Posts Tagged ‘Deal’

Peabody Increases Offer for Macarthur Coal to $3.6 Billion After Rejected $3.3 Billion Bid, Bidding War with Noble – Research Attached

Tuesday, April 6th, 2010

Regional Thermal Coal Sector


The coal market is heating up in Asia, and North American companies are struggling to capture some of the growth in the region. Australian companies like Macarthur Coal have been able to capitalize on the Chinese need for natural resources. Peabody has entered a bidding war with Noble Energy for Macarthur Coal.  The company increased its offer by $300 million from $3.27 to $3.57 billion.  Analysts are waiting for the Macarthur’s shareholder meeting on April 12th…

According to Businessweek, “Peabody Energy Corp., the biggest U.S. coal company, increased its takeover offer for Macarthur Coal Ltd. by 8 percent to A$3.56 billion ($3.27 billion) after the Australian company rejected the first bid.

Peabody offered A$14 cash a share, it said in a statement, from A$13. Macarthur, which last traded at A$14.87 before it was halted, last week rejected the initial offer because it didn’t value its expansion plans.

The offer may thwart Noble Group Ltd.’s attempt to become Macarthur’s biggest shareholder in a stock swap for the Hong Kong-based commodity supplier’s Gloucester Coal Ltd. Peabody operates eight mines in Australia’s Queensland and New South Wales states, and is seeking more to feed power stations and steel mills in China, the world’s largest user of coal.

ArcelorMittal, the world’s biggest steelmaker, holds 16.6 percent of Macarthur and South Korea’s Posco owns 8.3 percent, according to data compiled by Bloomberg. Citic Australia Coal Ltd. has 22.4 percent. Peabody is offering alternatives to Macarthur’s three major shareholders should they wish to maintain their holdings in the company.

Macarthur is the world’s biggest supplier of pulverized coal used by steelmakers. Peabody wants Macarthur to delay an April 12 shareholder meeting when investors will vote on the Gloucester and Noble deal.

Separately, Noble backed by China’s $300 billion sovereign wealth fund, moved to secure full ownership of Gloucester by offering A$127 million, or A$12.60 a share, for the 12.3 percent of Gloucester it doesn’t own, Singapore-based Noble said today in a statement. Gloucester, halted from trading in Sydney, last traded on April 1 at A$9.31.”

According to Peabody, “This represents: a 44% premium to A$9.70 per share, the price at which Macarthur agreed to issue shares to Noble Group in relation to the Gloucester takeover offer (and provide board representation);

a 39% premium to A$10.04 per share, the closing share price of Macarthur on 25 February 2010, just prior to the release of the Lonergan Edwards Independent Expert’s Report;

up to a 42% premium to the valuation range for Macarthur determined by the Independent Expert, based on a 100% controlling interest; and

a 22% premium to A$11.48 per share, which was the 30-day volume-weighted average share price through 30 March 2010, when Macarthur announced Peabody’s original proposal.

Peabody has also reduced the conditionality of the proposal. While Peabody continues to offer alternatives to the three major shareholders to retain their original interest in Macarthur, Peabody’s offer is not contingent on their commitment provided the Macarthur Board supports our proposal.

Peabody today repeated its request to the Macarthur Board to delay its 12 April 2010 shareholders’ meeting, so that its shareholders may have the opportunity to consider Peabody’s proposal and realize a cash premium for their shares.

If the 12 April 2010 meeting proceeds and the resolution is approved, it will mean the Gloucester takeover offer and associated transactions with Noble Group are likely to proceed, in which case Noble Group will receive shares at a significant discount to the current price and Peabody’s proposal will lapse. Macarthur shareholders would then lose any potential opportunity to benefit from Peabody’s proposal.

