Credit Suisse and the Race to be No. 1 in Advising Consumer M&A's

Credit Suisse Group AG jumped to No. 1 advising on consumer mergers and acquisitions this year, putting it on pace to return to the top five dealmakers for the first time in eight years. The Zurich-based bank has advised on 37 consumer transactions in 2010 valued at about $45 billion to become fourth in all M&A this year, according to data compiled by Bloomberg. Those takeovers include Coca-Cola Co.’s $12.3 billion purchase of the North American operations of bottler Coca-Cola Enterprises Inc., the biggest consumer deal of the year.

Consumer companies are making acquisitions to boost earnings growth as they amass cash. Switzerland’s second-largest bank benefited from retailers and consumer-goods makers expanding into new product lines and faster-growing regions. Buyout firms are also beginning to do more deals.

Credit Suisse advised Heineken NV on its $7.7 billion purchase of Fomento Economico Mexicano SAB’s beer unit in January, the year’s second-biggest consumer deal, and SSL International Plc on its $3.89 billion takeover by Reckitt Benckiser Group Plc in July. The bank also advised Apax on the sale of Tommy Hilfiger to Phillips-Van Heusen Corp. in March.

Advisory Fees

Those deals helped Credit Suisse earn $116.8 million in consumer M&A fees in the first nine months of 2010, trailing Goldman Sachs Group Inc. by $32 million and Bank of America Corp. by $9 million. The Swiss bank earned $58.6 million on consumer deals for all of 2009 and ranked sixth, according to Freeman. Credit Suisse’s global M&A group is led by Boon Sim, who was appointed to the role in December after a shake-up following a decline in advisory revenue. Andrew Lipsky took over U.S. M&A, and Giuseppe Monarchi became head of European M&A. Credit Suisse ranked eighth in global mergers in 2009.

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Will Apple go Shopping??................

Pulling in billions of dollars quarter after quarter, Apple has provided Silicon Valley with a seemingly endless guessing game about possible mergers and acquisitions — but one that has largely gone on up to now without the participation of Steven P. Jobs, Apple’s chief executive.

But during Apple’s conference call on Monday, October 25th  after Apple reported a strong surge in profit and revenue in its fourth quarter — Mr. Jobs said point-blank that Apple was saving its cash to use some day for one or more “strategic opportunities” that the company would be in a unique position to pursue..

The company has an eye-popping $51 billion in cash and short-term and long-term securities. Most of Apple’s recent acquisitions, like the chip maker Intrinsity in April or PA Semitwo years before that, have been aimed at providing components or human capital that will bolster Apple’s product development.  A bigger target that fits within that space would be the chip maker ARM Holdings, which Apple has been rumored in the past as having an interest in buying.

More intriguing, perhaps, would be if Apple instead switched gears from components and began to pursue companies that deal in the world of content — either companies that deliver content or make it. The most headline-grabbing acquisition Apple could make would likely be in the realm of social networking. Facebook may make sense, as crazy as it sounds but it would be a game-changer. Facebook has 500 million users with huge  scope of advertisements. so, this may make sense. This speculation has been further fuelled by the recent dinner of the Apple CEO with Mr. Mark Zuckerberg, th Facebook CEO.

So the guessing game continues.

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Genzyme-Sanofi Aventis Update: Genzyme Makes Case That Sanofi Bid Is Too Low

Seeking to fend off a hostile takeover bid by Sanofi-Aventis, the biotechnolgy company Genzyme argued strenuously on Friday that it was worth far more than the $18.5 billion that the French drug maker is offering.

As asserted in the last article titled Sanofi-Aventis in a desperate attempt to acquire Genzyme the offer price was $69 per share which Genzyme executives  rejected for being far too low. Genzyme told investors that its earnings next year would be much higher than Wall Street expected and that it was developing a potential blockbuster drug for multiple sclerosis. Genzyme said its earnings for 2011 should be $4.30 to $4.60 a share. That is more than double the expected $1.85 to $1.90 a share for this year and 20 percent higher than analysts had been estimating for next year.

Sanofi’s $69-a-share offer, first made in July, was valued at 20 times the consensus 2011 earnings estimates at that time of $3.45 a share. Using the same multiple but on the new earnings estimate, Sanofi should now be willing to pay $89 a share. Driving the higher earnings is that Genzyme is recovering from manufacturing problems that led to severe shortages of two of its biggest products, the drugs Cerezyme and Fabrazyme, which are used to treat rare inherited diseases.

