Tuesday, March 20, 2012
Tuesday, October 19, 2010
What could happen to Potash Corp?
TORONTO: News that China's Sinochem will not launch a counterbid for Potash Corp, removes one of the biggest potential obstacles to BHP Billiton's $39 billion offer for the Canadian fertilizer giant.
The fate of Potash Corp is far from certain, however, as other white knights may emerge, and BHP faces regulatory hurdles on the one hand and demands from Potash Corp for a higher bid on the other.
Shares in Potash Corp slipped 1.2 per cent in New York at midday on Friday to $145.37, but remained well above BHP's $130 per share bid, suggesting investors are still confident of a higher offer. BHP, the world's largest miner with a tradition of discipline when it comes to takeovers, may even walk away.
Following are some of the scenarios facing Potash:
HOSTILE SHOWDOWN Probability: Most likely With Sinochem out of the picture this is the most likely scenario because it makes it more difficult for Potash to convince shareholders there are other bidders and that it is worth more. Potash shareholders had indicated they would need BHP to raise its $130 per share bid to $162 before accepting an offer, according to a recent Reuters poll.
If BHP sweetens its bid, but still can't win over Potash's board, it may again take its higher bid directly to shareholders. BHP also might persist with its hostile offer and hope Potash shareholders will be convinced of the bid's merits. For now, Potash is sticking with its "just say no" defense.
A NEGOTIATED DEAL Probability: Likely This outcome is only possible if BHP is willing to substantially raise its bid for Potash. Some analysts argue that it would take an offer of at least $150 a share, while others say Potash's net asset value alone is in the region of $160 to $170 a share. Potash shares touched a high of $240 in 2008. Some analysts say a deal above $165 a share would hurt earnings, but that those levels are unlikely.
BHP's bid faces the additional obstacle of needing formal approval by its own shareholders if it sweetens its offer to a point where the value of the bid exceeds 25 per cent of its own market capitalization.
POTASH FORMS A JOINT VENTURE Probability:
Possible Potash could foil BHP's takeover attempt by selling a portion of its assets into a joint venture at a price that implies a substantially higher value for the whole company than BHP's current bid. Sinochem, China's top fertilizer maker and its No. 4 oil company, could be a viable joint-venture partner, especially now that it has abandoned plans for a counterbid for the whole company.
A Chinese company would ideally seek a supply agreement deal with Potash in the event of a joint venture. However, any agreement on this would have to be structured around Canpotex -- the international marketing arm of potash producers Potash Corp, Mosaic Co and Agrium Inc.
Analysts have also speculated that a consortium of companies could consider the joint-venture model if they were unable to secure enough capital for an all-out bid.
http://www.smh.com.au/business/potash-there-for-bhps-taking-20101019-16sin.html
THE chief executive of BHP Billiton, Marius Kloppers, can clinch control of Potash Corp and put the two misses he has had in game-changing deals with Rio Tinto behind him. But according to analysts, control of the feisty Canadian company will only come if BHP's $40 billion offer is increased substantially.
The Canadian Imperial Bank of Commerce said in a report that since no white knight had arrived with a counter-bid to BHP's one of $130 a share, Mr Kloppers could bank on ultimately being successful, as long as the offer price is closer to $150 a share. It said fundamentals in the crop nutrient markets were improving and that $150 a share could be the ''magic number''.
The bank said it did not expect BHP would receive the necessary shareholder acceptance from Potash shareholders at $130 a share by November 18, the current bid expiry date.
'At $150 a share, there is probably enough of a premium for Potash shareholders to capitulate while still being below the the threshold at which BHP would be required to take this deal in front of its own shareholders (triggered at about $157 a share),'' the bank said.On the improved outlook for crop nutrients, Morgan Stanley said in a report that inventories for Potash's namesake main product were getting tighter. Inventories are currently 55 per cent lower year-on-year and 17 per cent below the five-year average.
Prices for potash have started to move higher. Potash Corp recently secured a $50 a tonne increase for potash which was followed by the $25 a tonne increase posted by fellow producer Mosaic in the US market. Morgan Stanley said global fertiliser application rates were well below recommended levels. Application rates have been fairly constant over the past 10 years but the bigger crops have been removing more nutrients from soil, it said.
Despite the stronger outlook for crop nutrients and calls for BHP to increase its bid to at least $150 a share, Potash shares have weakened. They fell to $143.21 on Monday.
Mr Kloppers has said he would not acquire Potash simply for the sake of completing a deal.
