(BN) Wall Street Merger Rainmakers Stay `Hopeful' in Worst Market in Six Years
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M&A Rainmakers Stay ‘Hopeful’ Amid Worst Market in Six Years
March 31 (Bloomberg) -- Wall Street’s biggest dealmakers, from Evercore Partners Inc.’s Roger Altman to Morgan Stanley’s Robert Kindler, will be put to the test this year as they face the prospect of the slowest merger market since 2003.
Companies have announced $422 billion of deals since Jan. 1, down 16 percent from the same period in 2008, according to data compiled by Bloomberg. A U.S. survey in January showed chief executive officers are less confident than they’ve been in three decades, and only the strongest suitors can get financing.
“In M&A, people recognize that this is an incredibly difficult 2009 we’re about to face,” said Jeffrey Stute, co- head of North American mergers and acquisitions at New York- based JPMorgan Chase & Co., the No. 2 deal adviser this year. Stute advised Merck & Co. on its $45 billion takeover of Schering-Plough Corp., the quarter’s second-biggest deal.
The takeover business, traditionally one of the most lucrative for Wall Street firms, is reeling from the global financial crisis, which cut off funding for most leveraged buyouts and led to a 38 percent drop in deals in 2008. Signs of a stock market recovery may unleash more transactions later this year, driven by cash-rich companies seeking bargains in technology and natural resources, said Paul Parker, head of M&A at Barclays Capital, a unit of London-based Barclays Plc.
“While the dollar volume of deals this year is likely to be well less than in 2008, there are some hopeful signs that we will have a good level of M&A activity for the rest of the year,” said Kindler, head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first quarter.
Intel, Cisco
International Business Machines Corp. is in discussions about a $7.5 billion acquisition of Sun Microsystems Inc., people familiar with the matter said on March 23. Santa Clara, California-based Sun’s shares dropped 79 percent last year and IBM has $12.7 billion of cash. Intel Corp. and San Jose, California-based Cisco Systems Inc. are bolstering their war chests with stock and bond sales. In health care, Johnson & Johnson, the biggest maker of health-care products, and GlaxoSmithKline Plc have said they’re looking for takeovers.
While Kindler and Stute predict business will be slower this year, Altman said the pace of dealmaking will increase. Evercore, Altman’s New York-based advisory boutique, has already worked on takeovers worth more than all those it did in 2008, he said on a conference call last month, adding the firm will have “one of its pretty good years.”
The first three months of the year were dominated by pharmaceuticals takeovers. In addition to the Schering-Plough transaction, Pfizer Inc. agreed to buy Wyeth for $63 billion, and Roche Holding AG completed the $46.8 billion acquisition of Genentech Inc. after a nine-month takeover battle.
‘High Bar’
“The first quarter set a high bar that will be difficult to match,” said Alan Hartman, head of M&A for the Americas at Bank of America Corp. and an adviser to New York-based Pfizer.
Across all industries, CEO confidence in the fourth quarter was at its lowest level in the U.S. since the New York-based Conference Board began its surveys in 1976. The survey was released Jan. 16.
“What ultimately drives M&A activity is CEO confidence and the ability to finance transactions at a reasonable cost,” said Henrik Aslaksen, co-head of mergers and acquisitions at Frankfurt-based Deutsche Bank AG.
In Europe, the utilities industry will be one of the most active, Aslaksen said. Excluding bank purchases by governments, Europe’s biggest deal in the first quarter was Enel SpA’s accord to buy Acciona SA’s stake in Spanish power company Endesa SA for 11.1 billion euros ($15 billion).
Financing Out
Financing transactions may present another stumbling block for some deals. Potential buyers are wary of agreeing to mergers unless they’re allowed to back out if financing falls through, said John Finley, a partner at Simpson Thacher & Bartlett LLP in New York. Pfizer’s deal with Wyeth allows it to walk away by paying a $4.5 billion fee if its banks fail to lend.
“You will continue to see innovative contractual provisions to ease the reluctance of buyers to commit to large cash transactions,” said Finley, whose firm is counseling Wyeth.
The end of a record-setting boom in leveraged buyouts has forced bankers to change how they seek buyers for companies, said John Studzinski, head of Blackstone Group LP’s advisory unit. Rather than casting a wide net to dozens of private-equity firms to spark a bidding war, sellers are offering themselves to just a handful of buyers, usually drawn from the ranks of their competitors.
“For really high-class assets, you still have one or two great buyers,” said Studzinski, who’s helping New York-based American International Group Inc. find buyers for assets after a $182.5 billion government bailout.
Bear Hugs
The Standard & Poor’s 500 Index has lost about half its value since its October 2007 record, prompting some companies to try to scoop up rivals at prices below their highs. Many are using so-called “bear-hug” letters, or acquisition offers that contain the threat of a hostile bid, said Eduardo Gallardo, a partner at Gibson Dunn & Crutcher LLP.
“For every hostile bid that has hit the news wires in the past 18 months, many more private bear-hug letters have been delivered to public companies and their boards,” Gallardo said in a note to clients.
Unsolicited bids made public this quarter include Tokyo- based Astellas Pharma Inc.’s $1.1 billion offer for CV Therapeutics Inc. and Agrium Inc.’s play for CF Industries Holdings Inc., worth more than $3 billion.
“Sellers are pretty reluctant to sell themselves at these levels,” said Mark Shafir, head of M&A at Citigroup Inc.
