Archive for the ‘Mergers & Acquisitions’ Category

Yahoo! Jumps on Buyout Rumors from AOL, KKR, Silver Lake, Blackstone

Tuesday, November 9th, 2010

Two years after Microsoft tried to acquire Yahoo! for $33/share and the company lost half its market value, AOL and Silver Lake have separately lined up financial advisers to explore options for the company.  AOL is also exploring a scenario where Yahoo!’s Asian assets are spun off and the capital is returned to shareholders before the acquisition.  AOL has been extremely proactive in buying companies over the past two months, purchasing 5min Ltd., an Internet content provider and TechCrunch, a popular technology blog.

Bloomberg announced today that KKR is also interested in helping finance the transaction.  Silver Lake Partners and Blackstone are currently in buyout talks.  The sponsors are interested in Yahoo!’s 40% stake in Alibaba, a growing Chinese online business.  Yahoo! currently employs about 13,600 people and had revenues of about $1.6 billion last quarter. Shares in the company rose 9.5% on the rumors today, and the firm’s management team may have hired Goldman Sachs as a takeover defense advisor to ward off bids.

According to the WSJ, analysts say that a Yahoo!-AOL merger could create a strong competitor in the display ads market, which is estimated to be $20 billion this year.  This should be an interesting transaction, if it proceeds further, as Yahoo has a market capitalization of $21.85 billion and AOL has a market capitalization of $2.66 billion.  However, analysts value at between $15bn and $25bn, which means that Yahoo!’s 40% stake could be worth $10 billion. By selling those assets, Yahoo!’s market value would fall to about $11 billion, which would make the deal much more realistic.

On the other hand, Alexei Oreskovic and Sue Zeidler argue that the company will have hurdles even if it does get bought out.  Yahoo! made many desperate attempts to grow revenue this year, such as its attempts to purchase foursquare and Groupon.  According to one analyst, “making Yahoo! bigger or smaller will not accomplish anything.”  Yahoo! is the 2nd most popular search engine behind Google, but it has failed to find growth in page views or new business.  From a private equity investor’s point of view, Yahoo! may simply be attractive because of the steady cash flow it generates, if nothing else.

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Lazard Operating Revenues Jump 67% Year over Year: Core Investment Banking Coming Back

Sunday, May 9th, 2010

Lazard, famed investment bank and legacy of Bruce Wasserstein recently reported earnings that blew investors away.  Operating revenues jumped 67% from one year earlier.  Lazard advises on mergers & acquisitions, restructurings, and to a lesser extent, capital raisings.  It operates from 40 cities across 25 countries throughout Europe, North America, Asia, Australia, and Central and South America, focusing on two business segments: Financial Advisory and Asset Management (explained below).

According to Bloomberg, “Lazard Ltd., the biggest non-bank merger adviser, rose in New York trading after posting adjusted earnings that beat analysts’ estimates on operating revenue that jumped 67 percent from a year earlier.

The loss for the first three months of 2010 was $33.5 million, or 38 cents a share, compared with a loss of $53.5 million, or 77 cents, in the same period a year earlier, the Hamilton, Bermuda-based company said today in a statement. Adjusted earnings were 46 cents a share, beating the 18-cent average estimate of 12 analysts in a Bloomberg survey.

Lazard’s revenue from advising on mergers and acquisitions climbed from a year earlier even as companies completed a lower value of deals in the quarter. Excluding special charges, the firm’s compensation ratio fell to 60 percent of revenue, compared with 75 percent in the first quarter of 2009.

“The report should give investors a booster shot of confidence on two important fronts,” Oppenheimer & Co. analyst Chris Kotowski said in a note to investors. “First, that the rebound in M&A activity is happening, albeit in fits and starts. Second, that the company is developing discipline around its compensation and other costs.”

Lazard rose 57 cents, or 1.5 percent, to $38.78 at 4 p.m. in New York Stock Exchange composite trading. The shares gained 28 percent last year after falling 27 percent in 2008.

Revenue Increase

Operating revenue rose 67 percent from a year earlier to a first-quarter record of $456.9 million. Operating revenue from financial-advisory services climbed to $269.1 million as fees from advising on both mergers and restructuring jumped more than 50 percent.

Revenue from merger and acquisition and strategic advisory climbed 53 percent from a year earlier to $147.6 million. That’s down 13 percent from the fourth quarter of 2009.

Asset management revenue climbed 78 percent from a year earlier to $183.7 million. Assets under management increased 4 percent to $135 billion from Dec. 31, with net inflows of $3 billion in the quarter.

“Both financial advisory and asset management had their best first quarters ever,” Chief Financial Officer Michael Castellano said in an interview. “We’re continuing to gain global market share in the M&A business.”

Compensation costs climbed 35 percent from a year earlier to $275.5 million. The firm also recorded a one-time $87.1 million expense tied to staff reductions.

‘Right Manpower Complement’

“Over the last two years, in addition to aggressively hiring senior bankers, we’ve also right-sized the firm in both asset management and the financial-advisory business, to make sure we have the right skill sets for the new world,” Castellano said. “I think we’ve now got the right manpower complement to be able to drive growth in both of the businesses.”

Kenneth Jacobs was named chief executive officer in November after the death of Bruce Wasserstein, the preeminent Wall Street dealmaker who took Lazard public in 2005. Jacobs, who has worked at the firm for 22 years, had served as deputy chairman and CEO of North American businesses since 2002, shortly after Wasserstein arrived.

