Saturday, December 18, 2010

Brazilian giant to snap up American business icon Sara Lee

According to WSJ, Sarah Lee is being pursued by JBS in the latest example of cash-rich emerging-market companies seeking to snap up American business icons, Brazilian meat-processing giant JBS SA is pursuing a takeover of Sara Lee Corp., said people familiar with
the matter.

Sao Paulo-based JBS approached Sara Lee, and the talks have been on and off over several months, these people said. In recent weeks, Sara Lee has been considering JBS's offer more seriously, they added. 
The interest of JBS shows the rise of Brazilian companies on the world stage. Once isolated, they've moved aggressively into the U.S., most famously with InBev's $46.3 billion takeover of Anheuser-Busch Cos. Inc. in 2008. This year, Brazilian buyout firm 3G Capital acquired Burger King Holdings for $3.3 billion.
For companies across South America and Asia, U.S. acquisition targets bring both prestige and turnaround opportunities. Bankrolled by dominant positions in their home markets and using strong local currencies, these companies now have the wherewithal to consider once-unthinkable deal combinations.
Companies in China, India, Brazil and the Middle East have collectively spent more than $135
billion in the past five years on their 50 top acquisitions in the U.S.
JBS started as a butcher shop in the Brazilian state of Goias in the 1950s, which the founding Batista family later expanded into one of the first slaughterhouses in the Brasilia region. In the 1990s, the family went on an acquisition binge, acquiring 12 meat-processing companies as
Brazil's economy expanded.
Sara Lee, founded in 1939, has wrestled for years with weak stock performance and its strategic direction, at different points owning a lingerie business, Coach leather goods, Hanes underwear and Kiwi shoe polish. In the past decade, it's trimmed down these businesses and is focused almost entirely on coffee and meat processing. It now carries a market capitalization of $11 billion. Sara Lee jumped 5.3% late Friday to $17.26 per share, after The Wall Street Journal reported the discussions.
No final decision has been made on a JBS-Sara Lee tie-up, these people cautioned, and Sara Lee may decide against a sale. JBS has a market capitalization nearly equal to Sara Lee, which could make it challenging to finance a full takeover offer.
Sara Lee chief executive Brenda Barnes, appointed in 2005, appeared to be stabilizing the company in recent years. Yet when she suffered a stroke and stepped down this summer, the company's future again came into doubt. While the board has searched for a successor, it has also weighed its strategic options. Its CEO search has been delayed as it decides what to do next, said people familiar with the matter.
Among other possibilities: The company is considering breaking up its core meats and beverages businesses and putting each up for sale or spinning one off, the people said.
JBS didn't return requests for comment. Sara Lee declined to comment. J.P. Morgan Chase & Co. is advising JBS and Bank of America Merrill Lynch is advising Sara Lee, according to people familiar with the matter.
JBS, one of the world's largest meat processors, has been expanding globally since 2005. In 2007, it acquired U.S. meatpacker Swift & Co. for $225 million and assumed $1.23 billion of its debt, and followed it up a year later with the acquisition of Smithfield Beef from Smithfield Foods. In 2009, it struck a deal to buy a majority stake in U.S. chicken producer Pilgrim's Pride out of bankruptcy court for about $2.8 billion.
In 2009, JBS had more than $20 billion in annual revenue from beef, pork, poultry and dairy products, as well as marketing of leather goods, pet products and bio-diesel. Its U.S. subsidiary, based in Greeley, Colo., has about $10 billion in annual sales. JBS, which has been planning a public offering of its U.S. unit, has seen its shares slide more than 30% this year, hurt partly by increases in cattle prices and a better-performing Brazilian real.
Sara Lee had earlier received a takeover approach from private-equity giant Kohlberg Kravis & Roberts & Co., which it rebuffed, according to people familiar with the matter.
A sale to private equity could still be on the table, but is seen as less viable because of the difficulties financing such a large deal.
Among Sara Lee's most attractive assets are its coffee business, with revenue of $3 billion and 18% operating margins. It has growing brands in western Europe and Brazil.
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Wednesday, November 24, 2010

Nuance Communications rumoured to be buyout target for Apple

Nuance Communications is rumoured to be a buyout target for California-based Apple. Apple co-founder Steve Wozniak on a video interview with TvDeck, he appeared to be referring to a potential deal related to voice recognition search technology, which Nuance said Tuesday that it is powering for’s I-Phone application.

Knowing all the top executives at Nuance and their robust track record and well-respected reputation in the market, the rumors are likely not true but a combination of Apple hardware with Nuance software assets would make a highly competitive next-generation I-Phone/I-Pad platform

Nuance reported its fiscal 2010 results on Monday without a hint to stockholders of any impending deal to sell itself to Apple. 

“In the fourth quarter, Nuance delivered 18% revenue growth and record operating cash flow, driven by strong performance in our healthcare and mobile and consumer business lines,” said Paul Ricci, chairman and CEO of Nuance. “Strong fourth quarter bookings for our healthcare and mobile solutions position Nuance for sustained growth in fiscal 2011.”  

Nuance has a market cap of $ 5.29B. Apple has ample cash to buy Nuance but in my opinion the company has the potential for a higher multiple deal in few more years.

