VIX Trade

American Greetings evidently found the perfect way to smoothe over a tiff.

Recycled Paper Greetings agreed to be bought by the second-largest U.S. greeting card maker, which was attracted to the smaller rival’s “witty, funny and fresh content.”

The agreement comes after a spat in September, when American Greetings said on an earnings conference call that it had bought $44 million of distressed RPG debt.

RPG Chief Executive Jude Rake said in a statement at the time that he was taken by surprise by the announcement, and called the actions of the larger rival “predatory.” RPG said it had even filed a lawsuit against American Greetings earlier.

Rake has since changed his mind. “This acquisition is good news for our company on many fronts,” he said in a statement announcing the deal.

So how did American Greetings change Recycled Paper’s mind? Maybe they sent their rival a nice card.

Posted on January 7th, 2009 by
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A company in the U.S. auto industry fails — and the government steps in as savior. Yet again. That’s right. Santa visits the automakers this year while the Grinch steals taxpayers’ Christmas.

The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.

Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy.  In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.

But the Fed’s approval was conditional on GMAC raising new capital.

GMAC said it had raised enough capital to satisfy the Fed’s conditions just as the Treasury announcement on Monday.

The Treasury’s generous moves help Cerberus just as much as they help the auto industry. Cerberus bought 51 percent of GMAC in 2006 and 80 percent of Chrylser last year. The private equity firm has been stung by both those investments as U.S. auto sales have plunged to record lows amid a sinking economy following its purchases.

A happy coincidence: Cerberus Chairman John Snow was the Bush administration’s treasury secretary before Henry Paulson.

The GMAC loans, as well as the original $17.4 billion in aid, come from a program within the Troubled Asset Relief Program to make investments directed at the auto industry. A Treasury official told the Wall Street Journal the new program did not have a specific dollar limit. Now there’s a scary thought.

DEALS OF THE DAY

** China’s three leading steel mills agreed to merge into one entity via share swaps which will create the country’s largest listed steelmaker and further speed industry consolidation. 
       
** Suzlon Energy Ltd, the world’s fifth largest wind turbine maker, said it had raised its stake in Germany’s REpower to 73.71 percent by paying Portugal’s Martifer 65 million euros ($91.98 million). 

** Nationwide Mutual Insurance Co will go ahead with the buyout of its unit Nationwide Financial Services Inc at a price struck months before life insurers were hammered by the market turmoil, the Wall Street Journal said. 

** PCCW’s financial advisers said the takeover offer for the company had been raised to HK$4.50 per share from HK$4.20, in a move aimed at prompting minority shareholders’ support for the buyout.

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Kuwait’s decision to walk away from a $17.4 billion joint venture with Dow Chemical could hurt the prospects for the company’s $15.3 billion takeover of Rohm & Haas. But there could be other losers, too.

According to Thomson Reuters, Citigroup and Merrill Lynch advised Dow on the Kuwaiti deal and could lose some fees now that it has been scuttled. Those banks, as well as Morgan Stanley, advised the chemical company on the Rohm and Haas deal, and could drop some more fees if that deal is renegotiated or terminated.

The three firms also lead the group of 19 banks behind the $13 billion term loan that Dow took out to finance the takeover. Leading the loan are Citi, Merrill and Morgan Stanley, which have each committed $1.35 billion.

Others who could take a hit include Goldman Sachs, who advised Rohm and Haas, and Lazard, who advised the Haas family trust, in the Dow deal.

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Former AIG strongman Hank Greenberg is keeping up his steady stream of bull-horn bravado against what he says are fire sales at his old firm, of which he still owns 10 percent. But is anybody listening? The bailout bill shot from $80 billion to $150 billion in just a couple of months. Greenberg’s latest complaint, dutifully lodged with the SEC (an organ of the same government that now owns 80 percent of his old firm), says the company plans to sell its HSB Group unit at a “distressed” price. He wants an explanation from the AIG board.

Hank really can’t be blamed for trying to make sure he gets the best return possible on his AIG investment. “Certainly, selling major assets at fire-sale prices is not a viable strategy for reviving the company or even repaying the government,” Greenberg, who ran AIG for 38 years, said in the letter.

Viewing the landscape for a moment, it’s clear AIG is selling into a buyer’s market, so there’s little reason to think it will have much price-setting power. And with the mandate to pay back what it can to taxpayers, a fire sale may be just the thing the financial market needs to cauterize the damage done to and by Wall Street.