Lazard said last month that Castellano will retire on March 31, 2011. He will be replaced by Matthieu Bucaille, who served as deputy chief executive officer of Lazard Freres Banque in Paris.

Financial Advice

Lazard has been using its restructuring-advisory business to counter weakness in mergers and acquisitions. It was the second-ranked adviser in 2009 bankruptcy liquidations, according to Bloomberg data, and advised debtors or creditors in the top 10 Chapter 11 bankruptcies in 2009.

Companies worldwide completed $358.9 billion of deals in the first quarter, down 25 percent from the same period in 2009 and 52 percent from the first quarter of 2008, data compiled by Bloomberg show.

Lazard was the seventh-ranked financial adviser on announced deals and 12th-ranked on completed takeovers in the first quarter. The firm advised on completed deals totaling more than $33.9 billion, including Kraft Foods Inc.’s acquisition of Cadbury PLC.

Lazard employees own more than a quarter of the firm, excluding the estate of Wasserstein. Because the stakes owned by employees can be converted into common stock, the company reports earnings as though the stakes were fully exchanged instead of treating them as minority interest.

Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, reported earnings last week that beat analysts’ estimates as advisory revenue climbed from a year ago.

Lazard Business Breakdown

Financial Advisory

The Company offers corporate, partnership, institutional, government and individual clients across the globe an array of financial advisory services regarding mergers and acquisitions (M&A), and other strategic matters, restructurings, capital structure, capital raising and various other corporate finance matters. During the year ended December 31, 2009, the Financial Advisory segment accounted for approximately 65% of its consolidated net revenue. It has operations in United States, United Kingdom, France, Argentina, Australia, Belgium, Brazil, Chile, Dubai, Germany, Hong Kong, India, Italy, Japan, the Netherlands, Panama, Peru, Singapore, South Korea, Spain, Sweden, Switzerland, Uruguay and mainland China.

The Company advises clients on a range of strategic and financial issues. When it advises companies in the potential acquisition of another company, business or certain assets, its services include evaluating potential acquisition targets, providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. It also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition. In addition, the Company may assist in executing an acquisition by acting as a dealer-manager in transactions structured as a tender or exchange offer. When the Company advises clients that are contemplating the sale of certain businesses, assets or their entire company, its services include advising on the appropriate sales process for the situation, valuation issues, assisting in preparing an offering circular or other appropriate sales materials and rendering, if appropriate, fairness opinions. It also identifies and contacts selected qualified acquirors, and assists in negotiating and closing the proposed sale. It also advises its clients regarding financial and strategic alternatives to a sale, including recapitalizations, spin-offs, carve-outs, split-offs and tracking stocks.

For companies in financial distress, the Company’s services may include reviewing and analyzing the business, operations, properties, financial condition and prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives, including providing advice on dividend policy. It may also provide financial advice and assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the United States Bankruptcy Code or other similar court administered processes in non-United States jurisdictions.

When the Company assists clients in raising private or public market financing, its services include originating and executing private placements of equity, debt and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of partnership and similar interests in alternative investment funds, such as leveraged buyout, mezzanine or real estate focused funds. In addition, it may advise on capital structure and assist in long-range capital planning and rating agency relationships.

Asset Management

The Company’s Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. As of December 31, 2009, total assets under management (AUM) were $129.5 billion, of which approximately 82% was invested in equities, 14% in fixed income, 3% in alternative investments and 1% in private equity funds. During 2009, approximately 36% of its AUM was invested in international investment strategies, 46% was invested in global investment strategies and 18% was invested in United States investment strategies. As of December 31, 2009, approximately 89% of its AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, and approximately 11% of its AUM, as of December 31, 2009, was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

The Company competes with Bank of America, Citigroup, Credit Suisse, Deutsche Bank AG, Goldman Sachs & Co., JPMorgan Chase, Mediobanca, Morgan Stanley, Rothschild, UBS, The Blackstone Group, Evercore Partners, Moelis & Co., Greenhill & Co., Alliance Bernstein, AMVESCAP, Brandes Investment Partners, Capital Management & Research, Fidelity, Lord Abbett, Aberdeen and Schroders.

Haliburton Buying Boots & Coots for $240 million, Cash & Stock Deal

Sunday, April 11th, 2010

Haliburton, a leading services company competing with Schlumberger recently announced the acquisition of Boots & Coots, after the founder of the firm passed away late March. Edward “Coots” Matthews was a phenomenal entrepreneur who died working at the age of 86. The deal was recommended by the company’s board of directors, to take advantage of the fact that Boots & Coots would need new leadership. Boots & Coots provides a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies worldwide.

Boots & Coots may see an influx of business along with other firms in the space because of Obama’s recent approval of offshore drilling for oil.

According to Mr. Shankar of Bloomberg, “Halliburton Co. agreed to buy Boots & Coots Inc. for about $240.4 million in stock and cash, adding equipment and services to fight oil-well fires.

Boots & Coots holders will receive $1.73 in cash and $1.27 in Halliburton stock per share, Halliburton said in a statement yesterday. The combined price, $3, is 28 percent more than Boots & Coots’ closing price yesterday. Both companies are based in Houston.

The addition of Boots & Coots will allow Halliburton to offer a more complete suite of services to customers, said Marc Edwards, a senior vice president. Halliburton is the world’s second-largest oil-field services company after Schlumberger Ltd.