Peabody believes the takeover offer for Gloucester and the associated transactions with Noble Group are not in the best interests of Macarthur shareholders. In particular, Peabody believes:

Macarthur is paying too much for Gloucester. Based on Peabody’s indicative offer price, Macarthur’s offer for Gloucester is valued at nearly A$1 billion. This is more than 40% higher than the mid point of the Independent Expert’s valuation of Gloucester and 26% above the top end of the valuation range determined by the Independent Expert. It would result in Gloucester’s shareholders receiving the majority of the benefits of the transaction;

Noble Group will receive Macarthur shares at a significant discount, becoming its largest shareholder and holding a position of significant influence. Macarthur is proposing to issue shares to Noble Group at A$9.70 per share; Peabody’s proposal is 44% above this price;

While the Independent Expert appointed by Macarthur concluded that the proposed issue of shares to Noble Group was reasonable, it also determined the offer was not fair based on a relative valuation assessment. Peabody believes that Noble Group’s proposed ownership interest in Macarthur would provide a blocking stake, further reducing the likelihood of any future premium offer for Macarthur shares.

Peabody believes its proposal is superior. Peabody’s indicative offer price of A$14.00 per share is more than 12% above the highest value for Macarthur that was determined by the Independent Expert, on a 100% controlling interest basis.

Peabody continues to urge Macarthur’s board to delay the 12 April shareholders meeting to provide its shareholders the opportunity of making an informed choice between proceeding with the Gloucester takeover offer and associated transactions with Noble Group, or endorsing a proposal from Peabody that would deliver a cash premium for their shares. Peabody believes it is in the best position to deliver a superior outcome for Macarthur shareholders.

According to Bloomberg, “Gloucester Coal Ltd., an Australian producer controlled by Noble Group Ltd., said it expects its largest shareholder to make an offer to buy the company.

Noble, which had earlier agreed to swap its stake in Gloucester for shares in Macarthur Coal Ltd., holds 87.7 percent of Gloucester, the Sydney-based company said today in a statement requesting a trading halt.

The bid comes after Peabody Energy Corp., the biggest U.S. coal company, last week offered A$3.3 billion ($3 billion) in cash to buy Macarthur Coal Ltd., the biggest exporter of pulverized coal used by steelmakers. Brisbane-based Macarthur rejected Peabody’s offer saying it fails to value its expansion plans.

Macarthur shares were halted from trading in Sydney today pending the release of an announcement about Peabody’s “interest” in the company, it said.”

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.”

Pfizer Buys Ratiopharm, Son Pays off Father’s Leveraged Bets with Proceeds

Friday, March 5th, 2010

One of the most interesting strategic deals on the market recently, has been the proposed buyout of Ratiopharm, a generic drug distributor based in Germany.  Pfizer would be purchasing the company from Ludwig Merckle, the son of Adolf Merckle, who unfortunately committed suicide after taking massive leveraged bets on the wrong side of the market in 2008.  Israel’s Teva Pharmaceuticals is another bidder in the process.

According to Shannon Pettypiece of Bloomberg, “Pfizer Inc., the world’s biggest drugmaker, is bidding as much as 3 billion euros ($4.08 billion) for German generic-drug maker Ratiopharm GmbH, said two people with knowledge of the talks.

Pfizer could make a presentation to Ratiopharm’s management as early as this week to support its bid, said the two people, who declined to be identified because they aren’t authorized to comment on the process. Teva Pharmaceutical Industries Ltd. and Actavis Group hf are also bidding, and Ratiopharm is expected to decide by the end of the month, said one of the people. A third person knowledgeable about the process confirmed the timing.

Acquiring Ratiopharm may expand Pfizer’s generic business to about $11 billion, nearing the size of Teva, the world’s largest generic drugmaker with $13.9 billion in 2009 revenue.

A purchase of the Ulm-based company, which is being sold by the Merckle family to repay debt, would be the biggest generic- drug deal since Teva bought Barr Pharmaceuticals Inc. for $7.4 billion in 2008. Ratiopharm’s biggest competitors in Germany are Swiss drugmaker Novartis AG’s Hexal and Stada Arzneimittel AG.

Pfizer doesn’t comment on rumors or speculation, said Joan Campion, a company spokeswoman.

The decision about Ratiopharm may come down to which buyer is willing to preserve the most of the company’s German operations, said one person.