The 31 percent premium that Sanofi offered over Genzyme’s stock price when it made the bid was far below the 73 percent median premium for recent deals in which large pharmaceutical companies acquired biotechnology companies, such as Eli Lilly’s purchase of ImClone Systems and AstraZeneca’s purchase of MedImmune.

Genzyme expectes its earnings per share to grow at a 35 percent compounded annual rate from 2008 to 2013. A key to that is alemtuzumab, a drug that the company is developing to treat multiple sclerosis and which it expects can reach peak annual sales of about $3 billion. The drug, which the company already sells to treat cancer under the name Campath, has shown remarkable efficacy in treating multiple sclerosis in a mid-stage clinical trial. But alemtuzumab also has some potentially serious side effects, which Genzyme executives argued Friday were manageable. The drug is only now undergoing the late-stage clinical trials and Genzyme is aiming for government approval in 2012.

Genzyme also said that its board had authorized management and outside consultants to search for alternatives ways to increase shareholder value. This could include entertaining offers from other suitors. Genzyme’s shares have been trading above Sanofi’s $69-a-share offer because investors are expecting Sanofi to raise its bid. Most analysts have been expecting the deal to get done at a price ranging from about $73 to a bit over $80.

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Investment Bankers Getting Relocated to Asia

Nomura Holdings Inc, Goldman Sachs Group Inc. and Bank of America Corp. are moving investment bankers who specialize in advising financial-services companies to Asia as banks and insurers sell record amounts of shares. Nomura, Japan’s largest securities firm, is moving Petter Sternby to Hong Kong from London as a managing director at its Asian financial institutions group.

A surge in fundraising by banks and insurers, along with competition for talent from smaller equity underwriters like Barclays Plc and Daiwa Securities Group Inc., has led to a shortage of financial institutions bankers in Asia. The region is home to the world’s five biggest initial public offerings by financial companies in the past 12 months, according to data compiled by Bloomberg.

Sternby, who previously was a financial institutions banker for Europe, the Middle East and Africa, plans to relocate to Hong Kong from London as early as this yea. He will report to Dan McNamara, global co-head of the group. Financial firms are on course to raise record amounts of money in Asia-Pacific this year, led by Coal India's IPO of $53 billion followed by Agricultural Bank of China Ltd.’s $22.1 billion initial public offering in July. American International Group Inc. raised $17.8 billion for its AIA Group Ltd. unit.

Bankers who have been relocated include Goldman Sachs’s Peter Enns, who moved to Hong Kong from New York last month to head the financial institutions group for Asia excluding Japan, said spokesman Edward Naylor. Enns replaced Douglas Feagin, who moved back to the U.S. Chad Holm, the former Citigroup Inc. banker who joined Bank of America this month, will move to Hong Kong from New York in November to work in the Asia-Pacific FIG team. Jeff Emmanuel, former head of equities for Australia and New Zealand at UBS AG, moved to Hong Kong in May as managing director of the financial institutions group.

Goldman Sachs has doubled the size of its financial institutions group in Asia this year, and hired Bernard Teo from Nomura in August as a managing director. Fred Hu and Kenneth Wong, former managing directors at Goldman Sachs who advised financial institutions, left this year to work in private equity, according to two people familiar with the situation.

Financial institutions including banks, insurers and securities firms have raised a combined $171 billion in Asia outside Japan since 2006. Barclays Plc and Daiwa are hiring bankers to compete with Goldman Sachs and Morgan Stanley for work managing stock sales and advising on takeovers in the region. Barclays hired former JPMorgan Chase & Co. banker Helge Weiner-Trapness as Asia-Pacific head of its financial institutions group in September. Thomas Jackamo, a former financial institutions group banker at Royal Bank of Scotland Group Plc, left to join Daiwa Securities last month.

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Coal India IPO: set to be the largest in the Indian history

The Indian capital market turned black into gold last week. The initial public offer of Coal India was set to be the largest in Indian history from the moment it opened, but even the biggest bulls in the ring were left stunned by the money it mined by the time it closed: a mobilization of Rs 2.36 trillion ($53bn), over 15 times the target of Rs 155 billion. 

It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months. 

It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 trillion (or $53bn). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Srilanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 251.54 billion for 2010-11, nearly five times our education budget of Rs 499.04 billion and almost one-fourth the size of the Union budget itself. 

Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 trillion into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 trillion. This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation. The huge oversubscription also reflects the easy liquidity situation abroadd. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.