"I hope my shareholders consider that my job is on the line if we do an acquisition purely for the sake of doing an acquisition," he said in August when the bid was announced. "I will be as disciplined on this bid as I've been on every other endeavour that we've been on."
Pressure is building on Mr Kloppers to seal the deal after a proposed $116 billion iron ore production joint venture with Rio Tinto in the Pilbara was cancelled this week. It would have saved the companies a collective $10 billion - the biggest near-term prize either had on the go. It was killed off when it became clear anti-trust regulators around the world would withhold approval.
Friday, October 15, 2010
Vimpelcom Dials Up a Deal
http://www.investmentu.com/2010/October/vimpelcom-dials-up-a-deal.html
Investors may recall Vimpelcom ADR (NYSE: VIP) for the long legal battle over ownership of its Ukrainian telecoms assets. The contestants are its two biggest shareholders: Mikhail Fridman, the Russian oligarch behind the Alfa group, and Jon Fredrik Baksaas, CEO of Norway’s Telenor ADR (PINK: TELNY).
But now, Vimpelcom has gained attention for much more positive reasons: a merger. And one that will create the world’s fifth-largest mobile phone carrier as ranked by customers.
It plans to combine with most of Egyptian entrepreneur Naguib Sawiris’ telecommunications assets. That $6.6 billion deal will open further doors for Vimpelcom across the former Soviet Union, Asia, Africa and Italy.
By combining with Sawiris’ Weather Investments, it also secures a 51.7% stake in Egypt’s Orascom Telecom group and full ownership of Wind, Italy’s third largest mobile operator. In return, Weather Investments gets $1.8 billion in cash and a 20% stake – 18.5% of the voting shares – in the enlarged Vimpelcom… worth about $4.8 billion.
After the merger finalizes, Telenor will have 29.3% of the voting shares and the Alfa Group will have 36.4%.
Vimpelcom Likes the Weather in Russia
While Vimpelcom is Russia’s second-largest mobile operator, that country has a relatively mature mobile market. So it can definitely use the extra boost.
It does already have businesses in eight other countries in key areas such as central Asia. Vimpelcom gains significant growth potential from such countries, including Kyrgyzstan.
But this new merger gives it so much more…
It doesn’t give Vimpelcom access to Orascom’s Egyptian assets. But it does include the Cairo-listed company’s seven mobile businesses in Africa and Asia.
Those in Algeria, Pakistan and Bangladesh are especially significant. Orascom has operations where tremendous growth opportunities exist, including in the Central African Republic, where less than half the population owns a mobile phone.
The enlarged business will benefit from the near doubling of the number of its customers, since the mobile phone operator industry’s profitability rests largely on size: economies of scale.
It also enables Vimpelcom to expand into Africa and beef up its presence in Asia, where the company already has operations in Vietnam and Cambodia.
And Vimpelcom’s move into western Europe via Wind in Italy should help it gain valuable knowledge of the fast-growing consumer appetite for smartphones.
Vimpelcom Shares Tank on Rumors
Despite all that, investors don’t like the deal so far. Vimpelcom shares have tanked 10% since rumors about it leaked this summer.
Some think it can’t handle such a big shift away from its traditional base. Others worry about it taking on Weather Investment’s large debts.
Under the terms of the deal, Vimpelcom will accept $14 billion of Weather’s debt and issue an additional $2 billion. This means its net debt will increase from $4 billion to $24 billion… hardly desirable.
Additionally, Orascom’s Algerian mobile phone business, Djezzy, has an ongoing dispute with the local government, partly over taxes.
Djezzy, which generates about half of Orascom’s earnings, got hit with a $597 million 2009 tax bill. Since then, Orascom has struggled to get any of the cash it generates.
The larger company even tried to sell its African assets to South Africa’s MTN Group ADR (PINK: MTNOY) earlier this year. But discussions broke down after the Algerian government interfered.
In Vimpelcom’s favor, however, Russia has excellent relations with Algeria. So Russian President Medvedev is trying to broker a deal to the satisfaction of all right now.
The Merger Makes Sense for Vimpelcom
In the end, the merger actually does make sense for Vimpelcom and its shareholders.
Net debt will start out at 2.5 times earnings before interest, tax, depreciation and amortization. But with combined annual revenues of $21.5 billion, that should easily fall over the coming years.
Besides, Vimpelcom’s main telecoms market in Russia is stagnating; it needs to find growth elsewhere. And the smaller emerging markets of Africa and Asia offer just that.
In addition, while Orascom is a leading emerging markets player, it doesn’t have a prayer against giants like Vodaphone ADR (NYSE: VOD). Neither does Vimpelcom.
