M & A wrap: Citi scores big with EMI deals
The music industry may have a bit of life left in it after all. At least that’s the impression one is left with this week after Citigroup scored a better-than-expected $4.1 billion from two deals that mark the end of a months-long auction to sell off the parts of 114-year-old British music company EMI Group.
Vivendi’s Universal Music Group and Sony won the auction for EMI’s recorded music and music publishing operations, trumping bids by archrivals Warner Music Group and BMG Music Publishing at the 11th hour, reports Peter Lauria, editor-in-charge of Technology, Media and Telecommunications at Reuters. Universal plans to buy EMI’s recorded-music unit for $1.9 billion, according to a source involved in the process, snagging the rights to music by artists such as Coldplay, the Beatles and Katy Perry in the deal. A consortia led by Sony is expected to buy EMI’s publishing operation for $2.2 billion.
MF Global’s liquidators are struggling to sell the Asian business as one concern because of problems unwinding trading positions, so they may now sell the various country units separately, report Reuters correspondents Rachel Armstrong and Bruce Hextall. The provisional liquidators for the business in Hong Kong said on Friday there had been a number of encouraging bids for the regional business as a whole but the exercise has proved increasingly complex and the focus is now on selling off the various Asian business units individually.
U.S. coal giant Peabody Energy extended its $5 billion bid for Australia’s Macarthur Coal by two weeks after failing to reach the 90 percent threshold for acceptances by its Friday deadline, reports Sydney-based correspondent Lincoln Feast. Peabody’s acquisition of Macarthur will give it control of the world’s top producer of pulverized coal, just at a time when demand for steel-making materials holds up in Australia’s key coal market, China.
Companies in Greater China are lining up to sell shares in initial public offerings in coming months, braving jittery markets with $11.2 billion in deals, reports Hong Kong-based Elzio Barreto. Issuers are betting the steep rebound in Hong Kong and Chinese markets in the past month might signal renewed appetite for offerings that would provide funding for expansion and takeovers.
Deals wrap: AT&T’s crystal ball
AT&T’s surprise $39 billion deal to buy T-Mobile USA from Deutsche Telekom will create a new leader in the U.S. mobile sector and likely draw scrutiny. The regulatory challenge will be predicting what the dominant form of communication will be 3 to 5 years from now, analyst Evan Stewart said. The deal will take a year to close, in which time customers are expected to see improved network quality, according to AT&T.
Sprint Nextel risks being further eclipsed by Verizon and the new AT&T, which together would boast 230.3 million customers in the U.S., compared to Sprint’s less than 50 million, writes Michael J. de la Merced and Jenna Wortham of The New York Times.
Citigroup plans to slash the number of common shares outstanding and reintroduce a dividend after suspending payouts two years ago, taking another step in its long recovery from the brink of failure during the financial crisis.
Warren Buffett said he believes Japan’s devastating earthquake is the kind of extraordinary event that creates a buying opportunity for shares in Japanese companies and that his Berkshire Hathway is looking for more large-scale acquisitions anywhere in the world. “The United States is most likely where we will do something,” he added.
Facebook agreed to buy Snaptu, an application developer for mobile devices that are less sophisticated than smartphones, as the world’s largest Internet social network focuses on expanding its mobile services.
The Carlyle Group acquired a majority stake in movie special effects company Foundry from Advent Venture Partners and other stakeholders, in what Advent partner Mike Chalfen called a validation of the firm’s growth investment strategy, writes VentureBeat’s Ciara Byrne.
Deals wrap: Just one word – plastics
Plastics. They don’t glitter like gold does, but more top hedge fund managers are betting on the chemical commodities that go into making plastics and buying up shares in the companies that produce them.
The Smart Money 30, a group that includes some of the biggest stock-picking equity funds, also trimmed bets on tech giants Apple and Google while favoring General Motors and Citigroup, according to data compiled by Thomson Reuters.
What’s the easiest way to boost your company’s reputation? Buy up a top global brand. At least that’s the advice being given to top Chinese companies by the country’s commerce minister, who is urging the country’s firms to seek out new foreign acquisitions in an effort to secure more name recognition abroad.
More signs that the luxury market has bounced back from its recession-induced slump. France’s LVMH, the world’s number one luxury group, snapped up widely-popular Italian jewelry maker Bulgari in a deal valued at $5.19 billion as it aims to bulk up its jewelry business and expand in emerging markets. Some analysts say the offer could set off a new wave of consolidation in the luxury market.