-- With reporting by Ambereen Choudhury in London and Serena Saitto in New York. Editors: Katherine Snyder, Dan Reichl.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
M&A Rainmakers Stay ‘Hopeful’ Amid Worst Market in Six Years
March 31 (Bloomberg) -- Wall Street’s biggest dealmakers, from Evercore Partners Inc.’s Roger Altman to Morgan Stanley’s Robert Kindler, will be put to the test this year as they face the prospect of the slowest merger market since 2003.
Companies have announced $422 billion of deals since Jan. 1, down 16 percent from the same period in 2008, according to data compiled by Bloomberg. A U.S. survey in January showed chief executive officers are less confident than they’ve been in three decades, and only the strongest suitors can get financing.
“In M&A, people recognize that this is an incredibly difficult 2009 we’re about to face,” said Jeffrey Stute, co- head of North American mergers and acquisitions at New York- based JPMorgan Chase & Co., the No. 2 deal adviser this year. Stute advised Merck & Co. on its $45 billion takeover of Schering-Plough Corp., the quarter’s second-biggest deal.
The takeover business, traditionally one of the most lucrative for Wall Street firms, is reeling from the global financial crisis, which cut off funding for most leveraged buyouts and led to a 38 percent drop in deals in 2008. Signs of a stock market recovery may unleash more transactions later this year, driven by cash-rich companies seeking bargains in technology and natural resources, said Paul Parker, head of M&A at Barclays Capital, a unit of London-based Barclays Plc.
“While the dollar volume of deals this year is likely to be well less than in 2008, there are some hopeful signs that we will have a good level of M&A activity for the rest of the year,” said Kindler, head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first quarter.
Intel, Cisco
International Business Machines Corp. is in discussions about a $7.5 billion acquisition of Sun Microsystems Inc., people familiar with the matter said on March 23. Santa Clara, California-based Sun’s shares dropped 79 percent last year and IBM has $12.7 billion of cash. Intel Corp. and San Jose, California-based Cisco Systems Inc. are bolstering their war chests with stock and bond sales. In health care, Johnson & Johnson, the biggest maker of health-care products, and GlaxoSmithKline Plc have said they’re looking for takeovers.
While Kindler and Stute predict business will be slower this year, Altman said the pace of dealmaking will increase. Evercore, Altman’s New York-based advisory boutique, has already worked on takeovers worth more than all those it did in 2008, he said on a conference call last month, adding the firm will have “one of its pretty good years.”
The first three months of the year were dominated by pharmaceuticals takeovers. In addition to the Schering-Plough transaction, Pfizer Inc. agreed to buy Wyeth for $63 billion, and Roche Holding AG completed the $46.8 billion acquisition of Genentech Inc. after a nine-month takeover battle.
‘High Bar’
“The first quarter set a high bar that will be difficult to match,” said Alan Hartman, head of M&A for the Americas at Bank of America Corp. and an adviser to New York-based Pfizer.
Across all industries, CEO confidence in the fourth quarter was at its lowest level in the U.S. since the New York-based Conference Board began its surveys in 1976. The survey was released Jan. 16.
“What ultimately drives M&A activity is CEO confidence and the ability to finance transactions at a reasonable cost,” said Henrik Aslaksen, co-head of mergers and acquisitions at Frankfurt-based Deutsche Bank AG.
In Europe, the utilities industry will be one of the most active, Aslaksen said. Excluding bank purchases by governments, Europe’s biggest deal in the first quarter was Enel SpA’s accord to buy Acciona SA’s stake in Spanish power company Endesa SA for 11.1 billion euros ($15 billion).
Financing Out
Financing transactions may present another stumbling block for some deals. Potential buyers are wary of agreeing to mergers unless they’re allowed to back out if financing falls through, said John Finley, a partner at Simpson Thacher & Bartlett LLP in New York. Pfizer’s deal with Wyeth allows it to walk away by paying a $4.5 billion fee if its banks fail to lend.
“You will continue to see innovative contractual provisions to ease the reluctance of buyers to commit to large cash transactions,” said Finley, whose firm is counseling Wyeth.
The end of a record-setting boom in leveraged buyouts has forced bankers to change how they seek buyers for companies, said John Studzinski, head of Blackstone Group LP’s advisory unit. Rather than casting a wide net to dozens of private-equity firms to spark a bidding war, sellers are offering themselves to just a handful of buyers, usually drawn from the ranks of their competitors.
“For really high-class assets, you still have one or two great buyers,” said Studzinski, who’s helping New York-based American International Group Inc. find buyers for assets after a $182.5 billion government bailout.
Bear Hugs
The Standard & Poor’s 500 Index has lost about half its value since its October 2007 record, prompting some companies to try to scoop up rivals at prices below their highs. Many are using so-called “bear-hug” letters, or acquisition offers that contain the threat of a hostile bid, said Eduardo Gallardo, a partner at Gibson Dunn & Crutcher LLP.
“For every hostile bid that has hit the news wires in the past 18 months, many more private bear-hug letters have been delivered to public companies and their boards,” Gallardo said in a note to clients.
Unsolicited bids made public this quarter include Tokyo- based Astellas Pharma Inc.’s $1.1 billion offer for CV Therapeutics Inc. and Agrium Inc.’s play for CF Industries Holdings Inc., worth more than $3 billion.
“Sellers are pretty reluctant to sell themselves at these levels,” said Mark Shafir, head of M&A at Citigroup Inc.
-- With reporting by Ambereen Choudhury in London and Serena Saitto in New York. Editors: Katherine Snyder, Dan Reichl.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
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