Archive for the ‘Cross Border’ Category

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.”

AIG Sells Alico to Metlife for $15.5 billion

Wednesday, March 10th, 2010

March 10, 2010

AIG has repaid about have of the $180+ billion it owes U.S. taxpayers to date.  The sale of the Alico Life Insurance division to MetLife is the company’s latest attempt to sell assets to repay TARP funds.  This deal will expand MetLife’s present in Asia, Europe, and Latin America.  Alico operates in over 50 countries, while MetLife currently only serves 17.  AIG recently also sold the Asian insurer AIA for $35.5 billion to Britain’s Prudential.

According to Mr. Bernard of the Associated Press, “American International Group Inc. said Monday that it will sell its American Life Insurance Co. division for $15.5 billion to MetLife Inc. The government-approved deal, AIG’s second big asset sale in two weeks, will give the insurer more cash to repay the billions of bailout dollars it still owes the government.

The purchase expands MetLife’s presence in Japan and high-growth markets in Europe, the Middle East and Latin America. American Life Insurance, known as Alico, operates in more than 50 countries. MetLife currently offers services in 17 countries.

It also moves AIG closer to repaying taxpayers. As of Dec. 31, the company owed the Treasury and the Federal Reserve Bank of New York nearly $130 billion. AIG’s bailout package was originally worth up to $182.5 billion.

On March 1, AIG agreed to sell Asia-based life insurer, AIA Group, to Britain’s Prudential PLC for $35.5 billion. The two units, while selling similar products, don’t operate in the same markets in Asia.

Investors were pleased with the Alico deal, and bid AIG’s shares up 3.6 percent, or $1.02, to $29.10. MetLife shares rose $1.98, or 5.1 percent, to $40.90.

MetLife will pay $6.8 billion in cash for Alico. The rest of the purchase price will be paid in stock and what are called equity units, which are eventually convertible to common stock and preferred securities

AIG will initially hold an 8 percent stake in MetLife. Its stake will reach 14 percent in early 2011 after some MetLife preferred shares are converted into common shares. The stake could reach up to 20 percent, after the insurer receives $3 billion in equity units.

“Rarely does one come across a deal that has such a strong strategic fit,” MetLife CEO Robert Henrikson said in an interview with The Associated Press.

Henrikson said MetLife has been in the market for various domestic and overseas acquisitions over the past five years. He said he began discussing a possible Alico deal with AIG in December 2008, three months after the government bailout.

AIG and MetLife are based in New York. Robert H. Benmosche, the former head of MetLife, became AIG’s CEO in August. Benmosche wasn’t involved in the deal discussions, Henrikson said. All talks were handled by a special committee within AIG, he said.

The Alico deal, while good for MetLife, carries some risk, said Aite Group senior analyst Clark Troy.

“Japan is an aging society and MetLife may face challenges growing revenue,” Troy said. “However, MetLife does have the ways and means and experience to make the deal work, as they will be building on one of their stronger franchises.”

MetLife currently has a successful variable annuity business in Japan.

MetLife’s international business grew significantly in 2005 when the company acquired most of Citigroup’s international insurance businesses, adding Japan, Australia and Britain to its portfolio. Before then, MetLife already had operations in South Korea, Chile and in Mexico, where it is the largest life insurer.

Henrikson said he didn’t consider a purchase of AIA Group because “it didn’t fit MetLife’s growth plans.”

As the largest recipient of taxpayer bailout dollars, AIG remains under the supervision of Treasury and the New York Fed. All negotiations around Alico and AIA were monitored actively by representatives from Treasury and the New York Fed, officials from both agencies said.

Each agency has participated in every key call and meeting between directors about the deals, and discussed the available options with AIG’s executives, according to officials familiar with the process. They spoke on condition of anonymity because they were not authorized to publicly discuss the negotiations.

With the latest sale, AIG will be able to slash its outstanding government debt of $129.3 billion by about $51 billion, or 39 percent, to about $78 billion. The cash portion of the Alico and AIA deals will be used immediately to pay down an investment in AIG by the Federal Reserve Bank of New York. The equity portion of the deals will be sold over time to help further repay that debt.

The government will also be selling shares it holds in AIG to recoup some of its investment.

However, it is not yet clear whether the government will be able to recover all of its investment. It’s too early to tell how much the proceeds from any of the stock sales will be.

Before it nearly collapsed during the 2008 financial crisis, AIG was the world’s largest insurer. It sold a variety of insurance products around the world and operated a lending and aircraft leasing businesses. It also had a financial products division that sold complex securities called credit default swaps. When the financial crisis sent billions of dollars of mortgages and bonds into default, credit default swaps undermined AIG and forced the government to rescue the company. In return, the government took a nearly 80 percent stake in AIG.

