State Street, known for its middle-of-the-road custodial and ETF services, is not immune from the risky bets leveling Wall Street. The institutional money manager said it will take a $279 million fourth-quarter charge after making bad bets on subprime mortgages and other debt, and replaced its investment management chief. Bill Hunt, who had led the State Street Global Advisors unit, resigned after only three years in the job. The 71-cent-per-share charge addresses legal and other costs related to exposure to and illiquidity in subprime mortgages, and addresses “customer concerns as to whether the execution of these strategies was consistent with the customers’ investment intent,” the company said.

U.S. carmaker Ford Motor Co formally identified top Indian auto maker Tata Motors as the front-runner to buy its European brands Jaguar and Land Rover. Tata, along with Mahindra & Mahindra and U.S.-based private equity firm One Equity Partners, had emerged in November as the last bidders left in the race for the two luxury brands and Tata had long been viewed as leading the pack. India has not been timid about its interest in overseas investment. Tata Steel bought Anglo-Dutch steelmaker Corus last year for 6.2 billion pounds ($12.3 billion).

The Weather Channel is reportedly putting itself up for sale, and could fetch $5 billion. The New York Times says interest is seen coming from NBC, News Corp, and Comcast. The sale is reported to be part of a larger breakup of its parent, Landmark Communications, a privately held company controlled by the Batten family of Norfolk, Va., which also owns daily newspapers and other media properties. The Times notes that the Weather Channel’s Web business, which ranks as the nation’s 18th-largest media site by traffic, is bigger than CNN and Facebook.

Activist billionaire investor Nelson Peltz has taken a “small” stake in insurance broker Marsh & McLennan Cos Inc, The Wall Street Journal reported. The U.S. Federal Trade Commission cleared Peltz and his companies to buy Marsh & McLennan shares earlier this week.

Philips Electronics has extended its $2.7 billion takeover offer for U.S. lighting maker Genlyte Group Inc to Jan. 16, saying not all regulatory approvals have been obtained yet. The company still needs anti-trust approval in a “small number of countries outside of North America,” a spokesman said.

“I think Mark Zuckerberg is doing just fine. I don’t think he has any intention of selling it, IPO’ing it or anything else.” — News Corp.’s President Peter Chernin (pictured left), commenting on the chances of Facebook founder Mark Zuckerberg putting the social networking site up for sale.

“By the end of the quarter, it will be different.” — SunTrust Banks Inc. CFO Mark Chancy, as the bank announced an estimated write-down in the value of some mortgage-related assets for July-August. 
 
“We don’t think this is a very good time to buy community   banks. The prices — I don’t know what to say — are not rational.” — BB&T CEO John Allison. 
    
“Judging from the current situation, we think there is still a chance we can buy KEB and are preparing for the possibility.” – Kim Ki-hong, Kookmin’s chief vice president, underlining persistent doubt about whether HSBC will be able to win necessary approvals from Korean regulators.

Picture: Reuters file

Alcoa, the world’s top aluminum maker, is selling its entire stake in Aluminum Corp of China for up to $2 billion, reaping a potential profit on its investment of as much as $1.9 billion. Alcoa will sell 700 million shares, with an option to increase the number to 884.2 million shares, at between HK$17.26 and HK$18.27 per share. That’s a discount of between 10.4 percent and 15.4 percent to the stock’s closing price of HK$20.40 on Wednesday. Goldman Sachs is handling the deal. (Alcoa’s chairman and CEO Alain Belda pictured left)
    
** Warren Buffett’s Berkshire Hathaway shed another chunk of its stake in top Chinese oil producer PetroChina, selling about 92.66 million shares in late August for $136 million. The sale cuts Berkshire’s holding of PetroChina’s freely tradable shares to 9.72 percent, or 2.05 billion shares, from 10.16 percent. PetroChina’s share price has risen about 35 percent over the past year on high oil prices and vigorous Chinese demand, although domestic rivals CNOOC and Sinopec have seen stock price rises of 56.5 and 76.5 percent over the same period.
    
** Russia’s cartel office rejected a bid from German industrial conglomerate Siemens to buy a controlling stake in Russian turbine maker Power Machines. Siemens owns 25 percent of the turbine maker and had said it was not aiming for a majority stake. Its past attempts to take control of Power Machines were blocked by Russian authorities citing national security reasons. Russia’s Interros, the investment vehicle of billionaires Vladimir Potanin and Mikhail Prokhorov, earlier said it signed a deal to sell its 30.4 percent stake in Power Machines to a Russian strategic investor, but did not name the buyer.
    