Ludwig Merckle, the son of founder Adolf Merckle, is seeking to repay debt amassed by his father who committed suicide a year ago after making wrong-way bets on the stock market.

Top Products

The winner would gain three of the top 10 generic products by volume in the German retail drug market and five of the top 10 generic drugs sold to hospitals, according to data from IMS Health.

Pfizer has been trying to expand its generic business since 2008 when the company formed a separate business unit focused on products that have lost patent protection.

For Pfizer, the acquisition would give the company access to low-cost manufacturing, patent experts, chemists who specialize in generic medicines and technology to copy biologic- based medicines.”

KKR & TPG Interested in Purchasing CICC Stake from Morgan Stanley

Monday, March 1st, 2010

Over the past three years, Morgan Stanley has had difficulty managing its stake in CICC or China International Capital Corp., one of China’s most prominent investment banks.  Recently both TPG and KKR, two of the most powerful private equity firms in the U.S. announced that they were interested in purchasing this stake from Morgan Stanley.  Other firms, including Bain and J.C. Flowers had showed interest in 2008, but valuations for too low at that point for Morgan Stanley to sell.  Morgan Stanley will now be able to start its own investment bank in China without having a conflict of interest.

According to Bloomberg’s Cathy Chan, ” TPG Capital LLP and Kohlberg Kravis Roberts & Co. are in final talks to buy Morgan Stanley’s stake in China International Capital Corp., the first Sino-foreign investment bank, for more than $1 billion, said four people with knowledge the matter.

The U.S. private equity firms plan to equally split Morgan Stanley’s 34.3 percent holding in CICC, the people said, asking not to be identified because the talks are confidential. Bain Capital LLC lost out in bidding for the stake after offering less than $1 billion, one person said.

Selling the stake will allow Morgan Stanley to build its own investment bank in China after being a shareholder in CICC for a decade without having management control. It’s the bank’s second attempt to dispose of the stake, after talks with buyout firms fell apart in early 2008 on disagreements about price. New York-based Morgan Stanley invested $35 million in CICC when it was established in 1995.

“It’s a good profit and Morgan Stanley has been seeking to build its own platform as they can’t exert influence on CICC,” said Liang Jing, a Shanghai-based analyst at Guotai Junan Securities Co. “For the buyout funds, it’s nice choice of investment if you don’t mind being a passive investor.”

Morgan Stanley ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.

China Fortune

The Chinese government allowed Morgan Stanley to invest in CICC in return for the expertise required to build China’s first investment bank. Elaine La Roche, the last Morgan Stanley- appointed head of CICC, stepped down in June 2000. The partners bickered about compensation, management and strategy and that lack of consensus worked against both firms, she said in a 2005 interview.

Wei Christianson, Morgan Stanley’s chief executive officer in China, declined to comment, as did Joshua Goldman-Brown, an outside spokesman for KKR in Hong Kong, and officials at TPG. The Wall Street Journal and Financial Times earlier reported the two buyout firms are close to acquiring the CICC stake.

Morgan Stanley signed an initial agreement in 2007 to buy a one-third stake in China Fortune Securities Co. Regulators declined to sign off on that venture, partly because Morgan Stanley already owned a stake in CICC, people with knowledge of the matter have said.

“They have to start building the business from scratch and it will take five years before they can expand beyond underwriting business if they decide to be on their own,” Liang said.

Top Underwriter

The China Securities Regulatory Commission said late 2007 that overseas-invested financial firms that had been operating for five years would be allowed to expand into brokerage services.

CICC was last year’s top manager of Chinese domestic equity offerings, rising from No. 2 in 2008, according to data compiled by Bloomberg. Domestic equity and equity-linked sales in China rose to 245.6 billion yuan ($36 billion) in 2009 from 232 billion yuan a year earlier.

Buyout firms including TPG, Bain Capital, CV Starr & Co., J.C. Flowers & Co. and General Atlantic LLC showed interest in the CICC stake in 2008, people familiar said at the time.

