Posts Tagged ‘M&A’

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.

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.”

Investment Idea #1: Invesco (BUY, Target $25)

Wednesday, February 24th, 2010



Invesco recently bought Morgan Stanley’s retail fund operations, improving its retail distribution, product mix, and reach.  These funds include the popular Van Kampen funds.  There will be many revenue synergy opportunities to maximize the distribution of equity value and municipal bond funds to investors.  More than 60% of the M&A transaction was done using equity, so Invesco certainly has capital to shore up its balance sheet.

As equities continue to firm and perhaps rally, Invesco’s AUM should also go higher, driving up fee revenue.  Post acquisition, Invesco’s AUM should increase from $420 billion to $520+ billion.


Over 80% of Invesco’s funds perform in the top half of their Lipper (mutual fund rating) categories.  It also owns the popular PowerShares India Fund, AIM Mid Cap Core Equity Fund, and AIM Intl Growth Funds.


With respect to its capital structure, Invesco does not have debt (like other money managers).  It did not have and money market risk (like Legg Mason) did in 2008 and also paid off $300mm in debt last year.  Its total debt to cash ratio is less than 15% and its DEBT/EBITDA ratio has fallen below 0.9x.


  1. Range 19.13 – 19.63
  2. 52 week 9.33 – 24.07
  3. Open 19.17
  4. Vol / Avg. 4.16M/4.72M
  5. Mkt cap 8.38B
  6. P/E 26.04
  7. Div/yield 0.10/2.10
  8. EPS 0.75
  9. Shares 428.78M
  10. Beta     -
  11. Inst. own 86%


The LA team has a price target of about $25 on the stock, and the team also expects the company to increase its dividends.

Below is a breakdown of INVESCO’s competitors and their mutual fund assets.  Invesco grew 15% in January, while the industry average growth was less than 5%.

Mutual Fund Assets (not AUM)
Legg Mason 189.8
T. Rowe Price 227.7
BlackRock 721.4
Eaton Vance 86.2
Industry 11,000.0

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.

Free Class on M&A & Hostile Takeover Defense, Friday, Jan. 15

Friday, January 15th, 2010

LA Classy4

Class will be held at 140 Clarendon Street in Boston at 4pm.

For more information, please contact!

The following topics will be covered:

Merger Consequences Analysis

Income Statement Impact

Balance Sheet Impact

Purchase Accounting


Why premium over Fair Market Value?

SFAS 141, 141R, 142

EPS Adjustments

Exchange Ratio

Pro Forma EPS

Pro Forma Shares Outstanding


Hostile Takeovers

Poison Pill

Rights Plan in Action

JDA Software $250M Debt Offering

Sunday, December 6th, 2009


JDA Software has issued $250M in a private offering (qualified institutional buyers) in Sr. Notes.   The company plans to use the proceeds in order to fund a $434M acquisition of i2 Technologies (NASDAQ: ITWO).

JDA provides inventory management software for retailers. i2 technologies is in the business of supply chain management and offers software applications and SaaS.

This will be JDA’s second attempt to acquire i2 technologies after a failure in financing this past November. JDA had entered a $346M deal which provided special provisions to allow the buyer (JDA) to terminate the agreement in case of inability to raise financing.  In most cases in the past, the use of this provision leads into further negotiation of the purchase price.  However, when JDA attempted to lower the price, i2 refused, and instead JDA was forced to pay a $20M termination fee.

In addition to JDA’s debt offering, the company will fund their acquisition with a $120M loan and a $20M revolver from Wells Fargo.


Constellation Brands Acquires Gaymer Cider Co.

Thursday, December 3rd, 2009


C&C brands recently announced its mid January plans to purchase the Gaymer Cider Co. division of U.S. based Constellation Brands (NYSE, STZ).  Advised by Rothschild, the Irish drinks group C&C will acquire the Blackthorn, Olde English, Gaymer’s, and other value and generic cider brands from Constellation.  The $74 million deal will be financed through a $100 million bank facility (Lloyds Banking, Ulster Banking, BNP Paribas) and will provide significant expansion into C&C’s United Kingdom market presence.  C&C will specifically acquire production and distribution facilities located in Somerset and Bristol, respectively.  C&C predicts a gain of $5 million in synergies, both cost and revenue, by 2013.  Associated costs in the integration will amount to $2.5 million, incurred 2010-2011.  Latest numbers of Gaymer’s Cider Co. show that the company has EBITDA $9 million and total sales of $107 million.  By volume, the company sold 40 million gallons of cider last year, which is double the output of Magner’s Brand, C&C’s largest brand name.