** Shares in ports-to-telecoms conglomerate Hutchison Whampoa surged as much as 8 percent and its bond spreads tightened after a report said it planned to sell its Italian 3G mobile operating arm, 3 Italia. The company is understood to have sent out an information memorandum in the hope of unearthing potential bidders for the Italian division, the largest of its third-generation businesses, the Times of London said in an online report.
    
** Top South Korean retail bank Kookmin reaffirmed its intention to buy the sixth-biggest local lender, Korea Exchange Bank, challenging a bid from UK-based HSBC, which said last week it had agreed to buy 51 percent of KEB from U.S. private equity firm Lone Star for $6.3 billion. The agreement came almost a year after Lone Star scrapped a $7.3 billion deal to sell the lender to Kookmin because of legal disputes in South Korea on whether Lone Star had acted illegally in the way it bought KEB in 2003.  will sell 700 million shares, with an option to increase the number to 884.2 million shares, at between HK$17.26 and HK$18.27 per share. That’s a discount of between 10.4 percent and 15.4 percent to the stock’s closing price of HK$20.40 on Wednesday. Goldman Sachs is handling the deal. 
   
Picture: Reuters file

With bankers and private equity investors closely watching the loan market, a ray of hope appeared on Tuesday from the Allison Transmission deal.

A source told Reuters Loan Pricing Corp that Citigroup, Lehman Brothers, Merrill Lynch and Sumitomo Banking Corp. sold a $1 billion block of their previously unsold $3.5 billion bank loan for Allison Transmission at 96 cents on the dollar — which could help jumpstart the syndication of other deals. Banks know that they’re going to take a hit with the more than $300 billion of LBO debt they’ve got stuck on their balance sheet.

The question is, how big of a hit. Most banks would cringe at 90 cents on the dollar or lower, but suddenly, 96 cents doesn’t look so bad. Maybe there is hope for the pig in the python after all.

The Allison news comes as merger arbitrage spreads are tightening – meaning investors are continuing to bet that a number of high-profile LBOs will get done. Last month the spreads had widened when the credit crunch set in.

News that TXU cleared another hurdle and that KKR was willing to compromise on First Data terms likely brought in the spreads, which measure the difference between the current and offered price of an acquisition target. What may be driving the spreads on Tuesday is Allison hitting the “most significant pricing point for the loan market since mid-July,” according to Reuters LPC. 

A huge pile of LBO debt is still being held by banks and waiting for syndication. Allison’s loan sale could bode well for other syndications, but the market will dictate demand.

Australian healthcare group Symbion Health and suitor Healthscope plan fresh talks on a tie-up after shareholders rejected Healthscope’s A$2.9 billion ($2.4 billion) offer. Rival group Primary Health Care, voted its 20 percent strategic stake in Symbion against the deal. The bid won 73.9 percent votes in favor, but required 75 percent to pass. Primary has proposed buying some Symbion assets and has said it might make a private equity-backed bid for Symbion as the three companies jockey for position in a consolidating healthcare sector.
 
** The Carlyle Group has postponed the sale of cable-tv company Insight Communications, according to a source familiar with the matter. Tight credit market have curtailed bids from suitors interested in the cable company, which Carlyle bought for $2.1 billion in a December 2005 management-led leveraged buyout.
 
** London-based advertising conglomerate WPP Group acquired Schematic, an independent interactive agency based in Los Angeles, The New York Times reported. Details of the all-cash deal are not being disclosed.  WPP, which owns Grey Global, JWT and Ogilvy & Mather, has been in a race with rivals to acquire digital-media savvy companies. WPP bought 24/7 Real Media for $649 million in July.
    
** Private equity firms, including Bain Capital and Permira, have joined a big field of contestants for Japanese agrichemical company Arysta LifeScience, sources familiar with the matter said. They join Israel’s Makhteshim Agan Industries, the world’s biggest maker of generic agrichemicals, and Australian farm chemical maker Nufarm, the sources said. Private equity firm Olympus Capital Holdings Asia is selling Arysta in an auction that could raise more than $2 billion.
    
** The French government has hired British bank HSBC and consultancy firm McKinsey to review options for state-controlled nuclear group Areva, according to the French newspaper Les Echos. Without citing sources, the paper reported authorities favor a tie-up between Areva and French industrial power plant and high-speed train firm Alstom, and said a merger between the two firms would create a company with a market capitalization of 40 billion euros.