Edward “Coots” Matthews, who died on March 31 at 86, founded the company in 1978 along with Asger “Boots” Hansen. For 20 years prior to that, they had worked with Red Adair, whose skill at battling oil-well fires was portrayed in the 1968 movie “Hellfighters,” starring John Wayne as Adair.

Both Matthews and Hansen were involved in fighting well- known oil-well blowouts, including the “Devil’s Cigarette Lighter” in Gassil Touil, Algeria, in 1961 and another at Lake Maracaibo in 1991. They also extinguished the fires from 700 oil wells in Kuwait, blazes set by retreating Iraqi troops near the end of the first Gulf War in 1991, according to the company.

For 2009, Boots & Coots reported net income of $6 million, or 8 cents a share, on revenue of $195.1 million.

Halliburton said the boards of both companies had approved the transaction and it will close this summer.

Boots & Coots had 80.13 million shares outstanding as of March 2, according to Bloomberg data. The stock fell 3 cents to $2.35 yesterday. It’s up 42 percent for the year.

Halliburton fell 9 cents to $31.57 in New York Stock Exchange composite trading yesterday. The shares have climbed 4.9 percent this year.”

AIG Divests of Asian Life Insurance Unit, Making Sale to Prudential Plc for $35.5 Billion

Saturday, March 20th, 2010

AIG made headlines recently with its sale of its Asian Insurance business for over $35 billion to British insurance firm Prudential plc.  This allowed the failed insurer to raise enough to pay back the $20 billion immediately due to the government and slowly pay back its debt to taxpayers.  The company also is pressing to sell its Alico unit to bidders including Metlife.  The proceeds of this sale would also go the Fed.

According to the Washington Post, “American International Group agreed on Monday to offload its prized Asian life insurance business for $35.5 billion, the troubled firm’s largest asset sale since it was bailed out by the federal government during the height of the financial crisis.

The firm plans to use the proceeds from the sale to pay down nearly three-fourths of the $48 billion owed to the Federal Reserve. AIG separately received more than $47 billion from the Treasury Department’s Troubled Assets Relief Program.

The buyer, British insurer Prudential — not linked to the U.S. insurance firm Prudential Financial — agreed to pay $25 billion in cash and $10.5 billion in stock and other securities. Under the deal’s structure, the U.S. government will have an interest in Prudential’s fortunes through its massive stake in AIG.

The sale generated more for AIG than what some analysts had expected. AIG had been receiving weak bids for the division and was planning to spin it off in an initial public offering on the Hong Kong stock exchange. That process could have taken a long time and produced less money than the deal with Prudential, company and government officials said.

“We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers,” AIG chief executive Robert Benmosche said in a statement.

Shares of AIG soared nearly 10 percent at the opening bell before closing the day up 4 percent, at $25.78. The insurer’s stock hit a low of $7 during the financial panic.

Wall Street often views big deals as a vote of confidence in the global economy. And on Monday, the Dow Jones industrial average rose 78.53 points, or 0.8 percent, to 10,403.79, with much of the gain occurring right after the sale was announced. The Standard & Poor’s 500-stock index, a broader measure of the market, jumped 1 percent and moved into positive territory for the year.

The sale of the Asian unit, American International Assurance, would generate more money for AIG than the sum from nearly two dozen divisions it has agreed to divest from since fall 2008. AIG is pressing to get a multibillion-dollar deal for another major insurance unit known as American Life Insurance Co., or Alico. Proceeds from that sale would also go to the Fed.

The price AIG fetched for its Asian division affirms a decision by the Fed to give the company more time to sell its assets. Last year, AIG would have had to sell the unit during the recession to meet its debt obligations to the central bank. Instead of cash, the Fed accepted an equity stake in the Asian division as repayment.

The central bank’s bailout package to AIG came in two parts: a $23.4 billion line of credit and a $24.5 billion interest in American International Assurance and Alico.

Of the $35.5 billion from Prudential, AIG will use $16 billion to pay back the Fed’s interest in American International Assurance. Another $9 billion will be used to reimburse the Fed’s line of credit. AIG will eventually be able to sell its $10.5 billion in Prudential stock and securities, which will be used to further repay the Fed’s line of credit.

AIG’s health has improved steadily since the federal government’s bailout, though it is still losing money. Last week, it reported a $8.9 billion loss for the last three months of 2009, bringing its full-year results to a loss of $10.9 billion. In 2008, the firm recorded a $99.3 billion loss.

According to Kevin Crowley and Zach Miller of Bloomberg “American International Group Inc. agreed to sell an Asian life insurance unit with 20 million customers to Prudential Plc for $35.5 billion in the company’s biggest divestiture since it was bailed out by the U.S.

Prudential, Britain’s biggest insurer, will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London-based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer.

The sum raised in the sale would exceed the total of more than 20 other deals announced by AIG since its 2008 rescue. The firm had planned an initial public offering for the unit after an auction of the business previously failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, according to a person with knowledge of the matter.

The agreement is “very good news for AIG and a major step toward quickly repaying U.S. taxpayers at a time when, in our view, the company appeared resigned to carrying out a time- consuming IPO,” said Emmanuelle Cales, an analyst at Societe Generale SA.

AIG gained $2.45, or 9.9 percent, to $27.22 at 9:42 a.m. in New York Stock Exchange composite trading. Prudential fell 12 percent to 533 pence in London trading. Prudential had more than doubled in 12 months through Feb. 26, giving the insurer a market value of 15.3 billion pounds before the purchase was announced.

