Higher price expectations may make it tougher for big U.S. companies to reach takeover deals this year, a top executive at United Technologies suggested on Wednesday. 

“Prices have recovered, and I think that’s maybe the message of the day as we think about the M&A pipeline,” Greg Hayes, chief financial officer of the world’s largest maker of elevators and air conditioners told analysts on a conference call. “There (are) still a lot of targets out there, but pricing has certainly firmed up from what it was a year ago when we talked about being aggressive on the acquisition front.” 

Greg Hayes

United Tech officials repeatedly said last year they were looking to take advantage of the worst economic downturn since the 1930s to create opportunities to strike deals at attractive prices, and in March publicly entertained the idea of buying Bell helicopter, a unit of Textron Inc. 
The Hartford, Connecticut-based company in November reached a $1.82 billion deal to buy General Electric’s security business. But don’t look for United Tech to make many, if any, big buys this year. 

Instead, it will focus on smaller investments — like the $271 million stake it took in wind turbine manufacturer Clipper Windpower last month. 

“We’re not looking to do a big deal,” Hayes said. “We’re looking for are more deals like Clipper Windpower where we can add to some of our capabilities and take advantage of some good valuations. You may see more smaller deals like that during the course of the year.”

Earlier on Wednesday Reuters published this correspondent’s interview with novelist John Lanchester, who’s just published a book-length account of the credit crisis:

“Lanchester says the subprime mortgages, collateralized debt obligations, and complex mathematics at the heart of the financial crisis represent the most gripping story he’s ever stumbled upon.

“Lanchester has turned that fascination — coupled with a kind of astonished anger — into a lucid, conversational account of the crisis designed for non-financial types and helpfully leavened with jokes, swearing and interesting asides.

“The 47-year old writer is the son of a Hong Kong banker but “I.O.U.,” or “Whoops!” to give its British title, is his first book about money, after three novels and a family memoir.”

Read the full Reuters piece here.

The book grew out of various magazine pieces and reviews, such as this New Yorker piece on how finance went postmodern. (Lanchester has also weighed in on Kraft-Cadbury for the London Review of Books, with an erudite article that took in transatlantic differences in milk chocolate creation.)

“I.O.U.”/”Whoops!” is published in February in Britain, but out already in the United States, where it’s got some solid press – the New York Times thought it was “rigorous but also literate and wickedly funny”.

Initial public offerings (IPOs) of companies from the so-called BRIC nations — Brazil, Russia, India and China — enjoyed their best-ever start to the year, according to Thomson Reuters data:

• BRIC IPO volumes for the beginning of 2010 are at their largest level, in terms of both value and number of issues, for any January on record.

• Asian IPO issuance for January 2010 to date has reached a similar record, in terms of value, being the largest January on record.

• BRIC IPOs account for 76% of total global IPO activity for the year so far. This is up from 5.6% in January 2009.

• Materials tops the industry breakdown this month with 35% of the activity. Energy & Power and High Technology come 2nd & 3rd respectively.

• China issuance accounted for 67% of the activity for January 2010 to date

• The largest BRIC issue so far this year was United Company Rusal’s US$2.2bln IPO. BNP Paribas, Credit Suisse, Bank of America Merrill Lynch, BOC International (China), Nomura Securities, Renaissance Capital, VTB Capital, and Sberbank are all bookrunners for the deal.

Related links:

Rusal shares fell heavily on their Hong Kong debut earlier on Monday.

The FT recently ran a big profile of Jim O’Neill, the Goldman Sachs economist who coined the term BRIC a decade ago.

Warren Buffet may think Kraft isn’t doing a good deal by taking over Cadbury. With Kraft shares falling, Cadbury’s shareholders may not think the deal too sweet either and some disgruntled British consumers may be appalled that a much loved brand will be sold to a non-British group – and one that sells  chocolate symbolised by a lilac cow at that.

But one party is sure to get a good deal: the Cadbury pension fund trustees.

While Cadbury fans are digesting the takeover news, the trustees have lost no time in seeking a dialogue with Kraft to make sure they do get a good deal for the workers they represent. Call it fiduciary duty if you like but be sure pension trustees, used to a sponsor that “stood behind the pension fund for more than a hundred years”, will give Kraft a hard and cold look to assess its credentials as a sponsor – what the pension industry calls in vaguely biblical terms “the covenant”. 

