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| Deal with it |
| Edward Hadas / Sep 08, 2009, 00:53 IST |
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Deal Monday: If Monday is any indicator, this autumn will be deal-rich. The day’s total headline value of transactions — proposed, mooted and rumoured — came to $37 billion. The biggest one, US food producer Kraft’s unwanted proposal to take over UK confectionary leader Cadbury, even had a hint of exuberance. Just a week before the first anniversary of the Lehman Brothers bankruptcy, it’s clear that bosses and bankers are once again thinking about growth.
The actual harvest may be less impressive than the headline total. Cadbury’s has rejected Kraft’s approach ($16.7 billion). The German Deutsche Telecom could decide not to sell T-Mobile, its UK mobile subsidiary ($5.7 billion). UK-listed Miner Xstrata may not bid for rival Lonmin ($4.9 billion). Then there are the assets on the block: a controlling interest in Korean semiconductor maker Hynix, rescued US insurer’s American International Group’s Taiwanese operations and rescued Dutch bank ING’s private banking business.
They could bring in less that the rumoured sums – $2.75 billion, $2.4 billion and $1.6 billion respectively. Indeed, only two of the eight deals in the news are solid: Abu Dhabi’s Advanced Technology Investment Co.’s purchase of Singapore’s Chartered Semiconductor for $1.8 billion and the $1 billion share swap between telecom operators Telefonica of Spain and Unicom of China. But until a month or two ago, market and economic uncertainty precluded even thinking about non-emergency transactions. It takes time for deals to move from ideas to reality.
Near-zero overnight interest rates and the apparent return of GDP growth may be enough to get juices flowing, but there’s still more caution than daring about. Kraft, for example is proposing more shares than cash, in the interest of protecting its credit rating. And some analysts think Xstrata would be unwilling to borrow enough to make an all-cash offer for the 75 per cent of Lonmin it doesn’t already own.
But what’s most striking about these transactions is what’s missing. First, industrial foolishness. In every case, there are good reasons –synergies, plausible growth plans or regulatory orders – for going forward. Second financial buyers. Private equity firms aren’t on any lists. Those are signs that for now the deal market is still in recovery mode.
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