U.S. Constellation Brands is a leading wine company that has brand portfolio built of several niche brands including Robert Mondavi, Arbor Mist, Corona Extra, Canadian Whisky, and Svedka.  The company’s current strategy has been to focus on premium high margin products in wine, beer, and spirits.  In the pursuit of creating a more simplified international business paired with their current premium product business strategy, the sale of Constellation Brand’s cider division has proven a wise choice. The company hope to apply proceeds of the sale to pay down borrowings.

C&C Brands has been on track to expansion of their cider business in Scotland and the U.K.  Beyond the purchase of Gaymer Cider Co. from Constellation Brands, C&C also recently purchased Anheuser-Busch In Bev’s Irish division. This purchase has made C&C the 2nd largest seller of lager in Scotland (Tennent’s brand).  C&C’s purchase of Gaymer Co. will provide for a smooth integration as 80% of sales are “off-trade”, meaning product sold in shops v. pubs/bars, and strong similarities in customer base. Constellation’s established brand names will support C&C with optimized sourcing and improved brand differentiation.


Go to Article from Reuters via The New York Times »
Go to Article from The Irish Times »
Go to Press Release from Constellation via PR Newswire »

Hershey vs. Kraft

Friday, November 20th, 2009


Chocolate makers Hershey Co. and Ferrero SpA are considering a joint bid for Cadbury Plc.  This bid presents a counter offer to Kraft’s final and previous bid of $16.7 billion as of November 9, 2009.  Analysts say that the joint bid might pose a viable rival against Kraft.  However, Cadbury has yet to hear anything from Ferrero and it doesn’t seem as if either Hershey or Ferrero are in any financial position to make a bid on the same level of Kraft, which rakes in about $42 billion a year in revenue.

The potential merger of these companies will create an international consumable goods powerhouse, using Hershey’s dominant position in the US and Cadbury’s role internationally.  Utilizing Cadbury’s existing distribution channels in markets such as India and Latin America could help grow Hershey sales as the firm has recently experienced a dip in consumption as shipment volumes decreases.

However, financing may be difficult to secure, as banks are still struggling to clean up their balance sheets.  Earlier this week, the Royal Bank of Scotland came under fire from trade unions in the UK for providing a loan facility to help finance the Kraft bid.


Hershey currently has about $1.5 billion in long term debt and will have between $300 and $400mm in yearly free cash flow to pay down acquisition debt in this scenario, whereas Kraft has about $18.6 billion of long term debt and almost $3 billion in yearly cash flow.  Both Hershey and Kraft will have difficult raising acquisition debt given their debt to free cash flow levels.  This also prevents Kraft from offering an all cash deal.  Similarly, purchasing all of Cadbury would make Hershey a highly leveraged company, counter to its traditional and conservative business model.

All deals are preliminary and financial specifics are not final.

~Catherine B.

Please see the Wall Street Journal for more information…

M&A Deal: American Express will acquire Revolution Money

Thursday, November 19th, 2009

American Express

American Express & Co. has announced its acquisition deal with Revolution Money, a provider of secure payments through an internet-based platform. The transaction, expected to close in early 2010 for approximately $300 million (Enterprise Value), will help the global payment services giant expand beyond traditional payment methods.

Revolution Money relies on cutting edge technology that offers two products. The first is an online person-to-person payment that is ideally suited to social and instant messaging networks, and the second is a credit card that authorizes transactions using a PIN number for enhanced security, rather than names and account numbers. Kenneth Chenault, chairman and CEO of American Express commented that Revolution Money’s potential could be unlocked with the help of American Express, allowing his company to deliver competitive online payment products more rapidly and efficiently. He also expressed the commitment of American Express to using its global brand recognition, marketing reach and networking expertise to help Revolution Money create a large customer base.

These ideas were reciprocated by representatives of Revolution Money who mentioned that the company’s service would help American Express compete in the online payment market where the low cost structure would ideally position American express to scale their online presence over time.

The transaction, which is currently in regulatory review, would result in Revolution Money operating as a subsidiary of American Express. It would become the first component of the Enterprise Growth organization, which was formed by American Express to facilitate entry into related businesses and new payment areas.

Comments: This deal will help American Express expand its product mix. It will help tap into a new market where as one of the initial entrants, it can leverage its brand name to capture a large market share. Allowing Revolution Money to operate as a subsidiary company and maintaining its formula for success rather than integrating it into the current structure is a smart move by American Express as well. The deal helps Revolution Money because allowing under a holding company can let them incur sustained losses for a longer period of time than if operating independently as well as giving them access to all the resources a globally recognized corporation has.

~Arup Das