China, Australia

Prudential’s purchase is Chief Executive Officer Tidjane Thiam’s first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to data compiled by Bloomberg. New York-based AIG will own about 11 percent of Prudential following the transaction, Thiam told reporters today.

Prudential is trying to boost sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets spanning China to Australia. The price is about 50 percent greater than Prudential’s market value. Hong Kong-based AIA, founded in 1919, sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows.

“It shows the company is very bullish on the Asia market,” said Luo Yi, a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” McKinsey & Co. has estimated that 40 percent of global life insurance premium growth will be in Asia in the next five years.

‘Faster Track’

“A sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today.

“AIG gave a $9 billion stake in American Life Insurance Co., known as Alico, and $16 billion in AIA, its biggest non-U.S. life insurance units, to the Federal Reserve in December. AIG will redeem the Fed’s $16 billion interest in AIA with proceeds from the sale and repay about $9 billion more on its Fed credit line, the insurer said today.

The $10.5 billion in securities obtained from Prudential will be sold “over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods,” AIG said in a statement. Proceeds will be used to repay debt on the credit line, the company said.

Credit Line

AIG owed about $25 billion on the line as of last week. The insurer had drawn more than $40 billion before reducing the sum in December when it turned over stakes in the units.

The Federal Reserve Bank of New York agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down its debt with an equity interest in the life units before completing a sale. The plan reduced pressure on AIG to sell in early 2009 when potential bidders were hobbled by losses and the inability to raise funds.

Prudential is paying about 1.69 times the embedded value of AIA in 2009. Chinese insurers are trading for about 2.9 times embedded value, and Axa Asia Pacific Holdings trades at about 1.7 times, according to Thiam. Embedded value estimates a company’s net worth excluding new business.

“Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart, who oversees about $3.3 billion at 7 Investment Management in London, including Prudential shares. “It puts them into a different league.”

The insurer plans to list its shares on both the Hong Kong Stock Exchange and the London Stock Exchange following the transaction. It will keep its headquarters in London.

Rights Offering

Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. The shares are likely to be sold for 40 percent less than today’s price, Thiam told reporters. Prudential will pay about $1 billion in fees and other costs related to the offer. Lazard Ltd. is also advising Prudential on the deal.

The offering would be the biggest since Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s largest.

“If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said.

India, China Talks

Thiam said Prudential is in talks with regulators in India and China. The insurer intends to keep its stake in a joint venture with China’s Citic Group, he said. In India, where both Prudential and AIG have separate joint ventures, regulators have told the company it can’t have two licenses, Thiam said.

MetLife Inc. has said it is in talks to buy AIG’s Alico, which operates in more than 50 countries outside the U.S. The insurers are discussing a price of about $15 billion, according to people with knowledge of the matter.

AIG’s bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer.

AIG is getting advice on the AIA deal from Goldman Sachs Group Inc. and Citigroup Inc., and Blackstone Group LP is working with the AIG board on its overall restructuring plan. Morgan Stanley is counseling the New York Fed.

Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit.”

Phillips Van Heusen Buys Tommy Hilfiger for $3 billion in Cash & Stock Deal, Securing Great Returns for Apax Private Equity

Tuesday, March 16th, 2010

PVH’s acquisition of Tommy Hilfiger is a great transaction for a solid brand at 8x trailing EBITDA.  Apax, the owner of Tommy Hilfiger since its $1.6 billion buyout in 2006 will make 4.5x on its investment, one of the most successful private equity exits seen this year, especially for a company purchased in 2006.

According to Ms. Skariachan of Reuters, Phillips-Van Heusen (PVH.N), owner of the Calvin Klein label, agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners APAX.UL in a $3 billion cash-and-stock deal to boost its presence in Europe and Asia.

The deal would make Phillips-Van Heusen one of the largest suppliers of menswear to U.S. department stores, and will keep Hilfiger founder Tommy Hilfiger in his role as principal designer for the clothing line.

It also will add yet another high-profile name to PVH’s lineup, home to Izod and Calvin Klein. PVH also distributes menswear under labels such as Kenneth Cole New York, Michael Kors, Donald Trump and DKNY.

News of the deal boosted Phillips-Van Heusen’s shares about 10 percent, although both Moody’s Investors Service and Standard & Poor’s said they may cut their ratings on the company, citing the debt it will take on to fund the deal.

The deal would mark an end to London-based private equity firm Apax’s plans for an initial public offering for the iconic brand which it had bought in 2006 for $1.6 billion.

Private equity firms have been increasingly able to exit investments as the economy and markets have stabilized. Taking companies public has been more problematic.

Apax made 4.5 times its investment on the deal and will hold about 7 percent of the stock in PVH after the deal, a source familiar with the situation said.

“The deal certainly makes sense and that can be seen from PVH’s share price. A lot of people out there see that although it is quite a costly acquisition, they are still getting it at quite a low price,” IBISWorld analyst Toon van Beeck said.

At an estimated valuation of 8 times trailing earnings before interest, taxes, depreciation and amortization, “the price seems reasonable and the deal makes strategic sense to us,” Morningstar said in a research note for investors.

Tommy Hilfiger has spent the last few years trying to undo the damage from shifting its focus to a more mainstream group of buyers. It suffered years of sales declines after its logo-heavy designs helped make it a staple of urban streetwear, but alienated more affluent customers. Now, the company is expanding more quickly abroad than in the United States.

“It’s an opportunity to really revamp Tommy Hilfiger, which was such an iconic brand in the 90s and has somewhat died,” van Beeck said.