(Photo: Reuters file — Healthscope Managing Director Dixon laughs with Symbion Health Chief Executive Cooke after a media conference in Sydney)  
  

The leveraged buyout of Laureate Education closed before the credit crunch could scuttle it. Unfortunately for Goldman Sachs and other members of an underwriting group, the hard part may be just beginning.
   
A Goldman Sachs-led group is attempting to syndicate $775 million in covenant-lite term loans for Laureate Education, sources told Reuters Loan Pricing Corp on Monday. 

Covenant-lite you say? Yes, that covenant-lite. These are the loans with few to no restrictions that debt investors have all but turned their backs on. Restriction-free loans used to be the rage, and debt investors couldn’t get enough of them during the LBO frenzy. But debt investors got spooked by the subprime mortgage mess, and Cov-lite, as it became known, went the way of the dinosaur (at least for now), right there with its pal Pik-Toggle.

Since the Laureate deal has already been funded, the underwriters would not be able to increase the spread to Libor — the London interbank rates whose recent gyrations have been another symptom of credit jitters – to make it more attractive. The only tool available to sell the deal would be to sell at a discount to par.  The banks funded the term loan at a spread of 325 basis points over Libor

The Laureate LBO was closed last month and since then has been fully funded by the underwriters. The financing includes a $400 million revolving credit line and more than $1 billion in senior unsecured and subordinated debt. The banks are not planning to syndicate the revolver or the subordinated debt, according to Reuters LPC.

Now Goldman is left to try and sell down the loans to a less forgiving crowd. Laureate was bought earlier this year for $3.82 billion by an investor group led by the company’s chairman and chief executive, Douglas Becker. The buyout group, which featured private equity giant Kohlberg Kravis Roberts & Co. and high powered hedge fund SAC Capital, is putting in nearly $2.2 billion in equity.

The investor group also includes Citigroup Private Equity, SPG Partners, Bregal Investments, Caisse de depot et placement du Quebec, Sterling Capital, Makena Capital, Torreal S.A. and Southern Cross Capital. 
     
Goldman is also grappling with funding another mid-sized buyout, that of chemicals company Myers Industries Inc. The company said on Monday that its proposed  buyout by GS Capital Partners, Goldman’s private equity arm, was postponed until the fourth quarter due to financing conditions.
   
The $778 million deal, which was signed in April, becomes the credit crunch’s latest LBO casualty.

Reuters Loan Pricing Corp. reported at the end of July that GS Capital Partners had postponed until later this year the $950 million financing needed for the deal, which is worth $1.07 billion including debt. GS Capital Partners had also agreed to concessions on the debt, adding the financial targets that investors are demanding, RLPC reported.

(With reporting by Faris Khan at Reuters Loan Pricing Corp.)

Dubai’s investment plans for markets outside the oil rich emirate are big – big enough to rival some of the mega-deals sought by U.S. private equity giants.  Dubai’s overseas investment focus underscores the wave of oil wealth headed for equities markets from New York to London.                ? ?                   ? ?           
    In a series of interviews with Dubai executives, Reuters reports that the country’s private equity arm is, among other things, targeting as much as $10 billion of investments in Europe and Japan.
    Middle Eastern investors picked up the pace of their foreign investment last year, a trend that has only gained in size and speed. Among the factors drawing Mid-East oil money to the U.S. and Europe was a correction in the overheated stock markets in Dubai and Saudi Arabia. The Abu Dhabi Investment Authority plunked down $600 million for a 40 percent stake in Apollo Management’s European fund, which listed last year.
    Top executives at both Dubai International Capital and Istithmar, an investment fund that also invests on behalf of Dubai, reveal in the Reuters interviews not only their global investment strategy but also their plans for individual deals such as Barneys and deals focused on media and airlines.
    Dubai International Capital even chimed in on its thoughts about HSBC’s valuation, and how it, as a major shareholder in the bank, thinks that subprime worries are overdone. The fund sees an EADS turnaround as well.
   The interviews come amid a larger, global push by foreign governments growing increasingly aggressive as equity investors abroad, a topic outlined on the front page of the Wall Street Journal on Tuesday.
     

(Photo: Dubai International Capital’s Chief Executive Officer Ansari talks during an interview with Reuters in Dubai)

Target is better known for its bright red bull’s-eye and its trendy TV ads, than it is for its PR strategy and executive showcases. 
 
