Month: June 2007

KKR’s potential shareholders should eye debt markets

26 Jun 2007

After Blackstone s IPO, KKR may hope for a fat valuation. But investors should look to upcoming debt deals like First Data as bellwethers. That s because KKR s earnings largely depend on its ability to secure cheap debt. And that may be getting harder.

Iberdrola’s E6.4bn US energy deal isn’t convincing

26 Jun 2007

The acquisition of Energy East looks like another case of growth for growth s sake for the Spanish utility. Iberdrola has grown at a vertiginous pace in the last year, starting with Scottish Power. It still needs to convince the plan makes sense. The move may help dilute an awkward shareholder. But it's not clear there's any strategic logic.

BAE at the mercy of politicians

26 Jun 2007

Ministers stepped in when the defence group faced a probe over Saudi dealings in the UK. A new US probe may be harder to squash. The worst case scenario is that BAE loses lots of Saudi/US business. That's unlikely. But its growth engines could end up starved of fuel.

Dutch supremo tightens BoA grip on ABN’s LaSalle

26 Jun 2007

Advice from Holland's advocate general has cut the odds of the US bank clinching its deal. The fate of the rest of ABN is still unclear. Even if his advice is followed by Dutch court, it wouldn t put RBS out of the game. The only certain loser is the Dutch justice system. Even if his advice is followed by the Dutch court, it might not put RBS out of the game. Its team might just bid for the rest of the group.

What’s the next big risk for subprime?

26 Jun 2007

Falling home sales, homebuilder losses and Bear Stearns hedge fund woes are bad enough. But 2005 s mortgages could be a real kicker. Interest payments on many of them are about to shoot up. That could precipitate more defaults and deepen the subprime crisis.

Why do leveraged buyout houses play hot potato?

25 Jun 2007

The LBO industry's habit of selling assets to each other can seem mysterious unless you look at the skewed incentives, says Hugo Dixon.

Nasdaq casts shadow over LSE-Borsa deal

25 Jun 2007

A E5.8bn merger of the UK and Italian exchanges makes strategic sense. But an allshare is vulnerable to attack from US rival Nasdaq. With a 30% stake, Nasdaq could threaten to sell out. That would depress the LSE s share price and might upset the terms of the deal.

Bristol-Myers should consider an auction

25 Jun 2007

The US pharma group would be a tasty morsel for one of its bigger competitors. Its market cap has risen by a third on bid speculation. But it s still within reach of the industry s usual suspects when you factor in typical cost savings in pharma mergers.

AA and Saga agree to £6.15bn merger

25 Jun 2007

But the real juice in the deal seems to be the refinancing, which means private equity will get to take even more money out. There may be some logic behind merging the UK motoring services and insurance business with the travel and financial services firm.

GLG takes a haircut for quickie US listing

25 Jun 2007

Europe s largest hedge fund has shunned London in favour of a reverse takeover by a USlisted shell company, valuing it at $3.4bn. That s less than it might have got via a traditional IPO. But it s less stress. And if it helps gather US assets, it will be worth it.

France Telecom sale kicks off Sarkozy-style privatisations

25 Jun 2007

The French state will divest 5% of the telecom operator to pay down public debt. But it will still retain a sizeable stake in the company. Privatisations under Sarkozy will be opportunistic. Those expecting a massive sale of state assets are likely to be disappointed.

This time could be different in credit market

25 Jun 2007

Neither the GM downgrade nor the Amaranth failure durably widened spreads. But US mortgage problems might mark the end of easy credit. Mortgage losses could exceed $100bn. With bond yields rising and central banks unlikely to cut, the risk of a lender retreat is high.

Better Argentine government could lower returns

25 Jun 2007

Mauricio Macri s victory in Buenos Aires reflects fatigue with the failures of economic populism. But foreign investors shouldn t rejoice. A responsible federal government could bring hard times and devastate returns. Better to let the current one fail, then have proper reform.

Unicredit scratches its itch for risk

22 Jun 2007

After consolidating at home, the Italian bank has renewed its taste for adventure. Buying Kazakhstan s ATF opens a new frontier. But assets in traditional emerging markets are getting pricey. Unicredit at least has a decent track record of succeeding in new countries.

Competition still ahead in global battle of ideas

22 Jun 2007

But economic nationalism the only alternative to the social market model remains a marginal force, even if the margins are expanding. It might not seem that way, what with a global trade deal falling away and EU threats to favour the social side of the social market.