J Crew Agrees to $3 Billion Takeover

According to FT, JCrew the US retailer with a preppy style, has agreed to be acquired by TPG Capital and Leonard Green & Partners in a $3 B deal.
PE firms are rushing in to cherry pick strong brand retailers with good prospects for overseas growth outside North America. TPG for example, has respected retail assets in Europe and Middle East which brings more confidence into their ability to grow internationally.
Thanks to cheap and abundant debt, PEs typically load a retailer with significant debt to pay for first dividends. They also sell off any real estate as part of the initial restructuring, which gives them strong return on invested capital as well as return on equity.
The deal for a brand favored by Michelle Obama, the first lady, is the second private equity transaction in the US retail sector in as many months.
It follows Bain Capital’s $1.8 B acquisition of Gymboree, the children’s retailer, which was finalized on Tuesday.
The two funds have agreed to pay $43.50 per share in cash for J Crew, representing a premium of 29% to its average closing share price during the past month.
The shares jumped 16.1 per cent to $43.72 shortly before the deal was announced.
The deal would return J Crew to the control of TPG, which ran the retailer as a private company between 1997 and its initial public offering in 2006. The deal would give TPG 75% of the company, with Leonard Green holding the remainder.
J Crew is led by Mickey Drexler, one of the most highly regarded figures in US fashion retailing, who led Gap’s rise to dominate the retail landscape in the 1990s.
After leaving Gap suddenly in 2002, he was recruited to lead a restructuring at J Crew, which began as a catalogue business in the 1970s. Mr Drexler is a colorful figure at the retailer, who regularly links his mobile phone into the loudspeaker system at the group’s New York headquarters to keep staff abreast of his design ideas and thinking.
He successfully repositioned the retailer as an upmarket brand and expanded it to include a children’s store and Madewell, a separate youth denim brand.
The chain operates more than 320 stores and had sales last year of $1.7B. It recently launched its first men-only and bridal stores, as well as an e-commerce site for its Madewell brand.
Paul Lejuez, retail analyst at Nomura Securities, said that both the J Crew and Gymboree deals involved retailers that were performing well but had potential for growth, rather than underperforming stores in need of a turnaround.
“The pattern, if we can call two announced deals a pattern, has been to acquire good businesses,” Mr Lejuez said. Gilbert Harrison, chief executive of Financo, a retail focused investment bank, said that TPG would take J Crew “to a next stage that I have to assume would involve the roll out of the platform to the rest of the world”.
J Crew has no stores outside the US but is set to open its first store in Canada next year and plans to expand its e-commerce operation internationally. Gymboree recently opened its first stores in Australia.
The deals are seen as a further sign that private equity firms increasingly regard the stock market as good value and are attempting to take advantage of cheap debt.
Mr Harrison said he expected to see further private equity interest in retail buy-outs.
The two private equity groups have financing from Bank of America Merrill Lynch and Goldman Sachs, who also advised them on the bid.
J Crew was advised by Perella Weinberg.
It is not the first time TPG and Leonard Green, a smaller Los Angeles buy-out firm, have teamed up to buy a company they had owned in the past. They previously jointly invested in Petco, the pet supplies chain, which they exited and then jointly invested in a second time during the credit boom that ended three years ago.
The repeat deals are seen as a further sign that private equity firms increasingly regard the stock market as good value and are attempting to take advantage of cheap debt.
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Tuesday, November 23, 2010

Novell agrees to be acquired by Attachmate for $2.2 billion

Novell, Inc. (Nasdaq: NOVL), the leader in intelligent workload management, today announced that it has entered into a definitive merger agreement under which Attachmate Corporation would acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.2 billion. Attachmate Corporation is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo. Novell also announced it has entered into a definitive agreement for the concurrent sale of certain intellectual property assets to CPTN Holdings LLC, a consortium of technology companies organized by Microsoft Corporation, for $450 million in cash, which cash payment is reflected in the merger consideration to be paid by Attachmate Corporation.

The $6.10 per share consideration represents a premium of 28% to Novell's closing share price on March 2, 2010, the last trading day prior to the public disclosure of Elliott Associates, L.P.'s proposal to acquire all of the outstanding shares of Novell for $5.75 per share and a 9% premium to Novell's closing stock price on November 19, 2010.

 "After a thorough review of a broad range of alternatives to enhance stockholder value, our Board of Directors concluded that the best available alternative was the combination of a merger with Attachmate Corporation and a sale of certain intellectual property assets to the consortium," said Ron Hovsepian, president and CEO of Novell. "We are pleased that these transactions appropriately recognize the value of Novell's relationships, technology and solutions, while providing our stockholders with an attractive cash premium for their investment."

 Mr. Hovsepian continued, "We also believe the transaction with Attachmate Corporation will deliver important benefits to Novell's customers, partners and employees by providing opportunities for building on Novell's brands, innovation and market leadership."

 "We are very excited about this transaction as it greatly complements our existing portfolio," said Jeff Hawn, chairman and CEO of Attachmate Corporation. "Novell has an established record of innovation, impressive technology and brand assets, and a leading ecosystem of partnerships and talented employees. The addition of Novell to our Attachmate and NetIQ businesses will enhance the spectrum of solutions we can offer to customers. We fully support Novell's commitment to its customers and we look forward to continuing to invest for the benefit of Novell's customers and partners."

 Attachmate Corporation plans to operate Novell as two business units: Novell and SUSE; and will join them with its other holdings, Attachmate and NetIQ.

 Attachmate Corporation's acquisition of Novell is subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott-Rodino Act, and is also conditioned upon the closing of the proposed sale of certain intellectual property assets to CPTN Holdings LLC. In addition, the transaction is subject to approval by Novell's stockholders. The sale of the intellectual property assets to the consortium is subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott-Rodino Act, and is also conditioned upon the closing of the merger with Attachmate Corporation. Novell currently expects these transactions to close in the first quarter of 2011.

J.P. Morgan is serving as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Novell. Credit Suisse and RBC Capital Markets are serving as financial advisors and Jones Day is acting as legal advisor to Attachmate Corporation.