The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. The strong retail participation in the IPO might actually make the case stronger for SEBI to increase the maximum retail application size to the proposed Rs 0.2 million.. 

Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 1.8 million applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them. 

Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much. 

Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular.www.coalindia.in/

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Equity Research in India

Société Générale wants to increase business with its wealthiest clients – and it is tapping analysts in India to do it. Société Générale Private Banking recently announced that it had hired Copal Partners, a financial research outsourcing company, to analyze stocks for its private wealth clients.

Copal Partners, which has the bulk of its 1,200 employees in Delhi, but also has analysts in Beijing and Buenos Aires, will do research and write reports on about 200 companies, including many in emerging markets. These reports will be co-branded with the bank’s name and Copal’s. Copal Partners’ analysts will also do tailor-made research at private banking clients requests.

Investment banks have been quietly sending some equity research work to lower-cost areas like India for years now, and many of the biggest Wall Street banks employ hundreds of these outsourced analysts. Copal itself says it counts 8 of the top 10 bulge-bracket banks as clients.

But in the past, these analysts have stayed far in the background. The Wall Street bank’s name-brand analysts have generally used the research they get from India, Sri Lanka, Latin America or elsewhere, and incorporated it into reports they wrote themselves, or at least put their name to. Research analysts in areas like India can cost 70 percent less than their counterparts in banking centers like New York, London and Hong Kong.

Société Générale Private Banking’s equity research had ome weaknesses in Latin America, in India and in Eastern Europe and teaming with Copal will help increase coverage there. The bank was lacking the resources to expand that coverage while maintaining enough portfolio of analysts who meet regularly with clients

Copal’s chief executive, Rishi Khosla, said the partnership with the French bank “cements Copal’s position as the leading research player supporting the investment research community.”

The private banking industry is undergoing major upheaval, as some investment banks sell their units to raise cash after the credit crisis, and others, including Société Générale, look for acquisitions. Société Générale has 82.3 billion euros of assets under management at the end of June. Private banks are also increasing their presence in Asia to serve a growing number of millionaires and billionaires in the region, and competition for these new clients is fierce.

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Sidney Weinberg Jr. and the End of an Era of Family Business at Goldman

Sidney J. Weinberg Jr. retired as a general partner from Goldman Sachs in 1988, but almost every week afterward until his death, he came into the office. He would meet with staff to give advice about Goldman’s culture and values, hoping to leave a little of the firm’s past in the present.

On October 13, 2010 hundreds of Goldman executives and alumni, including Goldman’s chief executive and chairman, Lloyd C. Blankfein, joined with Mayor Michael R. Bloomberg and others to gather at the Knickerbocker Club on Manhattan’s Upper East Side and pay their respects to Mr. Weinberg’s family. Known as Jimmy, Mr. Weinberg, 87, worked at Goldman for almost 40 years, and at different times both his father and uncle ran firm, which was founded in 1869.

Mr. Weinberg’s death on Oct. 4 marked the end of an era, not just for Goldman, but for all of Wall Street, which for years was controlled by private firms run by families like the Weinbergs. Mr. Weinberg died at his home in Marion, Mass. In Mr. Weinberg’s heyday, things were simpler. Firms had limited appetite for risk. Instead, brokerage firms focused on advisory work and raising capital for others.

Today, firms like Goldman Sachs and Morgan Stanley are publicly traded, a move that allowed them to push into new and sometimes controversial areas like trading, risking billions of dollars of capital in pursuit of bigger profits.

“He was his father’s son and he heard about the family business every night at dinner,” said Goldman’s former co-chairman, John Whitehead, a longtime friend of Mr. Weinberg’s.  “His death is definitely the formal end of an era in family businesses on Wall Street. The firms are much more professional now.”

Lehman Brothers was founded in 1850 by Henry and Emanuel Lehman as an Alabama cotton trader. They and their descendants played an important role in running the firm until 1969 when Robert Lehman, then at the helm of the firm, died. And Goldman was founded by Marcus Goldman, who later asked his son in law Samuel Sachs to join the business, forming Goldman Sachs.

In 1907, Sidney J. Weinberg Sr., Mr. Weinberg’s father, was hired at Goldman. His first job: cleaning spittoons. In the late 1930s, he was named senior partner, a position he held almost until his death in 1969. His brother John L. Weinberg, also joined Goldman and ran the firm from 1976 to 1990. Both are now dead.