Goldman Sachs Group Inc. was the first Wall Street investment bank to gain approval to form a securities venture in China in 2004, followed by UBS AG.

Credit Suisse Group AG and Deutsche Bank AG ventures won approval to underwrite bond and stock sales in 2008 and 2009 respectively, while Macquarie Group Ltd. is in the process of getting regulatory approval. CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, formed its China venture in 2003.”


Fairfax Buy’s Zenith for $1.3 Billion (Insurance)

Friday, February 19th, 2010

According to Zachary R. Mider and Sean B. Pasternak of Bloomberg, Fairfax Financial Holding’s has agreed to purchase Zenith National Insurance Corp., betting on a revival in the workers’ compensation insurance market:

“Fairfax Financial Holdings Ltd., the Canadian insurer run by Prem Watsa, agreed to buy Zenith National Insurance Corp. for about $1.3 billion in cash, adding sales in California. The deal is the biggest in Fairfax’s two decades under Watsa.

Fairfax will pay $38 a share, the Toronto-based company said today in a statement. That’s 31 percent more than Woodland Hills, California-based Zenith’s $28.91 closing price on the New York Stock Exchange yesterday. The deal is expected to be completed in the second quarter.

Watsa, 59, is betting on a rebound in a workers’ compensation market pressured by rising medical costs and falling payrolls. Like Warren Buffett at Berkshire Hathaway Inc. and Loews Corp.’s Tisch family, the native of Hyderabad, India, built his company by investing the assets of insurance operations, often in out-of-favor securities.

“Workers’ compensation is probably the softest of all lines right now,” Bob Hartwig, president of the Insurance Information Institute, said at a conference in November, using industry parlance for a market where rates are falling. “Rate accounts for the vast majority of premium reduction we have seen in workers’ compensation.”

In 1999, Fairfax agreed to buy a 38.4 percent stake in Zenith for $28 a share. It divested the holdings for a profit between 2004 and 2006. In January, Fairfax disclosed it had built an 8.4 percent stake. A deal at $38 a share values the company at more than $1.4 billion, including Fairfax’s preexisting stake.

Buying Insurance

Fairfax, which is scheduled to report fourth-quarter earnings late today, has taken stakes in insurers including Stamford, Connecticut-based Odyssey Re Holdings Corp. and Polskie Towarzystwo Reasekuracji SA of Poland. The Zenith deal is the largest since Watsa took over in 1985, according to Bloomberg data.

Watsa, referred to as the “Buffett of the North” by publications such as Forbes, will take over Zenith’s assets, valued at $2.4 billion at Dec. 31, and add them to the $29.8 billion Fairfax already manages.

“This is a great underwriting company, and marrying it with our investment capability will be great for us,” Paul Rivett, Fairfax’s chief legal officer, said today in a telephone interview.

Dividend Increased

Zenith surged $8.96, or 31 percent, to $37.87 at 4:15 p.m. in New York Stock Exchange composite trading. The company gained about 14 percent in the past 12 months before today. Fairfax rose C$7.29, or 2 percent, to C$374.99 ($360.08) in trading on the Toronto Stock Exchange. Last month, Farifax raised its annual dividend for the fourth year in a row, boosting the payout by 25 percent to $10 a share.

Zenith, run by Chairman and CEO Stanley Zax since 1978, said in its 2009 annual report that it has “a long-term record of outperforming the industry.” Zenith’s workers’ compensation loss ratio, a measure of how much of each dollar of premium is paid in claims, was lower than the industry average every year from 2002 to 2008, according to Zenith’s annual report.

“There will be no changes in Zenith’s strategic or operating philosophy,” Watsa said in the statement. The board and management of Zenith, who collectively own 3.4 percent of the insurer’s shares, agreed to vote their stock in favor of the merger, the statement said.

Zax said in a note to employees today that he has known Watsa for 20 years, and that the current management structure “will remain in place after the closing and continue to run Zenith.”

Zenith Dividend

Zenith shareholders of record on April 30 are still eligible for the 50-cent a share dividend the company announced last week, the company said in a question-and-answer sheet it sent to employees today.