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Monday, November 15, 2010

EMC to Buy Isilon Systems for $2.25 Billion

My old employer EMC that had also bought my company Document Sciences, is paying $2.25 billion for Isilon Systems, a Seattle company that provides network storage.
Isilon makes so-called scale-out network attached storage, a type of storage that can start small and grow fast — reaching up to 10 petabytes — without disrupting a network.
IDC estimates the market for Isilon’s type of storage will be worth $6 billion in 2014.
EMC said that with its acquisition of Isilon, it would be better able to provide storage infrastructure for private and public cloud environments, with a focus on so-called big data, like gene sequencing, online streaming and oil and natural gas seismic studies.
“The unmistakable waves of cloud computing and ‘Big Data’ are upon us,” said Joe Tucci, head of EMC. “Customers are looking for new ways to store, protect, secure and add intelligence to the vast amounts of information they will accumulate over the next decade.”
The company stuck to its outlook for the year, anticipating $16.9 billion in consolidated revenue for the period.
One of EMC’s partners, Dell, recently made an unsuccessful bid for 3Par, only to lose to Hewlett-Packard. EMC has seen its revenue from Dell decline in recent years, and the announcement on Monday looks like a strategic move toward income it can count on. There is many more deals to come in the storage market. I would anticipate more deals from Dell and IBM.
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Saturday, October 30, 2010

Open Text acquires StreamServe. Why should SAP buy Open Text before Autonomy?

Open Text Corporation (NASDAQ:OTEX)  announced last Thursday that it has acquired StreamServe Inc., a leading provider of business communication solutions. The acquisition will add complementary document output and customer communication management software to the Open Text ECM Suite, while enhancing Open Text's SAP partnership and extending its reach in the Nordic market.

StreamServe was a European competitor out of Sweden to my old firm Document Sciences bought by EMC back in 2008.  It should not come as  a suprise to me that Open Text finally bought them as they have been a long-time SAP channel partner like Opne Text. The transaction is valued at approximately USD 71 million. StreamServe offers enterprise business communication solutions that help organizations process and deliver highly personalized documents in any paper or electronic format.

The company's powerful solutions enhance the customer interaction capabilities of the Open Text ECM Suite by enabling the automation of business processes for B2B and B2C markets, including financial services, the public sector, telecommunications and utilities. Designed to address the "last mile" of communication between an organization and its customers, StreamServe's solutions excel at improving and expanding business relationships. With StreamServe's software, companies can automatically create documents through rules-based dynamic assembly and present them to customers, partners, and suppliers, in multiple formats and through whichever channel they prefer.

StreamServe offers solutions that scale across a company's document-driven business processes. The company's solutions are designed for easy integration with ERP and supply-chain systems and applications, including SAP. Open Text and SAP have a 20-year partner relationship, and SAP resells a wide range of Open Text ECM solutions.

Like Open Text, StreamServe has an established reseller partnership with SAP making it a natural fit with Open Text's SAP partner strategy. "From both a technology and partnership standpoint, StreamServe is a complementary fit for Open Text," said John Shackleton, President and Chief Executive Officer of Open Text. "StreamServe brings innovative new technology to the ECM Suite, offering products that automate and personalize customer communication processes, while integrating this functionality with key Open Text ECM solutions."

StreamServe also expands Open Text's presence in the Northern European market. StreamServe has global operations, with a strong presence in Europe, particularly in Sweden, where the company was originally founded. Open Text, which has a long history of successfully supporting acquired products and services, will continue to support StreamServe's products and installed base. Open Text will also integrate StreamServe's technology with the Open Text ECM Suite. "As part of Open Text, we can offer our customers even greater value with an expanded solutions portfolio and the support of a much larger ECM company," said Dennis Ladd, President and Chief Executive Officer of StreamServe. "Together we remain committed to our customers, and we're excited about the opportunities and new solutions we'll be able to deliver as part of the Open Text team."

There has been increasing speculation that Autonomy has been pursuing Open Text to be the last standing takeover target in the niche but high-growth enterprise content management sector. Open Text similar to Stream Serve has been a 20-year reseller partner to SAP with tight back end integration and large installed client base. It would be a mistake for SAP to let Autonomy or any other predator to snap up about 1 billion dollar company that is also filling a critical gap in the SAP platform to better manage and disseminate structured and unstructured data. Besides Autonomy, I would also expect Oracle, Dell, HP and Microsoft to seriously look at Open Text.

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Friday, October 29, 2010

Wal-Mart reassesses Massmart bid in South Africa; Can the king of US retailing ever get it right overseas?

Wal-Mart reassesses Massmart bid in South Africa; Can the king of US retailing ever get it right overseas after a series of high-profile failures in Germany, South Korea etc.?  Brand new analysis coming up on The Akbas Post:       
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Sunday, October 24, 2010

Austrian OMV pays €1 billion for control of largest Turkish gas retailer Petrol Ofisi

The Austrian state-owned oil and gas group OMV has acquired a majority share of Petrol Ofisi, largest  gas retailer in Turkey from Dogan Holding.

Both companies have been in fierece negotiations for months and OMV said late on Friday that it would pay €1 billion in order to raise its stake in the Turkish company from %42 to %96, thereby helping it establish a strategic bridgehead to the resource-rich Caspian Region and the Middle East. OMV first invested in Petrol Ofisi in 2006 when it paid $1 billion to acquire a %34 share from Dogan.

The owner Aydin Dogan, is under intense pressure as he fights tax fines totalling $3.4 billion levied on the group’s media arm. The agreement came right after a court last week ordered it to pay $628 Million in taxes and fines, raising the running total in tax court rulings against the group to TL1.6 billion.
Turkey’s fast-growing energy sector is attracting investment from both local and foreign groups, as the government sells off distribution grids and generation. Turkey is also the starting point for the OMV-backed Nabucco gas pipeline, which could one day transport gas from the Caspian to the European Union.
Petrol Ofisi, has a %27 share of the Turkish fuels market and a network of 2,500 filling stations. However, its network is older and less efficient compared to its competitors and has been loosing siginificant market share since Dogan Holding has taken it over.
The Dogan Group is one of Turkey’s longest established family conglomerates, owning around half Turkey’s print and broadcast media as well as energy and industrial assets.
The divestment of Petrol Ofisi comes shortly after Dogan Yayin confirmed it had received non-binding bids for some of its media assets, raising the prospect that the group could soon liquidate many of its most significant businesses.
OMV said it did not exclude the possibility of raising equity as a way to fund the new transaction, which must still be approved by regulators and anti-trust authorities.
OMV and Dogan said they would distribute a total of $488 Million in dividends to shareholders before closing the deal.
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Wednesday, October 20, 2010

Autonomy to announce large acquisition, Webtrends and Open Text among rumored targets

Autonomy Corp., remains on track to announce an acquisition this autumn, according to its CEO Michael Lynch. The comments Lynch made came unprompted during the company’s 19 October Q3 2010 earnings call.