“I don’t think Apax Partners did enough with the brand, but Van Heusen is more familiar with menswear,” said Donna Reamy, associate professor at the department of fashion design and merchandising at Virginia Commonwealth University in Richmond.

Hilfiger CEO Fred Gehring said the PVH deal makes sense despite Apax’s earlier plans to take Hilfiger public.

“When you have a strategic sale, the norm often is you also lose a little bit of your identity in the process. PVH on the other hand in the transaction with Calvin Klein seven years ago has demonstrated how it can be done differently,” Gehring told Reuters in an interview.

Gehring will remain as chief executive, join the PVH board and take on international operations for PVH.

PVH expects the deal to boost earnings by 20 cents to 25 cents a share, excluding items, in the current fiscal year.

It also said the deal would add 75 cents a share to $1 a share in the next fiscal year, ending January 29, 2012.

Private investment firm Blue Harbour Group, which owns about 1.5 million Phillips-Van Heusen shares, said it was “very supportive” of the deal.

There is “potential for the stock to move further up from the move we’ve seen today,” said Michael James, a senior trader at Wedbush Morgan in Los Angeles.


Phillips-Van Heusen will pay $2.6 billion in cash and $380 million in common stock for Tommy Hilfiger.

Phillips-Van Heusen expects to use $3.05 billion in debt, $385 million in cash, $200 million in preferred stock and $200 million from a common stock offering to finance the deal and refinance other debt.

The company is paying “a very fair price for such a powerful brand,” PVH Chief Executive Emanuel Chirico told Reuters in an interview. It expects $300 million in annual cash flow, and plans to pay off $200 million in debt in 2011.

The deal would not alter PVH’s relationships with its other brands and licenses, he said.

The company sees annual cost savings of $40 million from the deal and expects to close it in the second quarter.

According to Bloomberg, “the purchase will accelerate revenue growth  to as much as 8 percent, helped by Amsterdam-based Tommy Hilfiger’s European operations, Phillips-Van Heusen Chairman and Chief Executive Officer Emanuel Chirico, 52, said in an interview today. About two-thirds of Tommy Hilfiger’s revenue comes from outside the U.S. The combined company will have annual sales of $4.6 billion.

“PVH could extend some of their brands into Europe,” Chris Kim, an analyst at JPMorgan Chase & Co. in New York, said in a telephone interview. “In the domestic market, PVH has better expertise in the mass channel and the department-store sphere, and would help them manage better the Tommy Hilfiger brand.”

Adds to Earnings

The proposed acquisition is the biggest announced by a U.S. clothing retailer or manufacturer in the past 10 years, according to data compiled by Bloomberg. It’s also the eighth- biggest announced by any U.S. company this year, the data show.

Tommy Hilfiger will add as much as 25 cents a share to Phillips-Van Heusen’s 2010 earnings and as much as $1 next year, excluding one-time costs to finance the deal and integrate the companies, according to the statement. Phillips-Van Heusen’s revenue grew 2.8 percent in the year ended Feb. 1, 2009.

Phillips-Van Heusen rose $4.66, or 9.8 percent, to $52.40 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain in almost a year. The shares have risen 29 percent this year, giving the company a market value of about $2.7 billion, less than what it’s paying for Tommy Hilfiger.

Phillips-Van Heusen plans to sell its Arrow and Izod brands in Europe, probably through department stores, Chirico and Tommy Hilfiger CEO Fred Gehring said in the interview today. The company will expand existing Tommy Hilfiger categories at Macy’s Inc. — the exclusive department-store seller of Tommy Hilfiger sportswear — and add new ones, the executives said.

Macy’s Sales

Phillips-Van Heusen sells $300 million of its goods at Macy’s, the second-largest U.S. department-store chain, and Tommy Hilfiger sells $200 million, Chirico said.

“The Tommy acquisition really fits all our strategic targets for an acquisition,” Chirico said. “It’s a very strong global brand, with a strong international platform, that will be immediately accretive to earnings.”

Tommy Hilfiger first sold shares in 1992 and increased annual revenue to almost $2 billion in 2000 after its American- themed red-white-and-blue-splashed clothing became popular internationally. It now has 1,000 namesake stores worldwide.

The company was started in 1985 by its Elmira, New York- born namesake designer. Hilfiger, who opened a boutique while still a high-school student, will remain the principal designer, Phillips-Van Heusen said. Gehring will stay on as Tommy Hilfiger chief executive officer.

Deal Financing

Phillips-Van Heusen plans to sell shares worth $200 million to help pay for the takeover, issuing about 8.7 million, or 13 percent of its outstanding stock, to Apax and other Tommy Hilfiger shareholders. The company said it plans to get $2.45 billion of senior secured debt, including undrawn revolving credit of $450 million, $600 million of senior unsecured notes and $200 million in preferred stock, and about $385 million of cash to fund the deal and refinance $300 million of bonds.

Barclays Capital and Deutsche Bank AG are global debt coordinators for the transactions, according to the statement.

Phillips-Van Heusen’s bid values Tommy Hilfiger at 1.3 times sales and 10.7 times earnings before interest and taxes, known as Ebit. Tommy Hilfiger revenue in the year ending March 31 may total $2.25 billion, about 34 percent of that in U.S. markets, and Ebit will come in at $280 million, according to the statement.

Peter J. Solomon Co is the lead financial adviser to PVH. Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch, and RBC Capital Markets also acted as financial advisers and will arrange financing for the deal.

