October172011
* Solid deals can still attract financingBy Victoria Howley and Sarah WhiteLONDON, Oct 17 (Reuters) - Investment bankers said billions
of dollars of dealmaking on Monday would do little to lift
overall merger sentiment as long as Europe’s sovereign debt
crisis persists.British security company G4S bought ISS for 1.53
billion pounds ($2.4 billion) after the Danish firm’s botched
stock market flotation.And Norwegian oil company Statoil said it was
bidding $4.4 billion for Brigham Exploration to extend its U.S.
oil and gas assets.The surge was reminiscent of “merger Mondays” of happier
dealmaking days, when a flurry of deals was often announced
after weekend negotiations.But bankers said it was too early to call it an improvement
in the mood for dealmaking. The blip in dealmaking also came as
the Dow Jones industrials average slumped 2.1 percent, down 245
points.”I will be very surprised if the volume at the end of the
quarter shows any improvement. G4S was a one-off opportunity.
In the rest of the world, M&A is not picking up,” said one
banker, speaking on the condition of anonymity.Mondays are normally the busiest dealmaking days of the
week, with a quarter of all deals announced on the first
business day of the week this year. The two deals are far above
the average of $4 billion on Mondays so far this year.But this Monday was only the busiest day since July 14, and
was nowhere near a record. The average Monday volume is also
far lower than the levels in 2008 and 2010. In the past four
years, only troubled 2009 was lower.Worldwide mergers and acquisitions volume dropped by more
than one-fifth in the third quarter, according to Thomson
Reuters data, as unruly stock markets, Europe’s debt crisis and
doubts about the U.S. economy put planned deals on ice.So far this year, the number of deals announced worldwide
has fallen slightly to 31,609, from 32,680, according to
Thomson Reuters data. The value of those deals, however, has
risen to $2.16 trillion, from $1.80 trillion a year ago.Global miner Rio Tinto provided a glimmer
of hope for deals next year, putting an estimated $8 billion
worth of assets up for sale across six countries as it retreats
from the aluminium business.M&A is more resilient in the United States, which is coming
out of recession more quickly than Europe.Kinder Morgan Inc struck a $21 billion deal to buy
rival El Paso Corp , combining the two largest natural
gas pipeline operators in North America in a huge bet on the
fast-growing market for that fuel.”These deals are surprising only in their timing. Strategic
buyers, particularly in the energy sector, are looking for
deals that provide significant synergies with the opportunity
to grow revenues,” said Francis Aquila, a mergers and
acquisitions attorney at Sullivan & Cromwell in New York.”They are the types of deals we will see more of to the
extent that there is some resolution to the euro zone debt
crisis and an improvement in the outlook for the global
economy,” Aquila said.FINANCING OPTIONSThe ISS deal proved that transactions were still getting
done despite difficult market conditions, said Andrew Bell,
global head of mergers and acquisitions at HSBC ,
though he did not see it as a major change in sentiment.”This is a logical, sensible step for the buyer G4S. It is
the sort of deal that gets done in these uncertain markets. I
don’t think it changes the needle as regards sentiment. That
takes a long time to improve,” Bell said.Britain’s G4S plans to raise 2 billion pounds to help fund
the purchase of ISS through a fully underwritten rights issue
at a hefty 47 percent discount to where the shares were trading
after the deal was announced.The rights issue allows G4S to side-step the still fragile
and volatile debt markets, a significant barrier to M&A, and
assumes support from existing investors already familiar with
the company and its story.”A lot of investors are sitting on their hands and when
they do go back into the market it is more likely to be for
companies they know, such as M&A financing, as opposed to a new
company,” said one equity capital markets banker.A global head of credit markets said he had noticed “some
green shoots of stability”, signalling that the euro-zone debt
markets were entering a slightly better phase.”The tone has definitely changed, and some of the names
that were the most beaten up in high yield (market) are doing
much better in the secondary market. On the new issue front,
clients are more engaged,” this banker said.
October142011
The Treasury Department on Friday report comes just over
two months after an epic showdown over the nation’s debt
ceiling that pushed the United States close to a debt default
and led to a downgrade of America’s prized AAA credit rating.The shortfall in September, the final month of the fiscal
year, widened to $64.57 billion compared to the same month a
year earlier, although it came in at a few billion dollars less
than economists had projected.