The CEO said: “I’d just like to talk a little bit about M&A, although obviously there are no guarantees until the ink is drying, Autonomy is still very much on track to announce the acquisition other than it’s being talking about in line with its original timescale of the autumn." 

Open Text, the listed, Canadian ECM solutions company with a market capitalization of $2.6 billion, has most frequently been flagged as a potential target for Autonomy. 

Webtrends, a private equity owned Portland, Oregon-based web analytics and solutions provider was also recently named as a target. Webtrends was featured in the Portland Business Journal in late 2007 as potentially being valued at $1billion.

An acquisition would not take the market by surprise, given that Lynch stated that the GBP 500 million bond offering it announced at the beginning of the year “will enhance our ability to engage with potential acquisition targets and take advantage of opportunities as they arise later in the year.” 

In yesterday’s earnings call Lynch went on to outline the kind of acquisitions Autonomy engages in which, he said, is unlikely to include a very “left-of-field area.” “We tend to like to run the playbook that we have used before and has worked so well for us. Now, consequently, these acquisitions tend to be accretive in the short term, the reason being that we will take normally an organization which is not performing at the top end of the market or not be the number one.”

“We will take that and replace the fundamental technology with IDOL, thus servicing a new customer base. That means that that product – a company tends to move from one that’s having to customize everything for customers – an impure model – to a pure model, and that is what changes the margin construction. And you can see the history of those deals that we’ve done in the past.” 

“Now, whilst that might be the mechanism, the important thing to say is that these are done for strategic reasons. So with Verity we created the de facto standard in the market which has been so good for the company since 2005. With Interwoven we produced the chaining between law firms and corporate clients which has driven our leadership in eDiscovery.”

“And in ZANTAZ we’ve owned the infrastructure inside large corporates, which again is an example of us investing in something which means that we have long-term ownership of our customer base; very much what the strategy is about. So when you come to see the work that we have been doing in this area, it is important to understand it in the context of this playbook.”

While the CEO is right about their track record with acquisition, it is virtually no guarantee that the company can take on such complex buyout.  The company needs to make a sizeable acquisition to keep growing. With massive consolidation wave in the enterprise content management now being largely over, Open Text and Autonomy are the only remaining takeover candidates. Autonomy's likely merger with Open Text would be largest by deal size to date and could create significant post-merger integration challenges for the company. Webtrends could be as significant and perhaps more complelemtary than Open Text.

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Saturday, October 09, 2010

China secures ‘strategic partnership’ with Turkey building the New Silk Road

You should have witnessed the tone of the press conference by two prime ministers – Turkish Prime Minister Erdogan hosting the Chinese Premier Minister Wen – yesterday.
There was also another briefing for prominent Turkish business leaders today in Istanbul.

China and Turkey signed eight pacts on cooperation in areas that included trade, railway construction, infrastructure, communications and cultural exchanges before the press conference.  "China and Turkey have a long history of friendship. Our relations are now entering a new stage of development," Erdogan told reporters.

The tone of the meeting was quite confident and upbeat: Turkey and China want to increase bilateral trade to $50 billion within five years. China is already second richest economy in the world soon to take on the US. Turkey is bolder politically and stronger than most European Union nations economically.
Both nations aim to strengthen political and business ties between two of the fastest
growing economies in the Group of 20. Turkey looks set to rival China as the
fastest expanding big economy in 2010, with IMF now forecasting growth of about 8%.
The Chinese premier inked a new “strategic partnership” and said he recognised Turkey’s “power and influence in the international community and its region”, sealing agreements to co-operate in energy, transport and infrastructure.
Like China, Turkey is now seeking a more active part on the global stage, and extending its economic reach into sub-Saharan Africa, the Middle East, Balkans and former Soviet Union. But annual bilateral trade of around $17 billion is at present skewed heavily in China’s favour.
Ankara now wants to rebalance and strengthen the economic relationship by winning more Chinese investment, presenting Turkey as a base to do business in Europe and the Middle East. There are multiple fields where Turkey and China could further cooperate, such as energy, air transport, culture and tourism.
Turkish prime minister Erdogan, told Friday’s news conference that “with suitable financing”, the two countries could build a “modern silk road” with Chinese involvement in a new rail network stretching more than 4,500km.
The China Railway Construction Corporation, with a loan backed by Beijing, is already building a section of a new Ankara-Istanbul high-speed rail link. Chinese companies are likely to compete in future tenders, especially to supply rolling stock.
Mr Erdogan said trade would in future be conducted in lira and renminbi, rather than in
dollars. The leaders also discussed “close co-operation” in energy, where Turkey is privatizing state assets and rapidly expanding renewable and thermal generation. 
Turkey wanted closer cooperation with China in international organizations, Erdogan said.
The agreements signed by ministers covered co-operation on infrastructure in third
countries – suggesting Turkish and Chinese contractors could collaborate on
projects in Africa and the Middle East, where they now compete fiercely.
It will be a kind of “co-opetition” initially; The New Silk Road countries need to learn how to collaborate among themselves rather than competing fiercely. China and Turkey for example are competitors in textiles, electronics and automotive but China needs transportation hubs in the region where Turkey lies right in Europe’s backyard.
Political and economic alliances will need to be immediately followed by tighter business
cooperation arrangements sponsored by governments. Having lived and done deals in
both China and Turkey, it is fair to say that conducting business in the New Silk Road
nations is drastically challenging and different than in the Western world.
However, a Turkish businessman for example is much better equipped - culturally, socially, experiencewise - to do business in China than lets say a French or American business owner. At the end of the day, it is not enterprises that do business but people.
Yesterday’s “emerging nations” in the words of developped countries have in fact emerged.
The future of global trade and business has shifted to the New Silk Road …Bilateral trade among the New Silk Road economies will account more than half of global trade by the end of the next decade. The key strategic questions remains as to how the developped world coud respond…
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Friday, October 08, 2010

Microsoft to Bid For Adobe

Shares of Adobe soared in heavy trading yesterday on a report that Microsoft CEO Steve Ballmer discussed a possible buyout of the company.