Credit Suisse acted as lead financial adviser to the Tommy Hilfiger Group and as sole adviser to Apax Partners.”

Consol Purchases Dominion Gas Natty Assets for $3.48 BIllion

Tuesday, March 16th, 2010

Natural gas has been a target for M&A over the past few weeks.  Exxon’s wager on XTO in mid-December was the largest natural gas acquisition over the past two years, valued at $31 billion.  The all stock transaction exposed Exxon to natural gas prices, as many held the view that the commodity was too cheap at the time.  Consol has been the latest company to make that bet, and investors are not happy.  The over supply of natural gas has made investors doubt the investment philosophy behind this transaction, sending Consol’s shares down 9%.

According to Matt Daily of Reuters, “Consol’s shares fell more than 9 percent on news it plans to issue $4 billion in debt and equity to fund the purchase and development of the property.

The deal is the latest sign that energy companies are targeting faster development of natural gas resources as the fuel wins an increasing share of the global energy market.

In December, Exxon Mobil (XOM.N) announced it would buy XTO Energy (XTO.N) for about $30 billion in stock in a bid to expand its natural gas portfolio in North America and the Marcellus Shale.

Consol, one of the nation’s top four coal producers, has been expanding its shipments of coal to Asian steel producers, but remains mainly a shipper of thermal coal to U.S. power companies.

“This clearly makes them a bigger gas player,” said Brett Levy, an analyst at Jefferies & Co. in Connecticut. “I don’t think it changes the mix between coal and gas today, maybe down the line it will.”

Consol said the purchase would boost its proved reserves of gas by more than 50 percent to about 3 trillion cubic feet and double its potential reserves to about 41 trillion cubic feet.

The deal is expected to close on April 30, and is expected to account for as much as 35 percent of Consol’s total revenue.

Consol also owns 83 percent of gas producer CNX Gas (CXG.N), and Chief Executive Officer Brett Harvey said Consol may seek to buy back the publicly traded shares it does not control. That sent shares in CNX up 17 percent to $30.62.

“We have kept our powder dry to do a big deal like this and we have the balance sheet to do that,” Harvey told a conference call.

Still, the Pittsburgh-based company, which listed $7.7 billion in total assets on its balance sheet for year-end 2009, saw its shares fall $4.94 to 49.39 on the New York Stock Exchange.

Shares of Dominion, which put the assets up for sale last year, were up 4 cents at $39.73 on the New York Stock Exchange.


Harvey said the company would ramp up drilling activity on the new properties, which together with Consol’s coal properties reunites land that was once owned by John D. Rockefeller’s Standard Oil empire.

The Marcellus Shale, which stretches from West Virginia across Pennsylvania and into New York, is one of the hottest natural gas fields under development, and analysts have said it may contain enough natural gas to supply the United States for a decade.

Still, some communities have protested that the hydraulic fracturing drilling used to tap the shale in the Marcellus has contaminated water supplies with toxic chemicals. Those concerns, as well as worries from other shale regions, have prompted the U.S. Congress to consider regulating the drilling technique.

Under the deal, Consol will acquire 1.46 million oil and gas acres, including 491,000 in the Marcellus, from Dominion along with more than 9,000 wells that are expected to produce more than 41 billion cubic feet equivalent in 2010, the companies said.”

Consol said it plans to have two rigs drilling new wells by the end of the year, five operating next year and 10 operating by 2013. Those rigs cost about $100 million per year.

For Dominion, which owns power utilities in North Carolina and Virginia as well as a liquefied natural gas terminal in Maryland, the sale will increase its regulated utility business to about 70 percent of its operating profits next year from less than 45 percent in 2006.

Dominion expects to receive after-tax proceeds of $2.2 billion to $2.4 billion, which will meet its equity needs for 2010 and 2011, allow it to repurchase common stock and fund the revenue credits to Dominion Virginia Power customers under a rate case settlement agreement.

The sale will reduce its on-going capital expenditures by $200 million per year.

Dominion is being advised in the sale by Barclays Capital Inc. and Baker Botts L.L.P. provided legal advice.

BofA Merrill Lynch acted as lead financial adviser to CONSOL Energy and Wachtell, Lipton, Rosen & Katz and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel. Stifel, Nicolaus & Company, Incorporated acted as financial adviser and provided a fairness opinion.”

Carlyle Group Bids On Arinc, US Aviation & Defense Deal at $1 Billion

Friday, March 12th, 2010

Another private equity deal has been announced this week, as Carlyle Group was rumored to make a bid for an aviation and defense business in North America.

According to Mr. Mider and Mr. Kelly of Bloomberg, “Carlyle Group, the world’s second- largest private-equity firm, hired Goldman Sachs Group Inc. to seek buyers for its Arinc Inc. defense and aviation business, said people with knowledge of the matter.

Arinc may fetch about $1 billion and attract bids from other private-equity firms, said the people, who declined to be identified because the plan hasn’t been announced. The Annapolis, Maryland-based firm consults with the military and designs systems that help airline pilots communicate with the ground.

Private-equity firms, largely unable to buy companies or sell what they already own for more than two years, are beginning to make deals and reap profits from previous purchases. Carlyle and competitors Blackstone Group LP and KKR & Co. have distributed gains to their investors after pursuing sales and initial public offerings.

Spokesmen for Carlyle and Goldman declined to comment.