But together, they can really compete in the scale-oriented industry.
It might not be the ideal solution considering the uneasy alliance between Vimpelcom’s biggest investors. But it’s still not a bad one.
Good investing,
Tony D’Altorio
Friday, October 08, 2010
Crop Report 'Shocker' Ripples Through Agriculture Sector
CHICAGO (Dow Jones)-- Government forecasters slashed estimates for the U.S. corn harvest Friday, causing futures prices to surge while igniting shares of many agriculture companies.
U.S. corn futures soared to a daily trading limit on the Chicago Board of Trade when the market opened, rising 30 cents, or 6%, to $5.82 1/4 a bushel -- near a two-year high. Soybean and wheat futures also hit their exchange-imposed trading limits at the market opening.
"Shocker may be an understatement," said Jason Britt, president of Central State Commodities, a Kansas City brokerage. "It's very out of character for the USDA to lower the corn yield so much."
The crop report spilled into equity markets with tractor makers such as Deere & Co. (DE) climbing on the news along with seed and fertilizer companies such as Monsanto Co. (MON). Livestock and poultry producers such as Smithfield Foods Inc. (SFD), meanwhile, traded lower on expectations that higher crop prices would increase feed costs. Longer-dated future contracts for cattle and hogs rose as well.
The U.S. Department of Agriculture projected a national corn yield of 155.8 bushels an acre, well below last month's projection of 162.5 bushels and lower than analysts' average forecast of 159.9 bushels per acre.
The USDA was projecting a record crop a couple months ago. But farmers have largely been disappointed as harvest progresses. The crop faced problems from excessive rains early in the season that washed away supplies of nitrogen, a crucial nutrient, and was also stressed by unusually hot night-time temperatures all summer.
While many traders and analysts could see this year's corn crop yield drifting down to 155 bushels an acre, few expected the USDA to make such an aggressive revision so soon. The U.S. harvest is roughly 50% complete.
"This is a very tight balance sheet we now have to live with for a long time," said Sal Gilbertie, lead manager of the Teucrium Corn Fund, an exchange-traded fund based on corn futures.
Other agriculture commodities followed corn higher. Wheat and soybeans surged in part because both, like corn, serve as an animal feed. Livestock futures also climbed because feed is a major cost for producers.
Stocks for farm machinery manufacturers and other agribusiness companies rose on prospects that higher prices for corn will provide farmers with more money to spend on equipment, fertilizer and seed. Tractor makers Deere, CNH Global (CNH) and Agco Corp. (AGCO) are all higher, along with seed and fertilizer companies Monsanto, CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan (POT).
Shares for crop processors Archer Daniels Midland Corp. (ADM) and Bunge Ltd. (BG) also moved up as tight supplies of crops provide them with leverage to raise their prices. But meat and poultry producers, including Smithfield Foods, Tyson Foods Inc. (TSN) , Pilgrim's Pride Corp (PPC) and Sanderson Farms Inc. (SAFM), were lower in morning trading.
Analysts said Friday's report reignites concerns that the market needs higher prices in order to discourage demand and stave off a supply crisis. The report could have other ramifications, since the government has yet to rule on a request to increase the amount of ethanol that can be blended in gasoline to 15% from 10%.
"This could (heighten) the debate on moving ethanol blends higher, and 'food versus fuel,'" debate, Britt said.
Wednesday, October 06, 2010
HEARD ON THE STREET: VimpelCom Bets Bigger Is Still Better
Bigger is better" still holds sway in some parts of the telecom world.
Russia's VimpelCom is acquiring the bulk of Egyptian billionaire Naguib Sawiris's telecom assets for $20.6 billion. Those include Italian mobile group Wind Telecomunicazioni, or Wind Italy, and a 52% stake in Cairo-listed Orascom Telecom Holdings, with operations in Africa and Asia. VimpelCom will more than double in size, entering the global top five by subscribers. While the risks are high, VimpelCom is buying the assets at a reasonable price.
The deal remedies weaknesses for both players. VimpelCom is challenged for growth outside the former Soviet Union and has no presence in developed markets to benefit from mobile data growth. Mr. Sawiris's problem is debt, which has curbed Wind Italy's growth and led to a restructuring at Wind Hellas in Greece. In Algeria, he faces crippling retrospective tax charges and nationalization threats. Mr. Sawiris has sought a tie-up before, but a deal with South Africa's MTN failed this year over Algeria, responsible for roughly half Orascom's earnings before interest, taxes, depreciation and amortization, or Ebitda. Mr. Sawiris's 20% posttransaction stake in VimpelCom will allow him to benefit from any upside if the Algerian situation works out better than expected.