Based on the old saying "my enemy's enemies are my friends", Microsoft and Adobe have been long discussing joining forces agains Apple's control of the cell phone market.

Neither Microsoft nor Adobe had any comment. Both software companies are extremely successful software franchises with little or no overlap in their respective businesses. Adobe Systems Inc., based in San Jose, Calif., makes software such as Photoshop and the Flash technology used for Web videos and games. The company has been in a long-standing feud with Apple Inc. over Flash, which Apple bans from mobile devices including iPad and the iPhone.

Microsoft controls the office market in terms of content authoring via its Office franchise.  Adobe n the other hand controls the creative & digital publishing content supply chain. Merging the two firms would dominate how content is created, managed and distributed in every industry with serious implications to content-rich industries.  Even if a deal were to be hashed out due to anti-trust regulatory concerns over the companies' overlapping products, such as Flash and Microsoft's Silverlight, could prevent it from going through.

An Adobe acquisition would be a huge one for Microsoft, whose last big purchase was in 2007, when it bought aQuantive Inc. for $6 billion. A proposed deal to buy Yahoo Inc. the following year fell apart when Microsoft withdrew a $47.5 billion bid. Adobe's market cap is close to $15 billion.

Adobe ended the session up nearly 12 percent at $28.69, with trading volume more than six times the average. The shares were briefly halted earlier in the afternoon after they hit as high as $30.
In after-hours trading, the stock slipped 14 cents to $28.55. Microsoft ended trading up a dime at $24.53.
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Sunday, October 03, 2010

HP Hires Ex-SAP Chief Apotheker as CEO. Why Is SAP/HP Merger Inevitable Now?

Léo Apotheker introduced himself as Hewlett-Packard’s new chief executive to Wall Street analysts on Friday on a conference call.
“H.P. should be more valuable than the sum of its parts,” Apotheker said. “Software is sort of the glue to make that happen.”
Investors, however, continued to voice their dissatisfaction with Leo Apotheker’s arrival, sending H.P.’s shares down about 4 percent to $40.42 during midday trading on Friday.
Mark Hurd drove HP very hard with brutal cost-cutting and restructuring laying off about 50,000 during his tenure. Following his ouster by the HP Board, he immediately landed a job with Larry Ellison at Oracle. 
HP Board continued to surprise investors, analysts, customers and even its own employees; They abruptly fired Hurd, then sued him not to join Oracle but then settled it shortly. Once again they passed over HP's internal candidates to hire ex-SAP chief who lasted only about seven months as sole chief executive of SAP.  He presided over major product delays, upset the company’s customers by raising prices during the heart of the recession and has never run a business near H.P.’s size and diversity.
This appointment tells me that HP will now be all about selling to large clients, repairing employee morale with a lot of pep talk and boosting software business to better compete against IBM and fend off Oracle that will come after HP's hardware franchise aggressively with Hurd's new role. 
I would see an inevitable merger of HP and SAP. HP's software business has been lackluster at best. The company is so desperate that they recently bought 3Par at an irrational multiple in a bidding war with Dell.  Unlike IBM, HP is still a hardware company.  As services and software converge in the enterprise giving rise to cloud computing opportunities, HP is even more pressed to build out a substantial software business.  We would agree with Apotheker that software will play even bigger role " as glue" going forward.
SAP is the largest independent business software company without a strategically compelling investment case to investors. Oracle or IBM or Microsoft would not be able to buy SAP. The only logical candidate is HP. Leo's appointment should now accelerate the inevitable merger between HP and SAP sooner or later.

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M&A Deals Soar to $21 Billion in Shale Gas Sector in First Half

US shale gas has been a key theme in upstream M&A over recent years. It has the potential to fundamentally alter the supply and demand dynamics of natural gas industry worldwide forever.

According to the latest report by
Wood MacKenzie,  during the first half of 2010, acquisition spend in the sector amounted to $21 billion, equivalent to around one third of global upstream M&A expenditure.  The value of the market has increased with the emergence of shale gas as a world scale source of secure, long-term gas supply.

The investments were up sharply from the $2billion spent in the first half of 2009 and beat the $19.7 billion spent in 2008. The gas boom has increased projected US supplies at current usage to 100 years, up from 30 years a few years ago. It has been fuelled by a technological breakthrough enabling producers to extract gas viably from shale rock.

The technology, which combines horizontal drilling with hydraulic fracturing of the rock, is expensive and Wood Mackenzie says the high, upfront costs associated with the initial testing and subsequent full-scale development of shale gas resources were in many cases prohibitive.

This is particularly true for companies with high levels of debt and cash constraints, which fits the description of many of the small, independent producers in the US that have been in on the ground floor of the boom.  It is this need for capital that gave rise to the shale gas partnerships, which Wood Mackenzie says underpinned much of the recent merger and acquisition activity.

In May, for example, Temasek, the Singapore state investment fund, and Hopu Investment Management, a Beijing-based group, agreed to buy $600 million of convertible preferred stock in Chesapeake Energy. This followed other deals by Chesapeake with Total of France, the UK’s BP and Norway’s Statoil Hydro to help fund development.