Carlyle, based in Washington, ranks behind New York-based Blackstone in size. Created in 1987 by William Conway, Daniel D’Aniello and David Rubenstein, the firm has $87.9 billion under management and runs 65 funds around the world.

Arinc, founded in 1929, helped develop systems used by aircraft to communicate with air-traffic controllers. Owned by six U.S. airlines including AMR Corp. and UAL Corp., it was sold to Carlyle for an undisclosed sum in October 2007.

The investment was made by Carlyle Partners IV LP, the firm’s fourth U.S. buyout fund, which was launched in 2005 and has $7.8 billion of equity commitments, according to Carlyle’s Web site. Carlyle Mezzanine Partners II, a $554 million fund, also is an investor.

Arinc had more than $1 billion of revenue last year and about 3,100 employees.

Rubenstein, 60, said in a Feb. 18 interview that an IPO market that’s been unfriendly to private-equity firms won’t prevent Carlyle and its rivals from exiting investments, as other buyout managers and companies remain willing buyers.”

New UBS Alumni Investment Bank Princeridge Takes Over ICP Capital

Thursday, March 11th, 2010

After meeting two managing directors from PrinceRidge in Boston, I can definitely vouch for the fact that it is a very respectable firm with great people.  They will continue to grow in this market because of their expertise in high yield issuance, restructuring, and trading.  ICP is a solid acquisition because of its focus in structured products and asset management.

According to Ms. Shenn of Bloomberg, “PrinceRidge Holdings LP, run by former UBS AG executives John Costas and Michael T. Hutchins, is taking over the capital-market operations of ICP Capital, the broker and asset manager focused on structured products.

ICP Capital, majority owned by Chief Executive Officer Thomas Priore, will become one of six senior partners that own PrinceRidge and the combined business will operate under the PrinceRidge name, Costas said today in a telephone interview. Both firms are based in New York.

ICP, which has 60 employees in the units in New York, Chicago, Los Angeles, London and Copenhagen, is teaming with PrinceRidge after losing the head of its trading and investment- banking business, Carlos Mendez. PrinceRidge is attempting to position itself to capitalize on a “once in 50-year opportunity” to create a sizable “boutique” securities firm, as it expects only four or five of about 180 smaller competitors to grow into mid-size rivals to Wall Street’s “mega-players,” Costas said.

“There will be a tremendous consolidation and a shaking out among these 180 players, and the conclusion we clearly came to is we are stronger together, and can increase the probability of us being one of the winners,” he said.

PrinceRidge Chairman Costas, 53, and CEO Hutchins, 54, last year reunited to start their firm after running UBS’s hedge fund Dillon Read Capital Management LLC, which the Swiss bank wound down in 2007 as the credit crisis began roiling debt investors. Costas earlier led UBS’s investment bank.

‘Shouting Match’

PrinceRidge now has 85 employees, Costas said. ICP, which was founded as a Bank of New York affiliate in 2004 and became independent in 2006, has about a dozen workers in its separate asset-management unit, said Priore, 41.

Mendez left ICP after a “shouting match” with Priore last month, industry newsletter Asset-Backed Alert reported March 5. Mendez confirmed his departure in a telephone interview today and declined to comment further.

Priore declined to comment on Mendez’s departure, saying his company could have explored other options including raising capital.

“We chose this route because we think it really speeds up our evolution by a couple of years,” Priore said.”

BP Closes $7 Billion Deal

Thursday, March 11th, 2010

Strategic acquirers are rumored to have as much as $1.4 trillion, that’s right, TRILLION dollars on their balance sheets in the United States.  Of those potential acquirers, banks have between $600-800 billion of idle cash.  Last year, I remember discussing with a colleague how Exxon Mobil had $200 billion in treasury stock and $30 billion in cash for acquisitions.  Strategic acquirers will certainly pounce faster than financial acquirers.

According to Mr. Swint of Bloomberg, “BP Plc will pay Devon Energy Corp. $7 billion for assets in Brazil, the Gulf of Mexico and Azerbaijan, adding fields that may extend its production lead over Exxon Mobil Corp.

“This is one of the best deals BP has ever made,” Jason Kenney, head of oil and gas research at ING Commercial Banking in Edinburgh, said in a telephone interview. “Brazil was missing from BP’s portfolio, and the assets are all high-margin barrels.”

BP, which overtook Exxon for the first time last year with 4 million barrels a day of production, will enter deepwater exploration off Brazil. With his biggest purchase since becoming chief executive officer in 2007, Tony Hayward may add more than 100,000 barrels a day of oil by 2015, according to Kenney.

As part of the cash deal, Devon will buy a 50 percent interest in BP’s Kirby oil sands project in Canada, BP said in a press release today. Devon, which is selling assets to focus on North America, will pay $500 million for its stake and meet $150 million of BP’s capital costs.

Devon rose 1.4 percent to $72.70 as of noon in New York. BP closed down 0.2 percent at 623.7 pence in London. The shares have risen 39 percent in the past year.

In Brazil, BP will have access to deepwater exploration in eight blocks in the Campos and Camumu-Almada basins, as well as two onshore licenses in the Parnaiba basin.

Entering Brazil

Petroleo Brasileiro SA, Repsol YPF SA and BG Group Plc found more evidence of oil in the same offshore Brazilian block where the companies’ Guara field holds as much as 2 billion barrels of crude, Brazil’s National Petroleum Agency said yesterday. Royal Dutch Shell Plc and Galp Energia SGPS SA are investing in the country’s deep-sea pre-salt region, whose Tupi field is the largest find in the Americas since 1976.