Some of the hottest tech startups are clamping down on trading of their shares as the race to snap up pieces of pre-IPO companies has attracted the scrutiny of U.S. regulators, write correspondents Alexei Oreskovic and Liana Baker.
from Breakingviews:
Vikram Pandit can’t rock’n'roll like Guy Hands
By Rob Cox The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Vikram Pandit has been banging his head for years over Citigroup's financial problems. But that doesn't qualify him as an expert on heavy metal. So expect the bank to quickly offload EMI, the Iron Maiden-to-Katy Perry music publishing and recording business it seized on Tuesday.
The takeover marks the finale of a four-year cycle of recrimination between the bank and private equity boss Guy Hands. Hands' London-based Terra Firma overpaid for the business in May 2007, larded on too much debt and then, partly because of cuts needed to meet interest payments, soured relations with EMI's primary asset -- its artists. But Hands also tripled the company's profit. Some financial wiggle room and a charm offensive might be all a refreshed EMI needs to thrive.
That's assuming the past can be forgotten. Terra Firma lost its entire 1.75 billion pound investment, while Citi's 3.4 billion pound loan to EMI, which has now made it the proud owner of the business, has been written down to 1.2 billion pounds.
That new low base is the key. Since Terra Firma bought EMI in 2007, Warner Music Group -- EMI's closest music industry rival -- has seen its stock market value plunge by around 68 percent. Assuming a similarly earthward trajectory, EMI could now be worth 1.2 billion pounds -- coincidentally, the carrying value for the business on Citi's balance sheet.
Because the bank has already taken that writedown, the bizarre rules of Wall Street accounting mean anything over and above that price fetched in a sale to, say, Warner Music or KKR, would turn into a gain for Citi. And either of them -- or even, ironically, Hands himself -- would be a far more suitable owner for EMI than a bank.
Moreover, with 300 million pounds of cash in the bank and a two-thirds reduction in interest payments, EMI is suddenly in pretty good shape. Hands may have turned off a few divas, but under Terra Firma's stewardship EBITDA rose from 90 million pounds at the end of 2007 to 241 million pounds two years later.
from Breakingviews:
Uncle Sam’s AIG exit likely to be drawn out
There's no quick way for the U.S. government to exit American International Group <AIG.N>. Converting $49 billion of preferred stock to common shares and selling them would, like the government's exit from Citigroup <C.N>, take a while. And that's assuming other share sales, needed for separate repayments relating to AIG, go smoothly.
As of June 30, AIG owed the government just over $100 billion -- though a further $4 billion has since been repaid. AIG has also made progress offloading assets. Big examples include the IPO of AIA, the Asian unit currently expected to debut on the Hong Kong market in the next month or so, and the $15.5 billion sale to MetLife <MET.N> of American Life Insurance, or Alico, which is winding its way towards closing. The New York Fed converted debt into preferred shares in these entities worth $16 billion and $9 billion, respectively, and the deals will help pay that off.
Back at AIG itself, there are around $49 billion of preferred shares owned by the Treasury. The Citi example shows how that block of prefs might be swapped into common equity and then sold, over time. In the Citi case, the government is turning a profit on its shares, potentially making the idea interesting for AIG as well.
But it looks like selling the government's Citi stake -- initially nearly 30 percent -- will take longer than the anticipated nine months from March. Offloading the Treasury's stake in AIG could take far longer, because the government already effectively owns 80 percent of the company, and converting the prefs could take that nearer to 90 percent.
Unfortunately, that's not all. A planned sale of AIA to the UK's Prudential <PRU.L> -- abandoned in June -- would have brought in a big slug of cash, but an IPO probably won't raise enough to pay back the New York Fed's preferred interest in AIA right away, let alone give AIG any proceeds to apply to its own obligations. Meanwhile the Alico sale will come with only $6.8 billion of cash. So the government will depend on further sales of AIA and MetLife equity interests to get its money back.
And there's more. Ahead of all that, at least in strict credit priority, is another $20 billion-odd, including accrued interest, that AIG still owes the New York Fed under a credit facility. The insurer might at some point be able to refinance that. But put the pieces together, and taxpayers could wait a long time before enough shares in enough different companies are sold for them to be made whole.