Many of the companies forming partnerships were doing so to divert capital towards opening up new shale plays with the latest trend being a shift toward shale oil projects.

The increased need for financing gives the well-funded majors strong buying opportunities. This year, ExxonMobil completed its $41bn acquisition of XTO Energy and Shell announced a $4.7billion acquisition of East Resources.

While it appears to be a US focused momentum, we believe shale gas may be abundant in many geographies outside US as well but given US' dependency on LNG oil & gas enterprises have been chasing deals in North America so far. We will likely see more deals in Europe and even Far East starting from second half of next year.

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Emerging Markets Point the Way Forward

By Lina Saigol
Financial Times, September 27 2010

New direction: companies in emerging markets are increasingly looking to international acquisitions

For the past three years, the mantra among global dealmakers was that emerging markets would pick up the slack as their US and European counterparts hunkered down. This now appears to have come true as companies in developing countries cement their position as a new breed of global dealmakers. Although Asian economies have not been immune to the global financial crisis, the region’s capacity to overcome the downturn, while western economies are still suffering, has confirmed the notion that the balance of commercial power is shifting from west to east. 

Chinese investment is surging in Africa, Latin America and south-east Asia, while Russian and central Asian natural resources companies are looking to list shares in Hong Kong. This has resulted in companies in emerging economies recording a 25 per cent increase in cross-border deal activity in the first six months of the year, according to KPMG’s latest annual Emerging Markets International Acquisition Tracker. 

“Emerging-market companies have become acutely aware of the global dimension in which they operate. They are fast learners and will be after intellectual capital, access to developed markets and, inevitably, commodities,” says Carlo Calabria, vice-chairman at Bank of America Merrill Lynch. South-east Asia has been the most popular destination for inbound deals, with China ahead of India as the next most popular market, KPMG’s analysis found. Jeremy Fearnley, head of M&A at KPMG Corporate Finance in Hong Kong, notes that dealmaking confidence is returning far more quickly for emerging economies than for their developed-market counterparts.

 “One reason for this trend is that emerging economies are capital rich,” he says. “In the case of China, for example, there is increasing demand for commodities in this market as it continues to industrialise and invest heavily in infrastructure.” 

The race to acquire natural resources is fierce, with Chinese, Indian and Brazilian companies all competing for assets. As a result, the tactics of acquisitive companies are starting to mirror those of their western counterparts. Korea National Oil’s $1.87bn cash bid for Dana Petroleum, the UK oil explorer, shows just how aggressive some companies are prepared to be to secure their targets. The bid is the first of its kind launched by a state-backed Asian company that may have seen similar deals slip away because it was too timid in its pursuits. The South Korean group wants to double its production to 300,000 barrels a day, and buying Dana is central to achieving this goal, especially at a time when global oil assets are not getting any cheaper.

“The other side of the coin is the emerging-market domestic consumption story, where we continue to see increased demand for western products and brands,” says Mr Fearnley. “The focus of Chinese outbound acquisition activity is therefore introspective as buyers seek to acquire more established western brands to sell into their domestic market.” The services industry in China accounts for roughly 40 per cent of China’s gross domestic product in 2009, compared with roughly 75 per cent in the US, suggesting there is considerable room for growth.
But mergers and acquisitions activity is not flowing only one way.

On the hunt for growth, companies in Europe and the US are taking advantage of good valuations to position themselves for the new world economy. Having spent the past two years cost-cutting and repairing their balance sheets, S&P 500 companies are flush with cash that they are keen to put to use via M&A. “US corporates are clearly interested in strategic emerging-market opportunities. Equally, some of the emerging-market leaders are looking cross-border and taking advantage of significant liquidity, strengthening exchange rates and a more positive local economic climate,” says Glenn Schiffman, head of investment banking for the Americas at Nomura.Wilhelm Schulz, head of European M&A at Citigroup, says that with the likelihood of another macroeconomic shock receding, European corporate boards have also started to execute their long-planned M&A strategies. “This – across most industries – involves geographic diversification and gaining scale to combat muted organic growth prospects at home,” he says. 

BHP Billiton’s recent hostile $39bn bid for PotashCorp, the world’s biggest fertiliser maker, comes at a time when global demand and output for the potash business are expected to increase dramatically. The Paris-based International Fertilizer Industry Association estimates that potash demand could rise by almost 20 per cent this year, from an estimated 49m tonnes of potassium chloride to 58.7m tonnes in 2014 – and BHP wants a large slice of that. Financial services companies are also looking to emerging markets for expansion.

 Santander, the highly acquisitive Spanish bank, recently won an auction for a controlling stake in one of Poland’s largest banks. It fought off stiff competition from European rivals to purchase the 70 per cent stake of Bank Zachodni WBK that Allied Irish Banks has been forced to sell as a condition of the state aid it has received from the Irish government. HSBC, meanwhile, is in exclusive talks to buy 70 per cent of South Africa’s Nedbank, giving the world’s biggest bank outside China a significant foothold in Africa. 

With dealmaking in emerging markets outpacing the US and Europe for the first time in years, many of the new merger arbitrage funds have shifted their focus to Latin America and Asia. These funds aim to profit from the difference between a target’s share price after a takeover announcement and the closing price at completion. There is roughly $15bn in funds specifically focused on merger arbitrage worldwide, estimates Hedge Fund Research, although other event-driven funds also invest around deals. 

One of the biggest trades for merger arbitrage funds at the moment is BHP’s bid for Potash. Since going public with its offer, more than 145m shares in the Canadian fertiliser company have been traded, and BHP is hoping these will help influence the outcome of the deal. Likewise, hedge funds including Jabre Capital have taken positions in Dana Petroleum following Korea National Oil’s offer. The Korean group needs acceptances from 75 per cent of shareholders before it can delist Dana from the London Stock Exchange, and 90 per cent before it can begin a squeeze-out process. If it succeeds in reaching its target, it may provide peers in the region with the impetus to become more aggressive when pursuing western targets. But while investors may welcome more emerging-market activity, they will not approve any deal at any price.