In theory there is no need for a fight — Kraft was swift to assure it would honour “the existing contractual employment rights, including pension rights”. But did the multi-national really know what this pledge would cost, at least in pension terms?

Almost certainly no, because truth to tell the pension trustees themselves do not know. The fund is waiting for the results of its triennial valuation, which should give an accurate picture of the fund’s financial shape.  Independent consultant John Ralfe told me he thought trustees could present Kraft with a cash injection bill of £200 million or more.

Whether the assessment of an independent consultant not involved with the scheme in question proves right or not, it is fair to assume this kind of money would still be a small price to pay for the successful completion of a £11 billion deal.

If it turns out to be more, Kraft will still be careful  not to antagonise the pension trustees because they may not be able to scupper a deal recommended by the board, but a prolonged struggle could attract the attention of The Pensions Regulator.

The regulator has the power to demand special contributions to the pension scheme involved. Kraft is not obliged to secure the regulator’s permission to go ahead, but it must obey if a contribution is required. Another unwelcome front in its march towards Bournville.

It may be curtains for arch-British Cadbury’s independence but the takeover will test the mettle of  yet another British institution, the pension trustee.

Shares in Russian aluminium group Rusal fell heavily on their debut, as a broad market slump across Asia and worries over the group’s debt and legal issues dogged its landmark $2.2 billion Hong Kong IPO.

And in other media:

Greece is wooing China to buy up to 25 billion euros of its bonds in its efforts to avert one of Europe’s biggest debt crises, the Financial Times and Wall Street Journal reported.

Private equity groups including CVC Capital Partners and Carlyle are preparing to finance a 5 billion euro bid for German cable provider Kabel Deutschland, the FT reported.  Read the story here.

It’s been an auto-fueled day with investors on tenterhooks awaiting  the now announced $400 million Spyker/Saab deal. Although Saab kept the spotlight, there is news from Chrysler, Opel, Porsche, Mitsubishi, Peugeot and Geely’s Volvo.

From Reuters, get the Saab deal wrap up here, along with a Saab factbox, timeline and profile of Spyker’s CEO Victor Muller. Find some additional facts about Spyker from The Swedish Wire here.

The Guardian has a great story on the mystique around the car brand called, “How did it all go wrong for Saab?”, and in a warning before the deal was announced, Fiat and Chrysler Chief Executive Sergio Marchionne said: “Marginal players will continue to be marginalized.”

Other auto news:

• Chrysler faces “crucial” 2010 with customers: CEO (Reuters)
• Opel, labor clash on restructuring plan (Reuters)
• UK hedge funds unlikely to sue Porsche-sources (Reuters)
• Mitsubishi: capital tie-up not key in Peugeot talks (Reuters)
• Geely to double Volvo output with China plant: source (Reuters)

           A sharp drop in business bankruptcy filings has restructuring advisory firms scrambling for crumbs of business.  Some 29 attorneys signed up to pitch their services to the creditors committee of U.S. regional airline Mesa Air Group, which filed for Chapter 11 protection in early January. 

Another 17 financial advisers showed up at the so-called beauty pageant, anxious for new business..

            “It’s definitely a shift,” said Ed Albert, managing director at Macquarie Capital (USA) Inc, who attended the gathering. “A sea of people is showing up.  There are fewer bankruptcy filings, and a lot more restructuring firms were created in the last three years.”

            Bankruptcy filings of publicly traded companies dropped by a third in December and January, year to date,  compared to the same period last year, according to bankruptcydata.com.

            “It’s significant that a lot of firms at Mesa were debtor firms, which typically pursue the bigger debtor cases for bigger fees,” said Albert, who is also co-head of  Macquarie’s New York restructuring advisory business.

            Albert said an attorney he met at the Mesa pitch told him there were more hopeful hires at Mesa than at auto makers Chrysler or General Motors, which filed for bankruptcy last year.  Calls to the Office of the U.S. Trustee to confirm this statistic were not returned.