In others Deals news:

* Irish airline Ryanair said it had extended the offer period to Aer Lingus shareholders in its 750 million euro ($1.04 billion) takeover bid for its rival.

* South Korea’s retail giant Lotte Group will acquire Doosan Corp’s spirits-making division for 503 billion won ($386 million), Doosan said, in a move that will spur Lotte’s beverage business.

* Deutsche Bank’s Chinese securities joint venture has won regulatory approval from Beijing, becoming the latest Western institution to gain access to China’s restrictive domestic capital markets.

* Indian software services firm Tech Mahindra has approached embattled rival Satyam Computer Services for an all-share merger, the Economic Times reported.

* Online fashion retailer EBTM Plc put itself up for sale as its financial resources were hit by poor Christmas sales and its wholesale division faced difficulties.

(Photo: Reuters)

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Having largely held off from picking up cheap financial services assets last year, private equity firms will boost their buying as low valuations make assets in the sector too attractive to pass up, a new report predicts.

The increased interest will come as these firms look for ways to  use funds raised in the last two years and regulators further loosen restrictions on ownership of banks, independent advisory firm Freeman & Co projects in its annual summary on transactions. Buyout shops have about $600 billion to work with.

Private equity tested the financial sector waters last year - and sometimes got burned. But they have continued to look at the sector with interest. Private equity firms put in $23 billion in 84 financial services deals last year, down 69 percent from 2007, Freeman said.

In one of the first deals to be announced this year, a group of private investors, including JC Flowers, agreed to take the failed IndyMac bank off regulators hands.

Freeman says private equity will launch a barrage of distressed debt funds to take advantage of historically low-priced corporate debt. After a dismal year for the financial sector, there are plenty of assets on the block. Large financial companies are seen dumping non-core assets and broker-dealers and exchanges will be looking to consolidate, Freeman said in its report.

(Photo credit: Lee Jae-won, Reuters)

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The cultured Irish classic Waterford Wedgwood is to be boxed up and sold for scrap. Hardly as stunning as its stock symbol (WTF) would imply, the decision to call in receivers is not expected to tempt any last-minute beaus for the debt-laden china and crystal maker. Consumers are looking to dress their tables with lower-priced settings. Analysts are not even convinced a big, fat Greek wedding of a recovery with plate-smashing exuberance would make a whole lot of difference. The company’s debt is bid at just 3 percent of face value and offered at 8 percent.

Its website boasts a combined history of “over 600 years of heritage, tradition and craftsmanship” in its four brands - Waterford, Wedgwood, Rosenthal and Royal Doulton. Efforts to modernize its product range must have been particularly challenging. Barring some breakthrough in plate technology, the company was also reported to be selling its Rosenthal brand before Christmas in an effort to help drag its stock up from the less-than-one-euro-cent level, where it has languished for more than four years.

If nothing else, the demise of WTF means retailer Macy’s will have one less thing to have to try to sell. It will also mean fashion and lifestyle icons Vera Wang and Martha Stewart, as well as Peter Rabbit, will have to go elsewhere to find China.

Other Deals news:

* Bonds of petrochemical company LyondellBasell, which is saddled with $26 billion in debt, remained at just 4 percent of face value after a Jan. 4 deadline to renegotiate the terms of its debt passed. Privately held LyondellBasell said last week it was considering chapter 11 bankruptcy protection in the U.S., but a Netherlands-based spokesman for the world’s third-largest petrochemicals firm declined to comment on Monday morning.

* Poland wants to sell its remaining 76.5 percent stake in utility Enea, minority owned by Sweden’s Vattenfall, for 7 billion zlotys ($2.4 billion), the treasury minister was quoted as saying.

* Satyam Computer Services’ management and some funds have approached two smaller rivals about a merger to fend off any possible hostile bid for India’s fourth-biggest software services exporter, the Business Standard said, but one of the firms said it was not interested.

* An Indian investor has offered to buy the entire equity of Egyptian medical equipment firm Alexandria Medical Services for 100.8 million Egyptian pounds ($18.3 million), the stock exchange said.

(Photo: www.wedgwoodusa.com)

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For M&A bankers, 2008 is perhaps best remembered using the catchphrase of Comic Book Guy from The Simpsons: “Worst. Year. Ever.”
    