Medical costs industrywide climbed at least 5 percent every year since 1994, according to data from the National Council on Compensation Insurance Inc. The U.S. unemployment rate doubled to 10 percent in the 24 months ended December 2009 as the country lost more than 8 million jobs in two years, reducing demand for workers’ compensation coverage.

Douglas Dirks, the chief executive officer of Reno, Nevada- based Employers Holdings Inc., said last year that the recession may reduce the frequency of claims because employers tend to keep their most experienced workers, who are least likely to be injured on the job. Employers rose 7.6 percent to $14.02 in New York, the most in eight months.

Bank of America Corp. and Dewey & LeBoeuf LLP are advising Zenith on the transaction. Fairfax is using Shearman & Sterling LLP and Torys LLP.”

~Sourced by I.S.

Icahn Back in Action – Lion’s Gate

Friday, February 19th, 2010

According to Bloomberg’s Michael White and Andy Fixmer , Carl Icahn is Seeking to boost his stake in Lion’s Gate Entertainment to 30%:

“Carl Icahn offered to buy as many as 13.2 million shares of Lions Gate Entertainment Corp. for $6 each, a move that would make him the largest shareholder at almost 30 percent.

The offer by Icahn, who owns 19 percent, also includes a condition seeking to block Vancouver-based Lions Gate, maker of the “Saw” films, from undertaking acquisitions of more than $100 million, according to a statement from the investor today.

The offer would move Icahn, who turns 74 today, ahead of Lions Gate board member Mark Rachesky, currently the largest shareholder at 19.7 percent, according to data compiled by Bloomberg. Icahn may be seeking to prevent the studio from buying Metro-Goldwyn-Mayer Inc. or Walt Disney Co.’s Miramax, which are for sale, said David Joyce, an analyst at Miller Tabak & Co. in New York.

“Icahn did not favor their buying TV Guide Network last year, as they were using a lot of credit line capacity to do so,” Joyce said in an e-mail.

Icahn, who turns 74 today, said in the statement that he won’t withdraw his tender offer if a change-of-control provision in the company’s loan agreements triggers a default or acceleration in payments. A call to his New York office wasn’t returned.

If Icahn triggers a default, the studio could obtain a waiver from lenders, prepay its loan or eliminate the senior revolving credit facility, according to the statement from the investor.

Default Risk

Lions Gate had drawn $12 million of its $340 million secured revolving credit facility at the end of 2009, according to a Feb. 9 regulatory filing. Lenders can declare a default if a shareholder passes 20 percent ownership, or if board control changes in certain ways.

The studio, run from Santa Monica, California, urged shareholders in a statement not to take any action until the company makes a recommendation on Icahn’s offer.

Lions Gate gained 25 cents to $5.48 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have fallen 5.7 percent this year.

Rachesky is co-founder and president of New York-based MHR Fund Management LLC.

Lions Gate films have taken in $70.4 million in U.S. ticket sales this year, according to Box Office Mojo, a film researcher based in Sherman Oaks, California. The company has released three films and has seven others planned for this year, according to the Box Office Mojo Web site.

Morgan Stanley is advising Lions Gate on the tender offer and Wachtell, Lipton, Rosen & Katz is legal adviser, the studio said.”

~Sourced by I.S.

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

Monday, February 15th, 2010


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.


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.


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…


Novartis to buy Corthera for $120mm

Wednesday, December 23rd, 2009

Swiss pharmaceutical giant Novartis announced on Dec. 23rd that it will buy San Francisco based Corthera for $120mm, giving it the right to develop drugs that prevent heart failure.  The acquisition is still subject to regulatory approval.

Corthera is a privately owned company that has been developing relaxin, a drug that prevents cardiac arrest in patients.  The drug is currently in its third trial phase and targets patients with acute decompensated heart failure.  Novartis wants to complete the development of the drug and plans to put it on the market in the U.S and Europe by 2013.  Corthera’s shareholders could receive additional payments if the drug is successful.  Analysts estimate that these payments could be as high as $500mm.

