K.K.R and Other PE firms set to Acquire Del Monte for $5 billion

Del Monte Foods agreed on Thursday to sell itself for $5.3 billion, including debt, to a group of private equity firms led by Kohlberg Kravis Roberts in what is the biggest leveraged buyout this year. The deal by K.K.R. and two other firms, Vestar Capital Partners and the buyout arm of Centerview Partners, is also the latest in a streak of food-related mergers and acquisitions.

While still associated with sliced peaches and fruit, the Del Monte of today draws roughly half of its $3.7 billion in annual sales from pet food brands like Snausages. (While it still sells canned fruits and vegetables, it no longer has ties to Fresh Del Monte Produce, which carries on the business of selling fresh pineapples and bananas). Del Monte is a relatively new entrant in the industry, having built its pet food business from virtually nothing through acquisitions. Those included purchases of Meow Mix Holdings and Milk-Bone dog biscuits, both in 2006.

The takeover of Del Monte — whose product line is now dominated by pet foods like Kibbles ‘n Bits rather than fruits and vegetables — would also be among the largest consumer-goods buyouts in recent years. Private equity firms have been on a tear this year, buoyed by billions of dollars in their war chests and the bond market boom that has supplied them with cheap debt to finance their deals.

Still, the relatively steady stream of takeovers has topped out at about $5 billion, a far cry from the $10-billion-plus deals during the buyout boom earlier this decade. While the junk bond markets have recovered from their lows during the financial crisis, private equity firms are still unable to raise the money needed to strike giant leveraged buyouts. Banks and private equity firms are still discussing how to complete larger deals. But for now, many of the larger buyout players have been able to adjust to what they call “the new normal” of smaller transactions.

Under the terms of the deal, the buyout group will pay $19 a share for Del Monte, a 40 percent premium to the food company’s three-month average stock price. The private equity firms will also assume about $1.3 billion of Del Monte’s debt. The deal is expected to close in March, although under the provisions of a so-called go-shop period, the company will have until January 8 to find a better offer.

A deal for Del Monte represents another trip into private ownership and a return to the fold of K.K.R., still led by two of its founders, Henry R. Kravis and George R. Roberts. The private equity firm had sold the brand in 1990 as part of its landmark $25 billion takeover of RJR Nabisco. Del Monte passed through other ownership changes before being taken public by TPG in 1999.

Pet food merchants, and food businesses more generally, have also proved attractive for private equity firms, which are drawn to the companies’ stable cash flows. K.K.R. has already struck one buyout in the sector this year, acquiring the British retailer Pets at Home for $1.5 billion in January.

Centerview Partners advised the buyout group, along with Bank of America Merrill Lynch, JPMorgan Chase, Morgan Stanley and the law firm Simpson Thacher & Bartlett. Financing for the deal is being provided by Bank of America, Barclays Capital, JPMorgan, Morgan Stanley and K.K.R.’s own capital markets arm. Del Monte was advised by Barclays Capital and the law firm Gibson Dunn & Crutcher. Its board was advised by Perella Weinberg Partners.

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Shell Plans to Sell $3.3bn Stake in Woodside Petroleum

Royal Dutch Shell announced that it would sell almost a third of its interest in Woodside Petroleum for about $3.3 billion, nine years after it failed to take over the company. Shell, an British-Dutch company based in The Hague, said UBS had agreed to underwrite the sale of 29 percent of its stake in Woodside, selling more than 78 million shares at 42.23 Australian dollars ($42.64) a piece. After the sale, Shell will own nearly a quarter of Woodside, shares that it has agreed to keep in lock-up for at least a year.

Shell’s recent portfolio progress in Australia is aimed at a worldwide push to simplify the company and to improve its capital efficiency,  focus investments in Australia through direct interests in assets and joint ventures, rather than indirect stakes. 

In a another move to invest more directly, Shell and PetroChina together bought Arrow Energy’s Australian assets in March for 3.5 billion dollars. Shell hinted that another deal for Woodside might be in the works, saying that the lock-up would not apply under certain conditions to “a strategic third party” interested in a more than 3% stake. Woodside, based in Perth, is the largest independent energy company in Australia.

In September, The Australian business daily reported that Shell and BHP Billiton were in discussions last year for a takeover of Woodside, but an offer never materialized, and Shell later denied any plans for a takeover. Now that the Potash Corporation deal is on the rocks, BHP may try its luck closer to home.

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Will there be a U-turn in the Potash bid by BHP Billiton with the entry of PhosAgro?

PhosAgro, a major fertilizer producer in Russia, is said to be preparing a bid for the Potash Corporation of Saskatchewan to rival the $39 billion offer from BHP Billiton currently under consideration in Ottawa. Vladimir Litvinenko, chairman of PhosAgro has formally written a letter to Prime Minister Vladimir Putin asking for him to back the bid and muster support from Russian lenders.

Analyst predict that geopolitical importance the deal is such that it would give Russia control of 70 percent of the global potash trade and help it secure its food supply — an issue that came to the fore this summer as the country was wracked by drought and wildfires, leading to a scarcity in certain grains. Banks in Canada had made preliminary agreements to provide half the necessary funds, while rest are said to be obtained from Russian banks. The offer is not very realistic as the size of the bid represents an impossible amount for PhosAgro to raise by itself and also the businesses are too different in size for a deal to work without the involvement of the Russian state.

PhosAgro is a closely held company with close ties to Moscow. The Russian government holds a blocking interest in PhosAgro’s phosphate-producing subsidiary, Apatit While PhosAgro’s shareholders are not known but Andrey Guryev, a powerful Russian politician ranked 54th on Forbes’s list of Russia’s wealthy last year holds a major stake in the company.

Russia’s agrochemical industry has been in a period of upheaval. PhosAgro also announced in August that it was seeking to merge with Silvinit, another potash producer, although the merger was uncertain and other deals were rumored. One advantage a PhosAgro bid for the Potash Corporation would have over that of companies like Silvinit is that PhosAgro does not produce potash and thus would raise no antitrust concerns

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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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