Indeed, Target has let its stores and its sales  — which rose 13 percent to $59.49 billion last fiscal year — speak for themselves. But now there appears to be someone else who wants to speak for the company. An ”activist” investor (a group formerly known as ‘corporate raiders’) is at their doorstep, and for many companies lately, that’s meant bad news. What to do? The Abernathy MacGregor Group has some answers, and according to the PR firm, a company under pressure from a hedge fund has just as good a chance of winning an activist battle as they do losing one. 

James MacGregor, vice chairman of Abernathy MacGregor, in a letter to clients, says most activists are looking for cash and a quick pay out on their investment.

“An activist investor is like a guy standing at an ATM. What he wants is fast cash, and he’ll push as many buttons — in this case your buttons — as necessary to get that cash,” said MacGregor, who was writing in general and not in response to the Target situation.

Hedge fund manager William Ackman disclosed on Monday that his fund owns a 9.6 percent stake in Target, and he plans to speak to its management about trying to boost the retailer’s stock price.
    
Ackman’s firm, Pershing Square Capital Management, has gained prominence for forcing change at high-profile companies, including waging a battle against Wendy’s, where he pressured management to sell its Tim Hortons coffee chain to boost shareholder value.
 
So what chance does a company have of defending itself against an activist shareholder?
 
In a letter to clients titled “Dealing with Investor Activism”, MacGregor says activists won about 60 percent of the attacks that went public last year.
 
“If you wind up in an activist’s sights, you’ve got a 50-50 chance of emerging without damage,” he writes, referring to all activist situations, whether public or not.

The PR man’s optimism is counter to that of Morgan Stanley’s Robert Kindler, who says activists will win every time. 
    
MacGregor suggests management meet with the activist because chances are he will go public if a meeting is declined. But if a company rejects the activist’s demands, MacGregor said the activism begins and typical actions include:    
    – Demanding a meeting with the full board
    – Going public, via the news media, with accusations of lousy governance and lousy performance
    – Reaching out to other shareholders for expressions of support
    – Demanding seats on the board
    – Threatening legal action
    – Threatening a proxy fight
 
MacGregor does not recommend having the activist meet with the board –”The activist’s motivation all too often is to intimidate or divide the board or to gather grist for subsequent legal actions,” he writes.  He also recommends keeping any media response limited and calm. 
  
MacGregor says an activist wins if he convinces the board he has enough support to win a proxy fight if he wages one or if the activist convinces the board the fight is not worth the pain.

A company wins when an activist backs down, possibly concluding the company cannot create the cash-generating events he wants or other shareholders fail to rally to the activist’s side. Then there’s the “self-mutilation” ploy used by some companies, he writes:  “They effect an otherwise unattractive transaction that eliminates the possibility of the activist’s desired event.”

So what other advice does MacGregor have? “Scout your vulnerabilities well in advance. Articulate a credible value creation strategy. Make sure your investors know and understand that strategy. Play straight with activists. Avoid mud-slinging contests. Execute. Perform. Don’t panic.”   

(Photo credit. Reuters file)

So how does JPMorgan CEO Jamie Dimon really feel about equity bridge loans? He said in a second quarter earnings call that he hopes the loans go the way of the “dinosaur.”  Equity bridge loans appear only at the height of a leveraged buyout frenzy, when investment banks are throwing themselves at the feet of private equity firms–serial dealmakers in need of bank financing and the biggest fee generators on Wall Street.

LBO firms, in an effort to leave rivals out of deals, tell the banks that they want them to cough up part of a deal’s equity check, in addition to financing the deal’s debt. Bankers say it’s a high risk, low return proposition. Dimon appears to agree.

Below is part of what Dimon had to say about the loans on Wednesday. For a longer transcript of his answer, click here.

I think equity bridges are a terrible idea. I think they’re a bad — I think they’re a bad financial policy. I don’t think they’re good for the banks. I don’t think they’re good for the private equity guys, so I hope they go the way of the dinosaur because they’re basically a one-sided put on our balance sheet. I also think the street is topped up on them. There is only so much you can do and feel comfortable with. It is kind of silly to take that downside risk and have none of the upside potential.

(Reporting by Tim McLaughlin)

After several sunny years of glowing press and rising market share, UBS Investment Bank in recent months suffered a string of setbacks. Star dealmakers quit. Cost levels rose and profit growth lagged rivals that were bolder about financing leveraged buyouts and trading.
    Market wags quickly predicted Zurich-based UBS would experience the same fate of other European banks on Wall Street: embarrassing, expensive failure.       
    UBS Investment Bank CEO Huw Jenkins, in an interview with Reuters correspondent Joseph A. Giannone on Monday, played down the departure of star dealmaker Ken Moelis and other bankers, detailed plans to expand its U.S mergers business and become a top 5 leveraged lending player. In summary, UBS will quiet a lot of critics when second quarter results are released, according to Jenkins.
    Below are parts of Jenkins’ exclusive interview with Reuters on Monday. For a full transcript of the interview click here.