For those interested in biotech, according to Novartis, Phase II results of the drug relaxin show that it has “vasodilator effects (widens blood vessels), improves breathlessness, reduces cardiovascular morbidity and days in the hospital.”  Relaxin itself is a “recombinant version of a naturally occurring human peptide.  In its natural form, this peptide is responsible for relaxing the female reproductive tract as well as mediating the cardiovascular and renal changes during pregnancy.  In trials, relaxin is administered to hospitalized patients via a 48-hour infusion and has been shown to cause an increase in cardiac output, systemic and renal casodilation, which suggests potential benefits for patents with acute decompensated heart failure. ”

Further, Trevor Mundel, MD, Global Head of Development at Novartis AG claims that “despite a range of current treatment options, acute decompensated heart failure is the leading cause of hospitalization in people over age 65 and remains a major clinical challenge with a high and increasing incidence and substantial morbidity and mortality.  Acute decompensated heart failure, estimated to affect millions of people in the US and in Europe is a condition often associated with chronic heart disease where patients typically suffer from severe shortness of breath (dyspnea) and the heart’s ability to pump blood from the lungs is impaired.  As a result, the lungs become overfilled with fluid, which reduces oxygen uptake.  Diuretics and vasodilators are the current standard of care, but available agents from these classes have been associated with renal impairment, low blood pressure (hypotension) and adverse outcomes.”

Relaxin is expected to further strengthen the position of Novartis and its extensive range of cardiovascular medicines and development portfolio:

  • Diovan (valsartan) – an angiotensin receptor blocker (ARB), is the number one selling hypertension medication worldwide[1], and is indicated in chronic heart failure (NHYA class II – IV). Diovan has been shown to significantly reduce hospitalizations for heart failure.
  • Tekturna/Rasilez (aliskiren) – a first-in-class direct renin inhibitor approved for treatment of hypertension that is also currently in Phase III studies for use in chronic heart failure.
  • LCZ696 - a single molecule dual-acting angiotensin receptor blocker / neprilysin inhibitor (ARNI) that entered Phase III development in late 2009 for systolic heart failure.
  • LCI699 – a Phase II and first-in-class aldosterone synthase inhibitor (ASI) being explored as a potential treatment for heart failure.

Relaxin also further complements the Novartis strategy to expand in acute cardiology care that includes elinogrel, an anti-platelet agent in Phase II development with potential to reduce the risk of heart attack and stroke. Novartis has hospital-based specialty sales forces in place to maximize the commercial potential of this development portfolio.


For more information, please visit the Novartis website….

Dealmaker Appointees

Monday, November 30th, 2009


UBS just appointed Allen Bouch and Scott Norb to join the bank as managing directors of the Financial Sponsors Group in San Francisco and New York.  They will report to Steven Smith, the global head of leveraged finance.  Bouch was formerly at Citigroup and Merrill Lynch.  Norby was most recently a managing director at North Sea Partners.  He was previously an MD at Goldman Sachs and a senior banker at Morgan Stanley.

RBC Capital Markets recently hired Dan Teper as a New York based managing director in its New York Real Estate Coverage Group.  He wil work with the team’s co-heads, John Case and Kevin Stahl.  He was most recently an MD at Bank of America Merrill Lynch.  Teper has completed over 50 M&A, PIPE, strategic equity, private equity, and jv transactions worth more than $50 billion.

Advent International appoint Harry Sachinis as an operating partner.  Mr. Sachinis will advise on investment opportunities in the media industry, particularly in publishing and information systems.  He was recently president of the business information group at McGraw Hill, which included Platts, McGraw Hill Aerospace and Defense, and McGraw Hill Construction.

Jefferies and Co. hired Thomas O’Leary away from JPMOrgan to head its international equity sales group.  O’Leary will be a MD responsible for the distribution of international equity products.  Before JPMorgan, O’Leary was MD & Co-Head of the global equities sales division at Bear Stearns.


For more information, please refer to the Nov. 13th edition of IDD…