Another Netscape moment for private equity

22 Jun 2007

Blackstone s 20% firstday pop pales in comparison to that of Netscape it s not even close to the debut of rival Fortress. But like the IPO that launched the dotcom boom, its $38bn value shows investors are suspending disbelief. No wonder KKR s following. Blackstone s 14% firstday pop pales in comparison to that of Netscape it s not even close to the debut of rival Fortress. But like the IPO that launched the dotcom boom, its $39.5bn value shows investors are suspending disbelief. No wonder KKR s following.

It doesn’t really pay to Discover

22 Jun 2007

On the face of it Discover looks to have the potential to grow. But it is unlikely to outperform rivals American Express and MasterCard. The US credit card division of Morgan Stanley is to be spun off to shareholders. But an independent Discover doesn t look worth owning.

BP loses giant Russian Kovytka gas field

22 Jun 2007

But it is getting a fair price. Gazprom is buying out BP s share for upto $900m twice the book value of BP s investment. BP also has an option to buy back in. Reciprocity is the key word. It is one that will increasingly shape global oil relations. But it is getting a fair price. Gazprom is buying out BP s share for up to $900m twice the book value of BP s investment.

Peltz pushes Kraft into the fast lane

22 Jun 2007

The food company s spinoff from Altria has stuck it with a new master in the form of activist investor Nelson Peltz. As at Heinz and Cadbury, he isn't proposing anything revolutionary. But Kraft has ample room to double up its $5bn buyback plan.

Bear Stearns’ subprime rescue plan solves little

22 Jun 2007

The investment bank s $3.2bn loan pledge only bails out the less levered of its two struggling mortgageheavy hedge funds. The other still faces the risk of a margin call induced fire sale. That could drag down its sister fund and leave Bear on the hook.

EU must not drop commitment to competition

22 Jun 2007

The latest draft of the proposed EU Treaty drops a 50year commitment to free and undistorted competition in favour of social cohesion . This dramatically raises the stakes. Business cannot support a Treaty on these terms. This is one red line the EU must not cross.

Pier 1’s recovery still a question mark

22 Jun 2007

The US retailer of funky home furnishings has seen its stock rocket ahead this year on hopes of a turnaround. Pier 1's new boss is making the right moves. But a slowing economy could derail the effort and its shares haven't priced in room for error.

US antitrust chiefs target hippies – not fashionistas

21 Jun 2007

Nearly all mergers pass muster with regulators today. So arbs expect luxury eyewear group Luxottica s $2.1bn bid for Oakley to sail through. But why has the FTC opposed a smaller merger of two organic supermarkets? Perhaps the Bush administration prefers Ray Bans to tofu.

Valuing Blackstone: part 2.

21 Jun 2007

Breakingviews argued this week that the LBO house was worth only $20bn, not the $30bn it is shooting for. This was based on applying a multiple of 25 to "sustainable" historic earnings. We now justify that multiple.

Fortis ripe for activism treatment

21 Jun 2007

The Belgo Dutch group s investors don t seem to think much of its plans to buy part of rival ABN Amro. Its shares have fallen 11%. That may give hedge funds the chance to mete out to Fortis the kind of treatment Atticus is giving Barclays and TCI is giving ABN.

Will Bloomberg put Bloomberg on the block?

21 Jun 2007

Despite his denials, Mike Bloomberg s decision to drop the Republicans positions him for an independent run at the White House next year. To avoid Berlusconiesque conflict charges he d be smart to exit Bloomberg. But the financial media landscape s changes narrow his choices.

Subprime alarm confuses liquidity and credit

21 Jun 2007

Hedge funds worry the sale of Bear Stearns mortgage assets will force them to mark their own down, causing a margindriven selling spiral. But lower valuations shouldn t force the hands of other types of investors unless there s also a fast, sharp decline in credit quality.

A mobile-free sanctuary is going: planes

21 Jun 2007

European regulators have approved a technology that allows mobile users to make and receive calls on European flights. Similar services have been tried before, and failed. Alas, OnAir s prospects and economics look far better.

Private equity holds its own at UK enquiry

21 Jun 2007

If those queuing round the block to see private equity s grilling by a parliamentary committee expected a bloodbath, they were disappointed. The four industry representatives put up an impressive defence of private equity. But they re still likely to lose the argument over tax.

Washington needs to pick its private equity battles

21 Jun 2007

The claim that Blackstone s IPO should be delayed because China may steal secrets harms Congress credibility. Legislators are gunning after private equity. Some of their worries such as taxation make sense. Some don t. They should be choosy.