October122011
But its new chief executive probably has only two years at most to turn around the struggling company before its key shareholder loses patience and turns to predators.The Hamburg-based group is suffering from slow economic growth, especially with 90 percent of profits coming from a sluggish Europe, a cyclical Tesa adhesive business, which makes up 15 percent of sales, and a lack of investment behind its key blue and white brand to push it into fast-growing Asian markets.Last week, the company hired 48-year-old Stefan Heidenreich in a sign the controlling Herz family is impatient with the speed of recovery under Thomas Quaas. If he fails the $13.6 billion group could go on the block.”This looks like a last chance for Beiersdorf. Heidenreich will be given time but the family is clearly frustrated at the time it is taking to turn the group around,” said one senior consumer goods banker in London.If Heidenreich stumbles there is a line of suitors led by Procter & Gamble (PG.N) and including Unilever (ULVR.L) (UNc.AS) and Colgate-Palmolive (CL.N) which have shown interest, either publicly or privately, in making an offer of marriage for the group founded by Paul Beiersdorf in 1882.The surprise change at the top will see Heidenreich, the head of private Swiss babyfood and jam maker Hero, take over in April from Quaas to lead the group’s efforts to re-focus the consumer goods group behind its core Nivea brand.Nivea is the world’s largest skincare brand and accounts for 63 percent of Beiersdorf’s 6.2 billion euros ($8.5 billion) in annual sales. It is seen as the jewel in the crown of a group which also makes Eucerin medical skincare products, La Prairie anti-aging cream and Labello lip balm.”We see Heidenreich’s appointment as the last realistic chance to execute an organic turnaround at Beiersdorf. If this fails, we would expect market speculation over M&A options to intensify,” said RBS analyst Iain Simpson.Of possible suitors for Beiersdorf, the world’s biggest consumer products group Procter & Gamble has been the most vocal, with Chief Executive Robert McDonald saying last year Nivea was a “terrific global brand” and he would look at buying the group if it wanted to be bought.The U.S. maker of Gillette razors and Olay skin creams had previously looked at buying a 40 percent stake in Beiersdorf in 2003 but was blocked by the city of Hamburg, the company’s pension fund as well as coffee roaster and retailer Tchibo, another Herz family investment.Analysts have also said Anglo-Dutch group Unilever and U.S. company Colgate-Palmolive could be interested in Beiersdorf, which is valued at $13.6 billion compared to P&G at $175.6 billion, Unilever at $109.2 billion and Colgate at $43.9 billion.”We believe Heidenreich was offered the job on the understanding that the Herz family would give him time to revive the group. That probably gives him a couple of years to really make a difference,” another banker said.LONG-TERM INVESTMENTThe Herz family investment vehicle Maxingvest has always stressed its investment, currently at 50.5 percent in Beiersdorf, is long-term. It first invested in 1974.Last December, Beiersdorf set aside 270 million euros for a turnaround “Focus on skincare” package through to 2012 to invest in skincare and strip out unprofitable makeup and haircare lines.It has sold its upmarket skincare brand Juvena and premium haircare brand Marlies Moller and added it would withdraw from all decorative cosmetics in its home market of Germany.Analysts want to see Beiersdorf focus on skincare with increased investment and innovation, and continue Nivea’s growth in deodorants, men’s cosmetics, suncare and bath products, and particularly into emerging markets.Heidenreich’s appointment mirrors the move by German rival Henkel (HNKG_p.DE) to bring in a young outsider in 2008. Kasper Rorsted successfully led its rejuvenation and analysts and bankers are hopeful Heidenreich can do the same.He takes over at Beiersdorf’s annual meeting on April 26 next year, after 25 years of consumer goods experience, having worked at Procter & Gamble and Reckitt Benckiser (RB.L) before joining Hero in 1996 and becoming chief executive in 2002.At P&G, Heidenreich managed brands like Pampers, Ariel and Crest, then oversaw Reckitt’s expansion into eastern Europe. At Hero he focused on a few core product categories. So he should be a good fit at Beiersdorf where portfolio pruning in haircare and make-up and a refocus on Nivea are needed, analysts said.”It looks like the major shareholders have lost a bit of patience and want to speed up the turnaround of the business with a younger CEO,” said Bankhaus Lampe analyst Heiko Feber.Quaas’ exit came as a shock to investors as he had worked at Beiersdorf for 33 years, and as CEO since 2005, and his contract stretched out to 2012. He had only just launched the group’s latest strategy in December to reinvigorate the Nivea brand.But analysts said Quaas, who turns 60 in February, has struggled with the under-investment and overextension of the Nivea brand and also the distraction of its acquisition of Chinese haircare player C-Bons in late 2007 and its associated costs. He will stay on the group’s supervisory board after he steps down in April.($1 = 0.733 Euros)