Prudential was one of the first companies to discover this after shareholders forced the UK life assurer to abandon its $35.5bn attempted takeover of the Asian assets of AIG, the US insurance group. Investors holding more than 20 per cent of the Pru were concerned that the economics of the deal left virtually no margin for error in delivering the promised returns and cost synergies. But while it is inevitable that some of these deals will fail to succeed, the impetus to keep trying is unlikely to wane. International companies that in the past have dismissed emerging-market M&A as nothing but a passing phase have taken stock of reality: the new breed of dealmakers is here to stay.
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Sunday, September 26, 2010

Introducing A New Linkedin Group: New Silk Road Business

If you like our posts and would like up-to-date access to our thought leadership content and rich discussion in our community of accomplished individuals, please sign up for our new Linkedin Group:

New Silk Road Business

You can network and collaborate with your peers on the New Silk Road to capitalize on new business and trading opportunities in the BRICs - Brazil, Russia, India and China - and the CIVETS - Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. This is meant to be an online matchmaking hub how professionals, dealmakers, traders seeking new markets, new partners and new deals in the new silk road where money will be made in the 21 st century!

How to Make M&A Work in Emerging Markets? Ten Proven Tips For Successful Deal Making

Global companies seeking a foothold in fast-growing countries such as Turkey, China, Russia and Brazil have pushed deal-making in emerging markets above that of Europe for the first time. According to Dealogic, emerging market targeted M&A volume is up by more two-thirds to $575.7 billion, while European volume has increased by barely 20% to $550.2 billion in the first half of 2010.

Deals by companies in emerging markets now account for 30% of global M&A activity, while Europe’s share has fallen to 29% – the lowest level in 12 years.

China, with about $133 billion in deals, has attracted most interest this year from acquirers. Brazil, India and Russia follow, with the four BRIC countries together accounting for more than half of emerging markets activity. In Turkey, M&A volume is almost double of FY 2009 in the first half of 2010.

Most multinationals need to look beyond developing nations for sustainable growth, particularly inorganic to secure access to high-growth markets and customers. The race to secure global energy resources has seen some of these companies use increasingly aggressive bidding tactics. This summer, Korea National Oil Corp, the state-owned energy explorer, launched the country’s first cross-border hostile takeover to try to win control of UK oil group Dana. 

According to McKinsey, the rapidly growing ranks of middle-class consumers span a dozen emerging nations ranging from Turkey to South Africa, not just the fast-growing BRIC countries and include almost two billion people, spending a total of $6.9 trillion annually. McKinsey research suggests that this figure will rise to $20 trillion during the next decade—about twice the current consumption in the United States.

US companies on the other companies have been more cautious in seeking growth in emerging economies. The largest such deal this year was Abbott Laboratories’s’ agreement to buy the healthcare solutions business of Piramal, the Indian conglomerate, for $3.8 billion.

Credit Suisse leads the announced emerging market advisor ranking with about $103 billion in deals so far this year, followed by Morgan Stanley and Bank of America Merrill Lynch.

Multinational companies planning M&A ventures in emerging countries will be breaking new ground. To succeed, they must be prepared to fundamentally adapt their deal-making mechanisms to the characteristics of the local market.

So what is different about deal making in - what I call - the New Silk Road? Aspiring buyers must consider the peculiar dynamics of the New Silk Road specifically, the fact that conventional approaches to M&A are inappropriate:

  1. Prepare to pay more but it may not be enough to close the deal: Valuation multiples tend to be relatively higher as there is more competition for increasingly smaller deals. You tend to price each deal based on growth potential driven off of some per capita basis penetration trajectory over the next decade, which can change drastically. Traditional valuation is often impossible, since benchmarks and reliable financial information are rare. Often, option value is everything.
  2. Look for sizeable target but be ready to settle for much smaller deal: Industries from which you will target your next emerging market M&A deal tend to be a lot more fragmented than developed economies. In a given industry, after only a few market leaders, you can easily end up with targets in the tens of million dollar range in size. Be ready to make smaller deals priced at large company multiples. For example in Turkey, billion-dollar size deals are limited to only a few industries such as energy and steel. State-owned enterprises are cleaning up their asset portfolios and improving standards of disclosure, making them attractive targets for foreign investors. A number of private companies better managed than their state-owned peers are also emerging as candidates.
  3. Every deal will be contested: Multinational companies face challenging competition in emerging markets, as these economies already boast aggressive local players that have captured a significant portion of spending. Each deal you would hope to seal will face stiff local competition with deep pockets.
  4. Local financing may require too much upfront work: Given the specific countries local regulations, complex financings tend to be more common. Dealing with targets existing local bankers would be a good starting position. Change of ownership would inevitably ignite such discussions anyway.
  5. Watch out for cultural nuances:  There are plenty of cultural differences that can make or break a deal. In the end, it is people that do business with one another, not companies.
  6. What you see may not be what you buy in the end:  The standards of corporate governance in these economies can be drastically different than the US for example. If they are listed, it might be a bit safer but still there are still no guarantees. The information needed for robust due diligence is elusive in China, where IT systems are generally weak, databases lack breadth and capacity, and legal systems and requirements remain opaque. Corporate governance standards in emerging markets still lag far behind those of developed markets.
  7. Complex local regulatory frameworks are most difficult to understand:  One of the biggest hurdles in deal making in the new Silk Road has to do with the uncertain regulatory environment. For example, in Turkey it is still not legal to delist a public company. Many private equity firms or multinationals that are also public in their home markets are forced to leave their investment listed in a second stock market.
  8. Cross-border transactions are inherently more time consuming:  A lack of experience in cross-border transactions can make the process more difficult. You need a dedicated team of experts that are heavily staffed locally and properly equipped on the local level to complete deals.