AIG has been working for the past year and a half to sell assets and streamline operations to repay its debt. Since receiving government bailout funds, AIG has 21 unit sales or asset transactions, including the Alico and AIA deals. AIG’s next key sale could be Nan Shan, a Taiwanese company, analysts have said.

AIG is also looking at funding needs and exploring options for restructuring its aircraft leasing unit, International Lease Finance Corp., and its consumer and commercial lending business, American General Finance Inc.

It is also conceivable that AIG might consider sales of its American General Life and American General Life and Accident units, Aite Group’s Troy said.

The company is expected to keep Chartis, its larger property and casualty insurance company; two additional Japanese life insurers, and a handful of smaller, U.S.-based companies. They are very unlikely to be sold, according to a Treasury official.

Alico has operations either directly or through subsidiaries in Europe, including Britain, Latin America, the Caribbean, the Middle East and Japan. AIA operates primarily in Asia, including China, Singapore, Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam, Indonesia and India.

AIA dates back to 1919, when AIG founder Cornelius Vander Starr started his first insurance company, American Asiatic Underwriters in Shanghai. Two years later, he founded Asia Life Insurance Co., which later became Alico.”

Yara to Purchase Terra for $4.1 Billion

Monday, February 15th, 2010

YARA_RGB

February 15, 2010: Iowa based Terra was just bought out by Yara International ASA, the world’s largest fertilizer maker.  The deal will take advantage of lower natural gas prices in the United States, and arbitrage between European and U.S. natty rates.  Let’s see more cross-border M&A!  I’m getting pumped! ~I.S.

Feb. 15 (Bloomberg) — Yara International ASA, the largest fertilizer maker, agreed to buy Terra Industries Inc. for $4.1 billion to benefit from lower U.S. fuel costs.

The company will pay $41.10 for each Terra share, raising the cash with a $2.5 billion rights offer, Oslo-based Yara said in a statement today. The price is 24 percent more than Terra’s Feb. 12 close of $33.25 in New York. Yara fell 6.9 percent today in Oslo, the most in almost eight months.

Buying Sioux City, Iowa-based Terra will give Yara six North American plants making nitrogen-based fertilizer. The price of natural-gas, used in production, has declined 64 percent in the past two years as the recession weakened demand and increasing shale production in the U.S. buoyed supply.


“It makes sense for them to secure more U.S. gas, which may be structurally cheaper than European gas,” said Samir Bendriss, a research chief at Pareto Securities ASA in Oslo who has a “hold” recommendation on Yara shares. “It makes sense strategically, but the price is too high.”

Yara is paying 12.8 times Terra’s net income, according to data Bloomberg compiled. Acquisitions in the agricultural chemicals industry were done at 10 times net income, according to the median multiple of 37 deals in the past 12 months.

“Yara is committed to the U.S. market, and this transaction presents an attractive opportunity for both companies to strengthen their positions in the U.S.,” Yara’s Chief Executive Officer Joergen Ole Haslestad said in the statement. “Both companies are strong in ammonia and nitrates, and have complementary geographical footprints.”

Ammonia, Nitrates

The combination will have an 8 percent share of the world ammonia market, Haslestad said in Oslo. The deal will “almost immediately” add to Yara’s earnings, he said in an interview.

Yara fell 16.8 kroner to 225.7 kroner at the close of trading in Oslo, the steepest drop since June 22. The decline extended the loss this year to 14 percent, giving the company a market value of 66 billion kroner ($11 billion).

“It will require a relatively big rights issue, so it’s fair that the shares should fall,” Henrik Sinding, an analyst at Carnegie ASA in Oslo who has an “outperform” rating on the stock, said by phone. “Given that the price is OK and the rationale behind it makes sense, we don’t expect to make any changes to our recommendation on the back of this.”

Yara’s bid comes a month after Deerfield, Illinois-based CF Industries Holdings Inc. dropped an offer for Terra. CF had sought to buy Terra since January 2009, while fending off a hostile offer from Agrium Inc. At stake was whether Agrium or CF would be the world’s second-largest publicly traded maker of nitrogen-based fertilizers after Yara.

Cost Savings

Yara expects pretax cost savings of $60 million within a year of closing the deal, expected in about June. Merger costs won’t be significant as Terra’s plants are in a good condition and need only maintenance spending, Chief Financial Officer Hallgeir Storvik said in Oslo. The companies haven’t decided on how many employees will be laid off, he said.

“Terra assets are located in close proximity to the U.S. corn belt and key ammonia transit pipelines,” Joe Dewhurst, an analyst at UBS Warburg Ltd. with a “neutral” rating, wrote in a note. “This should provide Yara with logistics synergies and a low cost platform for further North American operations expansion. Terra gas feedstock costs are likely to remain competitive versus liquid natural gas.”