For BP, “Brazil was the single type of asset play they lacked the most,” Gudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA, said in a telephone interview. “They also increase their footprint in deepwater oil in the Gulf of Mexico.”

Oil companies worldwide are seeking acquisitions to bolster reserves. Today’s purchase is BP’s biggest since it started the Russian TNK-BP joint venture in 2003.

Exxon sought last year to buy closely held Kosmos Energy LLC’s Ghana assets, including a stake in the offshore Jubilee field, valued at about $4 billion. Exxon agreed to buy gas producer XTO Energy Inc. for $29 billion in December. Total SA and China National Offshore Oil Corp. will become partners with Tullow Oil Plc in Uganda.

‘Huge Potential’

Devon’s assets may add 40,000 barrels a day for BP starting next year, based on current production, with “huge potential” for exploration, BP spokesman David Nicholas said. The company said last week it aims to increase production by as much as 2 percent annually through 2015.

“This strategic opportunity fits well with BP’s operating strengths and key interests around the world,” Hayward said in today’s statement. “As well as giving us a broad portfolio of assets in the exciting Brazilian deepwater, it will strengthen our position in the Gulf of Mexico, enhance our interests in Azerbaijan and enable us to progress the development of Canadian assets.”

Focus on U.S.

Devon, based in Oklahoma City, said Nov. 16 it plans to sell all its offshore and non-North American assets to focus on U.S. and Canada drilling.

The deal is subject to regulatory approval, BP said. In the Gulf of Mexico, the company will receive 240 leases, including interests in the Zia, Magnolia, Merganser and Nansen fields. In Azerbaijan, BP is buying Devon’s stake in the ACG development, increasing its interest to 40 percent.

Oil from the undeveloped Kirby sands in Canada will be routed to BP’s Whiting, Indiana, refinery through a supply agreement with Devon. BP is planning to expand the plant to process larger volumes of heavy crude oil, the type produced in Canada.

Deutsche Bank AG and JPMorgan Chase & Co. advised Devon on the transaction. BP didn’t use an outside financial adviser though Linklaters LLP gave the company legal advice.”

Bain Capital Taking Out Psychiatric Solutions for $1.35 Billion

Wednesday, March 10th, 2010

It looks like the private equity market is improving as the past month has been ripe with middle market offers, as the financing market has eased.  This latest deal is being advised by Bank of America Merrill Lynch and Jefferies.  After KKR passed on the offer, Bain & Company may place an equity bid for Psychiatric Solutions, a for-profit operator of mental-health hospitals.

Mr. McCracken and Lattman of the WSJ write: “Psychiatric Solutions Inc., a for-profit operator of mental-health hospitals and clinics, is in talks to be acquired by private-equity firm Bain Capital, according to several people familiar with the matter.

Psychiatric Solutions has a market capitalization around $1.35 billion. An exact takeover price couldn’t be determined Wednesday, but the firm was seeking around a 25% premium to its current market price, said people familiar with the matter. Any deal would include the assumption of Psychiatric Solutions’s outstanding $1.2 billion of debt.

Shares in the company, the largest for-profit psychiatric chain in the country, were trading near $30 last year. They were trading below $24 Wednesday afternoon. An agreement is still more than a week away, according to people familiar with the talks, though the deal may still fall apart in its final stages.

Private-equity firms have been in discussions with Psychiatric Solutions since last fall. CCMP Capital Advisors and Kohlberg Kravis Roberts & Co. looked at the business but eventually passed. Blackstone Group was also considering merging the company into its hospital chain Vanguard Health Systems Inc., according to people familiar with the firm’s thinking.

Boston-based Bain is now the most likely buyer. The firm is one of the lead investors in Nashville, Tenn.-based HCA Inc., the nation’s largest hospital operator, which Bain and KKR acquired for $21.3 billion in 2006.

A Psychiatric Solutions spokesman didn’t return a call seeking comment.

Bank of America Merrill Lynch is both advising and financing Psychiatric Solutions on the deal. Jefferies & Co. is providing additional financing.

A deal would show how the stabilization in corporate lending markets is encouraging private buyers such as Bain to put money to work. And a $3 billion acquisition would be among the largest leveraged buyouts struck since the credit markets collapsed in mid-2007.

In the past two weeks, Thomas H. Lee Partners agreed to acquire CKE Restaurants Inc., the parent company of Hardees and Carl’s Jr. restaurants for about $620 million; Abry Partners announced a deal to acquire cable operator RCN Corp. for $531 million; and CCMP purchased Infogroup Inc. for $460 million.

Psychiatric Solutions has more than 90 psychiatric hospitals and treatment centers in 32 states, with a heavy concentration in the East and Southeast. It has about 20,000 employees. The firm specializes in treating children with behavioral or mental illnesses. Besides its own sites, it also manages psychiatric units for other hospitals and government agencies. It reported 2009 sales of $1.8 billion.

Psychiatric Solutions has faced a number of allegations regarding the treatment of its patients, which has affected the company’s stock price. In July 2008 the Chicago Tribune published a report disclosing alleged unreported violence among juvenile patients at its Riveredge Hospital facility in Forest Park, Ill. A state-commissioned study by the University of Illinois-Chicago, published in August 2009, concluded that the facility failed to protect young patients from sexual assault and didn’t properly report attacks to authorities.

In February 2009, the company’s stock dropped 36% to a four-year low of about $10 per share after it reported weak earnings results attributable in part to the issues at Riveredge. “