Deals wrap: Selling the ex-bankrupts
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. The IPO of GM and, in time, those of other cleaned up ex-bankrupts like Delphi and Chrysler, deserve cautious investor interest. *View article
Barnes & Noble shares soared 21 percent after the struggling bookseller said it was up for sale and could get a bid from its founder to go private. *View article *View NYT’s article on who may bid for the company
Citigroup is poised to put its British online bank Egg up for auction as part of a plan to dispose of billions of dollars in unwanted assets, the Financial Times says. *View article
The New York Times sits down with Guillaume d’Hauteville, vice chairman for investment banking in Europe at Nomura Holdings. He discusses the uncertainty surrounding M&A in Europe in a question-and answer-article. *View NYT article
Deals wrap: Hot prospects in VC
Venture Capital Journal profiles 10 young venture capitalists who are poised to do great things. All of their “Hot Prospects” are under 36 years old and all have yet to make their mark in VC. The series runs all week.*View article *View profile of Chi-Hua Chien *View profile of Ann Miura-Ko
Asahi President Naoki Izumiya told Reuters he expects to have $9.2 billion on tap for acquisitions over the next five years as it looks for new growth drivers outside the shrinking domestic beer market. * View article
Is the SEC’s $75 million settlement with Citigroup a victory for Wall Street accountability or a punishment for taxpayers and Citi shareholders? *View NYT article
Citi’s risky businesses
Assume for a moment that Citi is successful in raising $3 billion for private equity and hedge funds, and assume for another moment that the U.S. government takes away these businesses away from Citi, as legislators are threatening. What happens next? Why is Citi building a business it may soon have to sell? And why would any investor give money to a hedge fund manager that may have to sell its business?
Investors will not likely care about whether the bank will sell its alternative asset management business. Customers care most about who is investing their money day to day, not which corporate logo is on the stationery. And if Citi has to sell the business, it will get a slightly higher price for a business that has an extra $3 billion under management.
Citi is still walking into a mine field by building a business that lawmakers are explicitly trying to keep banks out of. One thing for sure–if Citigroup is building alternative asset management businesses, nobody can accuse it of being under the thumb of the government, which still owns billions of the bank’s shares.
The afternoon deal: Citi spinoff rings up strong debut
Another day, another sign of renewal for initial public offerings. Primerica co-CEOs John Addison and Rick Williams capped the day off by ringing the closing bell after the Citigroup life insurance spinoff’s shares soared in their April Fool’s Day debut on the New York Stock Exchange.
Appetite for the company’s stock remained strong throughout the day, with shares jumping more than 30 percent above the initial offering price in afternoon trade as investors bet that the life insurer will reap rewards as the economy continues to mend.
Primerica priced at $15 a day earlier, above the $12 to $14 range that was expected. Citigroup sold 21.3 million shares in the offering and raised a total of $320 million in the deal. The bank will retain up to a 43 percent stake in the insurer, with plans to reduce it over time.
Earlier in the day, Japanese life insurer Dai-ichi Life also fared well in its trading debut, leaping as much as 14 percent above its initial public offering price on the Tokyo Stock Exchange. The $11 billion IPO marks the world’s largest since Visa’s $19.7 billion offering two years ago.
More on Primerica’s IPO and other stories around the Web:
Citigroup’s Vikram Pandit ends Weill’s Primerica dream (Telegraph)
“The initial public offering of the insurance sales and advisory network is part of Mr Pandit’s plan to refocus Citigroup’s on banking and to reduce its overall balance sheet.”
DealZone Daily
Friday’s highlights:
Citigroup Inc could pay commercial and investment banking bonuses for 2009 that are similar to 2008 levels, and may cap individual cash payouts at about $60,000, according to people that have been briefed on the plan.
CF Industries Holdings Inc (CF.N) withdraws its year-long hostile bid to buy rival fertilizer maker Terra Industries Inc (TRA.N) on Thursday, bringing a three-way battle for control of the North American fertilizer business closer to a conclusion.
Shiseido Co Ltd, Japan’s largest cosmetics company, agrees to buy U.S.-based Bare Escentuals Inc for $1.7 billion, as it looks to revamp its global brand and expand in North America.
Billionaire investor Wilbur Ross says he’s “quite possibly” interested in teaming up with Richard Branson’s Virgin Money to bid for state-owned British bank Northern Rock.
Willcom Inc, a Japanese mobile phone company majority owned by U.S. buyout firm Carlyle, may be bailed out by a government-backed turnaround fund, a person with knowledge of the matter says.
European banks should suffer less than their American counterparts from the Obama administration’s proposed bank tax, say Margaret Doyle and George Hay of Reuters Breakingviews.