Terra, which had 2008 sales of $2.9 billion and already runs a 50-50 joint venture in the U.K. with Yara, will be renamed Yara North America. CEO Michael Bennett will become president. The deal has a $123 million break fee for both companies should the deal fail to go through, Yara said.

Rights Offer Timing

The rights offer may happen in May. Norway’s government, Yara’s largest shareholder with 36 percent, and the National Insurance Fund with 6.6 percent will subscribe, Yara said.

The rest of the offer will be underwritten by Citigroup Inc., Deutsche Bank AG and Nordea Bank AB. While the company hasn’t immediate plans to sell debt, “down the road we are assuming we’ll go to the bond market,” Storvik said. Credit Suisse Group AG served as Terra’s financial adviser.

Yara reported fourth-quarter net income of 1.42 billion kroner, after a 2.11 billion kroner loss a year earlier.

To contact the reporter on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net

For more information, please visit Bloomberg…

~I.S.

Bharti Telecom Purchases Zain’s African Assets for $10.7 Billion

Monday, February 15th, 2010

bharti

Zain, one of the largest telecom giants in the middle east, just agreed to offload its African assets to India’s Bharti Airtel, in one of the largest Indian mergers in history.  The deal is valued at $10.7 billion U.S.  Zain spent more than $12 billion to enter Africa over the past decade.  Bharti also agreed to buy 70 percent of Bangladesh’s Warid Telecom for an initial investment of $300 million.  The deal was reached because Zain was tired of underperforming telecom assets in Nigeria and Kenya.  It presents the opportunity for Bharti to turn things around.  ~I.S.

Kuwaiti telecom group Zain has agreed to offload its African assets to India’s Bharti Airtel, Kuwait’s state news agency said on Sunday, in a deal valued at $10.7 billion.

Deals

The deal marks one of the biggest cross-border transactions in the Middle East in years and a turning point in the long-running saga around the third-biggest telecoms operator in the region.

“If the transaction values the African operations at $10.7 billion, it would be a nice premium,” said analyst Simon Simonian at investment bank Shuaa Capital. “We expect Zain to pay a special dividend to shareholders from the proceeds.”

The Kuwaiti bourse suspended trading in Zain shares before the open but optimism that the deal would be approved sparked a rally in Kuwaiti shares, pusing the benchmark index up 1.8 percent, in its biggest gain in 6 months.

The sale of Zain’s African positions would mark a strategic reversal that saw the local player rise to international status and then revert to that of a regional player. Zain has spent more than $12 billion alone to expand in Africa since 2005.

Zain’s expansion from Burkina Faso to Zambia and its ubiquitous logo has transformed it into a symbol of national pride synonymous with Kuwait’s faltering aspirations to diversify its economy beyond the oil sector.

“Zain grew a little bit too fast and was facing some growing pains in the past two years,” Simonian said.

Confirmation that India’s Bharti was the bidder showed the telecom operator was back in the hunt for emerging market acquisitions after its planned $24 billion merger with South Africa’s MTN failed in September.

In October, Akhil Gupta, deputy group CEO at the Indian mobile operator’s parent, said Bharti would look at buying a stake in Zain if there was an opportunity.

Last month, Bharti agreed to buy 70 percent of Bangladesh’s Warid Telecom for an initial investment of $300 million. It also set up a new unit to drive its foreign expansion, focused on opportunities in emerging markets where it can replicate its low-price, high-volume model.

Bharti’s home mobile market is facing margin pressures from intense competition and price wars, resulting in lower tariffs and shrinking profits.

TRANSFORMATION

Analysts have pointed to Zain’s underperforming assets in Nigeria and Kenya as a burden on the group but said its large presence in sub-Saharan Africa harbored valuable growth.

The group pulled back from an expansion spree in 2009 and rejected an offer from France’s Vivendi for its African assets. It then halted talks to sell the assets to appease potential buyers of a 46-percent stake in the parent company.

A consortium of Asian investors has been trying to buy the 46 percent stake from Kuwaiti family conglomerate Kharafi Group for 2 dinars per share, or about $13.7 billion, although selling the African operations would likely end that initiative.

In one indication of an imminent deal, Zain last week appointed Nabil bin Salama as the firm’s chief executive, replacing Saad al-Barrak, seen as the driving force behind the growth into 23 countries across Africa and the Middle East.

Barrak resigned earlier this month amid uncertainty about the fate of the sale of the parent company stake.

Last May, Zain announced a rare cut of 2,000 jobs of its 15,500 workforce, signaling that the heyday of expansion might be over.

Africa represents about 62 percent of Zain’s 64.7 million customers but only 15 percent of the groups’s net profit. Zain operates in 24 countries including Saudi Arabia and Nigeria.

Shares in Zain have risen 23 percent since February 4.

(Article by Thomas Atkins, Editing by Mike Nesbit)

For more information, please visit Reuters…

~I.S.