There’s been a lot of talk in recent weeks about UBS needing to make up ground with Wall Street rivals on a number of fronts — leveraged lending, costs, banker departures. What have you done to address these issues?  
   “It’s been interesting that over the last week, since we announced Peter Wuffli’s departure, a lot of the press coverage has focused on the investment banking division, our cost income ratio and the speed of our growth plan. I think it’s also fair to say a lot of focus has been on the fact that (investment bank president Kenneth) Moelis and (global investment banking co-head Jeffrey) McDermott left the firm, suggesting that there is some kind of a malaise in the investment banking division, whereas our internal and our clients’ perception is we’re just going gangbusters in terms of the growth of our U.S. investment banking division.”  
    “What a difference a week makes. We’ve acted as advisor to the special committee of Alcan (on Rio Tinto’s takeover); the Western Mining IPO in China, our first A-share IPO in China, which was up approximately 260 percent on its first day. We were exclusive financial advisor to MatlinPatterson Global Advisors LLC on the sale of Huntsman Corp. There is another side of the story, which is that maybe this thing is really in the process of turning itself around. The fundamental health of the business and internal excitement is greater today than its ever been.”  
 
What about the impact of Ken Moelis’ departure and other banker departures?     
    “The good news is the momentum of the business has not been impacted. We clearly had some colleagues from all ranks and levels leave to join Ken’s new company — around ten. 
    “We focus on our key industry practices and our key M&A and capital markets franchises and have made a few good hires so we’re in very good shape. We hired (senior bankers) Jim Metcalfe, Bill Drewry and Bill Houlihan as managing directors in U.S. investment banking, among others. 
   But being realistic, Ken’s starting up a small company. He doesn’t have room for that many people.” 
      
Did you need to provide new pay packages to stem defections?    
   “We don’t talk about compensation arrangements. We’ve been very focused on stabilizing and committing to our teams. The one thing I’m comfortable about is we’ve been able to do that and that we have been able to stabilize and that has not involved creating a large amount of guarantees as part of that process. As with any firm there have been a couple (of guaranteed packages), though not during these past few months.” 

How is the investment banking division doing? 
    “We feel that, if anything, our franchise and breadth of footprint is really broadened and deep now in the U.S. There are sectors we can improve and strengthen. I’d say we are doing that now through internal growth. We have had very strong campus recruiting efforts in the U.S. for past 6 years and that’s creating a healthy pipeline for future bankers and leadership. It’s not just about 50 senior bankers. It’s about a department with 1,000 people in the U.S. with a very strong bench in my view, and 2,700 people in investment banking globally, which includes industry practices, M&A and equity capital markets.” 
    “In terms of hiring, we have bunch of graduates coming on during the summer and lateral hires in the 30-50 range.” 

(Reporting by Joseph Gianonne)

(Photo. Huw Jenkis, Reuters file)

Daily fluctuations aside, Tribune shares have pretty much been trading way below the $34 that real estate magnate Sam Zell is offering to take the company private.

The deal is structured in two parts, with the first stage cleared in May. But an industry-wide decline in newspaper advertising revenue and more risk-averse debt markets have caused some nervousness that the deal will founder.

Concerns have been raised about whether Tribune, owner of the Chicago Tribune and the Los Angeles Times — not to mention the Chicago Cubs — will generate enough cash flow to meet a leverage test detailed in its deal agreement or if Zell will seek to renegotiate the terms.

The spread on the deal is wider than the typical 5 percent or so, indicating concern among investors about the deal closing. Shares on Tuesday were trading around $30 – a spread of around 13 percent.

There are two schools of thought on Tribune,” said analyst Ed Atorino of Benchmark Co.

“One is they will make it happen and do what they have to do to complete the transaction by the end of year and be able to meet one of the stringent guidelines in the debt covenant, which is a 9-1 debt-to-cash flow ratio.

“The other … says earnings will be short of expectations, they’ll have a tough time meeting the numbers and they may have to delay the closing until they fix it — or perhaps maybe not complete it.”

We, of course, would love to know what you think will happen.