So what should your M&A teams do differently to make things work?

  1. Study the market closely, start early: Nothing can substitute a well-structured market assessment of your target geographies with a consulting company that preferably has a local branch and team.
  2. Commit to the market early for the long-term: as soon as you determine where you should invest, you need to recruit a small local team to build connections and learn. For example, Best Buy entered the Turkish market and studied it for 2 years prior to opening stores.  Try to visit the country several times in person. Seeing is believing. Make new local friends that can take time and effort to cultivate.  Build rapport with people and understand their value system:  Talk to close friends and hire people who understand both cultures.
  3. Source a hybrid M&A team staffed mostly with locals and manage your team closely: Plan your team early. Source and contract the best local legal and transaction execution advisory you can afford. M&A in emerging markets is different. For example, forecasting methods used routinely in more mature markets do not apply to emerging markets. Local legal and tax regulations can be so different and complex that can kill a deal. You want to know about them as soon as possible.
  4. Use a wider range of valuations and let your local team be your guide:  Relying heavily on a multiples-based valuation can almost automatically lead to highly distorted results, while these economies can be too dynamic for discounted-cash-flow analysis to be accurate; forecasting cash flows beyond three to five years is mere conjecture. In addition, local counterparties often use a statutory valuation, which is similar to valuing assets at book or asset value but does not take into account the level of cash flow the assets could generate. Past growth rates and margins do not provide an accurate guide on how an industry will develop in the New Silk Road economies. Yet the boards of multinational companies often insist that their valuation teams come up with a single, bottom-line number. As a result, deal teams frequently feel pressure to under- or overprice a purchase rather than explain why the value realized could be higher or lower, depending on the industry's evolution. Using a wider range of valuations would give a buyer leeway to assess the most likely outcomes and to base its decisions on the way emerging markets fit into the overall company and industry strategy.
  5. Be realistic about synergies:  Buyers often look to the synergies of deals to justify investments. But capturing synergies in the New Silk Road is difficult. Cross-selling products, for example, is unrealistic if brands and products are positioned for different market segments: it is just not feasible to try to cross-sell, say, a premium brand of beer through a largely rural distribution network. Synergies in revenues and labor (through massive layoffs of workers) are also hard to achieve. In addition, buyers must be aware of potential post acquisition cost increases owing to the expense of an expatriate staff and spending on health and safety improvements. Savings in production and operations are easier to capture, although sometimes a deal's value resides not in its synergies but in its long-term option value: capturing the potential and growth of the sizable emerging markets.
  6. Share upside and downside risk:  When differences over the valuation of a company cannot be bridged, buyers should seek to structure a deal so that it takes this uncertainty into account.You may for example in a joint-venture make an additional payment three years after the transaction date if the venture achieved an agreed-upon earnings target and if tax regulations changed. Such earn-out mechanisms can be useful when opinions vary over other external factors, such as industry growth and the cost of key inputs. The trick with earn-outs is to focus on matters that are generally beyond the influence of either negotiating party; otherwise, there is room for gamesmanship, which should be avoided.
  7. Work like a detective during due diligence:  Due diligence is the core of acquisition procedures. In my experience, buyers tend to be either overly cautious (thus missing potentially attractive opportunities) or overly optimistic (and likely to find surprises later on). The information needed for robust due diligence is elusive in emerging markets, where IT systems are generally weak, databases lack breadth and capacity, and legal systems and requirements remain opaque. Furthermore, agreements are often oral, and the high proportion of cash deals makes it difficult to validate the true ownership of stated assets.    Multinationals should expect a high level of liability and risk exposure and make sure that any team conducting due diligence on their behalf has enough time and people to dig for information. Accounting and legal advisers with local experience are absolute must haves. Wherever possible, teams should be based locally and have the insider knowledge and relationships needed to understand target companies fully.
  8. Deal structure should help you achieve your strategic goals:  Be flexible to structure the deal other than M&A with full control if it can’t be achieved due to local regulations or deal specifics; there is the option of joint-ventures where you can share local market leaders economic network and accelerate your market penetration. Or you can go for a minority equity investment with limited control like in the media sector in Turkey for example as an option to step up deal after relaxation of regulation, to preempt competition and to accumulate learning. Another successful approach to structuring deals involves outlining important areas of decision making and establishing mechanisms to exercise control over them. If direct control of the board is impossible, a buyer might push decisions down to a level where it can exercise authority through day-to-day operational decisions. Often multinationals combine them with an agreement to increase ownership and control over time.
  9. Leave your usual M&A mind-set at headquarters: Look at an acquisition as a partnership rather than an outright acquisition. If a company is listed in the public markets, in form it will obviously be an acquisition, but in substance it could be a very good partnership if we align the objectives across the organizations as if it is a partnership.  Don’t send plane loads of people into a new company. Instead, send in a few integrators. Make a concentrated effort to co-create a vision for the enlarged organization rather than just imposing your own from the headquarters. Ask key questions. What are our objectives? What are our strengths and our weaknesses? How do we leverage those strengths—such as people, R&D, access to new markets, and our organic-growth pipeline—to collectively achieve the vision? If the vision exercise isn’t shared or if the process isn’t participative, then the acquired organization’s willingness to be part of the future action plans and the consequent accountability will be much lower.
  10. Culture fit is still everything in emerging markets too: You have to accept that there will be differences in cultures; one cannot make a single-culture organization. But it is critical to build a uniform performance culture. By that, I mean how we think as one enterprise and set targets for the larger organization, how we go about realizing the group vision—including how we benchmark performance and identify sources of value—and how we measure less tangible actions and behavior. These things are especially relevant now because there are no standard operating procedures for overcoming a global financial crisis.
I sincerely hope you will benefit from these proven, practical tips I heavily relied upon in the past. Please feel free to email me to comment and probe each one of them.

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