance lowers, of course, if GM's bankers can issue the shares at the top of the price range of $29. But if the underwriters sell more of the Treasury's stock in the IPO, say through the green-shoe, the barrier to breaking even goes up. The calculation is similar for the GM stakes held by the Canadian and Ontario governments.
Overall, this sounds like a tall order. All things being equal, it implies that GM will have to essentially double its profits from current levels. But it could have been worse. Had the Treasury insisted on dumping more of its shares on the market, as appeared to be the case over the summer, the IPO price might have been lower and the need for a massive increase in GM's value afterwards far greater.
The U.S. Treasury, whose GM efforts are being led by Ron Bloom, a senior adviser to Secretary Tim Geithner, changed its tune and focused less on getting out quickly and more on exiting with minimal damage to taxpayers' interests. That's a sensible volte-face, but it still leaves getting back in black a ways off.
Deals wrap: On the road to a GM IPO
GM is on track for a mid-November IPO, sources told Reuters. China’s top automaker SAIC has not ruled out taking a stake in the company. *View article *View SAIC article *View WSJ blog which extracts some nuggets from GM’s SEC filing
China’s Sinochem will no longer launch a counterbid for Potash, sources said. “It’s finished,” Reuters was told. *View article
“BAE Systems could be poised for a major buying spree in the U.S. defense sector as Europe’s top defense contractor chases new growth in the face of looming spending cuts,” writes Soyoung Kim and Andrea Shalal-Esa. *View article
Yahoo is sounding out how serious the interest is in the company following news of potential suitors, according to the WSJ. *View article *View Yahoo analysis
Deals wrap: Can Genzyme play hardball?
Genzyme may be holding out for more money from suitor Sanofi-Aventis, but will find it difficult to persuade investors it is better off on its own. *View article *View Genzyme timeline
When GM filed for bankruptcy last summer, the automaker wiped out creditors, and critics warned that Wall Street investors would have a long memory. What a difference a year makes. *View article
What’s better than an angel investor? That would be a super-angel investor, of course. This new breed is shaking up the venture-capital industry. *View WSJ article
Everyone has a past, but Silicon Valley exec James Williamson used to play guitar for the Stooges. Now that’s cool. *View Venture article
Deals wrap: ICBC’s offer
Industrial and Commercial Bank of China Ltd, the world’s most valuable bank, says it will pay shareholders of its Hong Kong arm a 27 percent premium to take it private, as part of an effort to expand its presence there. *View article
GM is ratcheting up the PR in advance of an IPO, and the NYT takes a look at the mechanics of the promotion. *View NYT article
Who owns the “Sky” in “Skype”? *View paidContent article
peHUB is live-blogging KKR Earnings Call. *View peHUB article
from Breakingviews:
As ex-bankrupt, GM deserves cautious IPO interest
General Motors' coming initial public offering may be a hard sell. After all, the automaker burnt investors with its Chapter 11 filing a little over a year ago. But companies that emerge from bankruptcy can significantly outperform the stock market. On the other hand, a third of them go bust again. The IPO of GM and, in time, those of other cleaned up ex-bankrupts like Delphi and Chrysler, deserve cautious investor interest.
Shares of formerly-bankrupt companies tend to do well if markets are anywhere from plodding to bullish. A portfolio of such stocks including Federated Stores (which later became Macy's) in the early 1990s, and another after the dot.com bust in the early 2000s, would have sharply outperformed stock indices. The early 1990s batch returned about 28 percent more over 200 days than stocks of similar pubic firms, according to a study by New York University professor Edward Altman.
There are several possible explanations. Analysts caught out by companies going bust may be overly cautious about their prospects when they return to the public eye. Executives may also be tempted to lowball expectations. After all, they get to take credit -- and some of the profit -- for beating targets.
But investors in companies that have been through Chapter 11 still need to be selective. About a third of re-emerging companies go bust again -- entering what is known as Chapter 22 -- within four years, according to academic studies.
For some firms, this happens because their products become obsolete. Silicon Graphics, for example, produced ultra-high end computers. The switch to networked groups of cheap machines doomed the group to a second bankruptcy. But the biggest cause of recidivism is too much debt, according to Altman. Those who file again for Chapter 11 protection on average have almost four times as much debt as equity. Those that avoid this fate on average have a debt-to-equity ratio of less than 1.5.
Uncle Sam's involvement in GM's bankruptcy may therefore turn out to be an important factor. The government forced pain on all parties, leaving the company's balance sheet relatively healthy. The firm has about $23 billion of debt and other obligations, mainly healthcare. And there's a $27 billion hole in its pension fund. Yet it has more than $23 billion in cash and may raise additional money through the IPO.
So a quick trip back into bankruptcy looks unlikely. Still, investors will have to take a careful look at GM's IPO valuation. The company might push for a heady price in an attempt to minimize U.S. taxpayers' paper losses on the bailout. With GM still having plenty to prove, that could leave little upside.
Deals wrap: GM to file for IPO in August?
Government-rescued automaker General Motors plans to file its registration for an initial public offering during the week of August 16, according to a Reuters report that cited two people with direct knowledge of the preparations.
The public offering is seen as necessary for GM to reduce the government’s ownership in the company after it was forced to accept a $50-billion bailout last year.
The Reuters story puts the potential move in perspective:
“An IPO for the U.S. automaker, which was restructured in bankruptcy last year, would be the biggest U.S. stock offering since Visa Inc’s $19.7 billion March 2008 IPO and one of the biggest IPOs of all time.”
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Talk about odd timing. After guiding De Beers – the world’s biggest diamond producer – to first-half net earnings of $255 million, compared to just $3 million for the same period the previous year, CEO Gareth Penny announced his resignation. “I think you have to signal this quite openly to the market that you’re going to engage in this sort of process otherwise the rumor mills just start,” Penny told Reuters.
An analyst quoted in the Reuters story, said Penny’s sudden departure after 22 years with the firm may be due to De Beers being forced into a $1 billion rights issue last February after debt piled up and revenues dried up during the global downturn.
Deals wrap: No timeline for Facebook IPO
Facebook CEO Mark Zuckerberg did not tip his hand about when the social networking giant would go public, when he sat down recently for an exclusive interview with ABC News’ Diane Sawyer.
“When it makes sense, right,” Zuckerberg told Sawyer, adding: “I mean, what we’re most focused on is just building these tools that help people stay connected with the people that they care about. And at some point along the path, I think it’ll make sense to have an IPO. But we’re not running the company to do that.”
************ General Motors has announced it intends to purchase auto finance company AmeriCredit Corp for $3.5 billion. According to the Reuters story the deal “removes an uncertainty for GM as it prepares for a stock offering intended to reduce the U.S. government’s nearly 61 percent ownership stake.”
************ Analysts expect good news when Microsoft reports its fiscal fourth-quarter earnings today, but that may not be enough to cheer some stakeholders, who are apparently displeased with CEO Steve Ballmer, according to a Daily Beast report. Citing unnamed sources, the Daily Beast said “there is growing resentment among a faction of certain executives inside the company who blame Ballmer for the years-long stagnation in Microsoft’s stock price.”
************ Heavyweight private equity firm Blackstone Group announced it has closed its latest $13.5-billion buyout fund, which it started raising nearly three years ago. The company’s sixth fund was initially targeted to be $20 billion, close to Blackstone’s previous buyout fund total of $21.7-billion. According to PE Hub editor Dan Primack, “this close does put a bit of pressure on rival firm KKR, which plans to begin marketing its new fund later this year.”
