Posts Tagged ‘Strategic Deals’

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.

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.

Hershey vs. Kraft

Friday, November 20th, 2009

Hersheyvs.kraft

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.

Comments:

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