Dealmaking reached record lows in 2008, dominated by cancelled deals. At the start of 2009, questions linger about several companies, executives and deals. Most notably, though, there is a big question mark over private equity.     

Last year was a bad year for PE firms as credit markets became too tight, stocks fell unpredictably low, and deals that were announced in better times began falling apart.  PE deals fell to a five-year low.

The ‘Golden Age’ of PE quickly faded as many of the biggest buyouts announced in 2007 collapsed in 2008, including the $41 billion deal for Canadian telecommunications operator BCE, the largest announced buyout in history.    

And many of the deals that did close are lining up to file for bankruptcy. Leverage – the backbone of PE deals — should be hard to come by for some time. And with the IPO market still frozen, firms will likely be holding on to their purchases much longer.    

Attention-shy Cerberus struggled this year with two bad bets –GMAC and Chrysler. The government stepped in to help the auto industry – and Cerberus benefitted too.   

As part of that deal, Cerberus had to hand over much of its GMAC stake to its investors. A big question for 2009 is whether investors will be able to get rid of their shares.

The handout of billions of dollars from the Treasury to Chrysler also put into question on Cerberus’ plans for the automaker in 2009. Unlike General Motors, Cerberus has provided few details on how it plans to make Chrysler viable. 

DEALS OF THE DAY    
** Immunodiagnostic Systems Holdings Plc said it sold its money-losing haematology business unit to Escalon Medical Corp, a Nasdaq-listed healthcare company, for 4.2 million euros.  

** British gaming firm NetPlay TV Plc said it acquired Venturygames.co.uk and Toucanwin.com, the mobile gambling and skill gaming businesses of Info-download Ltd, a unit of Zed Worldwide SA, for 1 million pounds ($1.46 million) in stock.

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It doesn’t look like 2009 is going to be a happy new year for the chemicals sector.

LyondellBasell Industries, the world’s third-largest independent chemicals company, has told lenders it is considering filing for bankruptcy protection amid plunging sales and a cash crunch, the Wall Street Journal said, citing people familiar with the matter.

The company is one of several in the sector facing one of the worst slumps ever in chemical demand. The industry has been battered by high price tags on crude oil and natural gas, which are key components of plastics and other chemicals.  Energy prices have plunged in recent months, but demand has also been hurt by recessions in most developed countries and a sharp slowdown in emerging economies.

Profits of U.S. chemical makers, in recent quarters, have been buoyed by strong demand from developing economies but the global financil crisis is hurting international results now. And Wall Street has trimmed its 2009 expectations for the sector, expecting weaker demand next year.

LyondellBasell, which is based in the Netherlands and has large U.S. operations, has hired bankruptcy counsel and told lenders it is trying to line up as much as $2 billion in bankruptcy financing, these people say. A Chapter 11 filing may be imminent, the report said.

2009 isn’t looking good for Dow Chemicals either, the largest U.S. chemical maker. The company, which earlier this month said it would close 20 facilities, divest several businesses and cut 5,000 jobs, is now facing the possiiblity of having to twist rival Rohm & Haas’ arm to renegotiate its $15.3 billion takeover of the specialty chemicals company.

That deal is now in question, after Kuwait scrapped a $17.4 billion joint venture whose proceeds Dow had planned to use to pay down some of the resulting debt from the acquisition. But experts say the terms of the deal leave Dow with very limited recourse.

But hope springs eternal.  With oil prices showing signs of receding and global economies getting trillions of dollars from their governments, let’s hope that 2009 ends on a better note than 2008 did. At least for the chemicals sector.

DEALS OF THE DAY

** Indian oil company ONGC said it will proceed with its 1.3 billion pounds ($1.89 billion) takeover of UK-listed Imperial Energy, to the relief of Imperial investors who feared ONGC would back out of the high-priced deal. 

** The Pininfarina family is set to sell out of its company, the designer of iconic cars for films and Ferrari, in a deal which will help the group handle its nearly 600 million euros debt.  
    
** Sumitomo Mitsui Financial Group, Japan’s third-largest bank, bought a small stake in South Korea’s KB Financial Group for about $46 million from KB’s banking arm Kookmin, Kookmin said.

(Photo, of a passer-by walking past an entrance in the shape of “2009″ in front of shopping mall in Shanghai, by Reuters)

Posted on January 7th, 2009 by
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