Sidney J. Weinberg Jr. joined Goldman Sachs as a general partner in 1965 and led its investment banking services department from 1978 to 1988. He continued to work at the firm, becoming first a limited partner and then senior director, titles given to some retired partners. Unlike many Goldman alumni, Mr. Weinberg kept an intentionally low profile over the years. One friend said that he Googled Mr. Weinberg’s name when he died and that it found no articles on him. “He would have considered that a badge of honor,” this person said.

The Weinberg name still casts a long shadow on Goldman and Wall Street: Peter formerly worked at Goldman, and a nephew, John S. Weinberg, is currently a vice chairman at the firm.

Still, Sidney Weinberg’s Wall Street is gone. Goldman was one of the last brokerage firms to go public, offering its shares to the public in 1999. Its public offering transformed the firm, giving it access to capital markets, a currency that allowed it to pay people more and aggressively expand both at home and abroad.

Mr. Weinberg opposed Goldman’s initial public offering, but Mr. Whitehead says he knew that expansion was inevitable. “We all came around,” said Mr. Whitehead, who last saw Mr. Weinberg on July 1. The two men met for lunch at Mr. Weinberg’s home. Mr. Whitehead says they shared a glass of white wine on the porch, before retiring for lunch. “Our successors saw the opportunity for us and going public was necessary.”

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Sale of Yahoo???

Reports from All Things D and The Wall Street Journal have indicated that buyout firms are contemplating teaming up with AOL or the News Corporation to buy Yahoo. Although a deal is not in the corner soon but the trial balloon in the media is coming from a handful of bankers and investors who have tried to gin up interest in a deal for months. And at least a few of the named “suitors” in The Journal’s story, like the Blackstone Group, have already passed on the idea.

More importantly, Yahoo first heard about the rumors from the media and its own investment bankers at Goldman Sachs, according to people close to the company.That doesn’t mean bankers haven’t been running the numbers. And companies like AOL and the private equity firm Silver Lake are intrigued with the idea. AOL’s chief executive, Tim Armstrong, would love to find a way to merge both companies to generate more scale in the display advertising business.

But making a deal work would require fancy footwork and risk. AOL’s market value is about $2 billion, while Yahoo’s is now about $20 billion — before a premium.

The back-of-the-envelope math requires that Yahoo sell its 39 percent stake in Alibaba, one of China’s biggest Internet companies and considered one of the company’s biggest and most desirable assets, which could be worth $12 billion. That would put Yahoo closer to a more-reasonable $8 billion, again before a premium.

But Yahoo believes that Alibaba will fetch more in a public spinoff down the road than in a sale now, so why sell now? And while Alibaba would love to buy out Yahoo’s stake in itself, such a move would require the Chinese Internet company to raise yet more capital, increasing the potential price of a deal. Don’t forget as well that Yahoo’s chief executive, Carol Bartz, believes she can turn around the company and raise its revenue — as long as she’s given some more time.

It’s possible that the emergence of the reports will prod a sale process along, at some point down the road. But for the moment, talk of a deal is still pie-in-the-sky.

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What a Microsoft-Adobe Merger Might Look Like??

Tthe chief executives of Microsoft and Adobe Systems met recently to discuss, among other possibilities, a potential merger of the two tech giants. The idea was one of several floated by the two, Steven A. Ballmer of Microsoft and Shantanu Narayen of Adobe, as they brainstormed ways to combat Apple. But what would a union of the two bring — if, of course, it were to come to pass at all?

Investors certainly seem happy about the prospect. Despite its size — $212.7 billion in market value, with $36.6 billion in cash and short-term investments as of June 30 — Microsoft hasn’t really done big acquisitions. (Its largest attempt was for Yahoo in 2008, and that went nowhere.) Adobe would be its largest by far, with a market value of $15.1 billion as of Thursday.

The two  tech giants have held merger talks before, but didn’t go far because of Microsoft’s concerns over antitrust consequences. This time, however, Microsoft isn’t the big gorilla in the tech landscape, so it is possible a deal wouldn’t be as problematic now. Still, the talks appear not to have advanced beyond a very preliminary discussion.

Both companies have several points of contention with Apple, but they share one: The maker of iPhones and iPads won’t let their multimedia platforms onto the popular devices. Adobe makes the ubiquitous Flash software, while Microsoft makes the rival Silverlight platform. Flash is now available on Google’s Android operating system and Microsoft’s forthcoming Windows Phone 7.

Microsoft may also want Adobe’s other software products, which include the Creative Suite, home of Photoshop and Illustrator, and Acrobat.

Check the space for more on the Microsoft-Adobe deal…..

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