VimpelCom is paying 6.2 times Ebitda for Mr. Sawiris's assets. Even if the Algerian business were to be nationalized with no compensation to VimpelCom, the effective multiple still would be below seven. Recent emerging-market deals have commanded double-digit multiples. Add in $2.5 billion of VimpelCom synergy estimates and the deal looks reasonable even through a developed-market prism, important given the bulk of Ebitda comes from Italy.
VimpelCom also could fare better in Algeria than Mr. Sawiris appears to be doing. Management is meeting Algerian authorities. If Russian President Dmitry Medvedev, in the country to discuss a raft of possible trade opportunities, backs VimpelCom, it could make a difference. Selling the assets to the Algerian state is one option under consideration.
The deal will push VimpelCom's net debt to Ebitda from 0.8 to a hefty 2.5 times. Still, rivals such as Telefónica operate with similar leverage, and the $2.5 billion in operating free cash flow VimpelCom is acquiring should cover interest payments from the deal almost four times. Entering 10 new markets also is risky. VimpelCom argues it has ample experience building operations in tricky places like Kyrgyzstan, while the Russian market now shares many of Italy's characteristics.
Getting bigger hasn't always helped telecom groups. Economies of scale often fail to materialize. After a string of acquisitions, for example, U.K. behemoth Vodafone Group now is in divestment mode. But while speculation over a deal has weighed on VimpelCom's shares since August, reflected in 6% underperformance versus Russian peer Mobile TeleSystems, Algerian problems may be surmountable, and the acquisition less costly than feared. VimpelCom's big gamble could pay off.
Tuesday, October 05, 2010
CFSG other verticals
The market for the design and installation of fire safety systems is served by numerous small firms. Of these, China Fire has emerged as the largest in the past five years. The company’s leading position in the domestic industry helped it to win a high percentage of bids, which is around 60%-70% of bids in the iron and steel industry.
China Fire is benefiting also from the Chinese iron and steel industry's Revitalization Scheme, which promotes production control, encourages industry consolidations and emphasizes the development of new technologies. This stimulus plan provides financial subsidies and loan discounts to leading iron and steel companies, allowing larger and more advanced steel producers to upgrade existing plants and develop new innovative facilities. China Fire sees huge growth potential for its Total Solutions business as the segment derives more than 80% of revenue from the iron and steel industry.
Although the company primarily serves the iron and steel industry, it is now looking to expand into other industrial sectors. In China, about three to five large-scale nuclear plants are expected to be built every year until 2020. This represents an attractive opportunity for China Fire to grow in a new industrial vertical as the Chinese government directs that at least 50% of the equipment used for new nuclear power plants should be sourced locally. As the largest industrial fire protection provider in China, China Fire will benefit from the government policy.
Given its brand reputation as a leading total solution provider and its comprehensive line of proprietary products, we believe China Fire is well-positioned to capitalize on the growth potential in China’s industrial fire protection market. We are upgrading our rating on the stock from Neutral to Outperform.
Stuy Town Foreclosure Auction Postponed
Two groups of investors battling over the sprawling Stuyvesant Town and Peter Cooper Village apartment complex neared a deal Monday that could save the new owners of the complex as much as $100 million in state and local taxes, according to people familiar with the matter.
The negotiations involving the firm representing the main mortgage holders of the 11,200-apartment property and a separate group of investors led by Bill Ackman and Winthrop Realty Trust pushed off the foreclosure auction that was scheduled for Monday and the long-awaited transfer of the property. The complex has sat in limbo ever since January, when the owners, a group led by Tishman Speyer, defaulted on their $5.4 billion purchase.
While the over-leveraged complex is financially ailing, it is still enormously valuable, a fact not lost on investors who are eager to capitalize on the mistakes of others. The custodian of the $3 billion first mortgage on the property, CW Capital, has long been trying to foreclose on the 80-acre residential complex.
But Mr. Ackman's group, which bought a key piece of junior debt, has been maneuvering for control. That effort was thwarted last month when a court ruled against them.
The Ackman group could still cause problems for CW Capital, however, if CW Capital's strategy involves "cleansing" the complex through a bankruptcy filing. Such a move could help CW avoid paying taxes to the city, state and MTA, estimated upward of $100 million.
Terms of the deal being negotiated were not available Monday. One likely scenario would involve the Ackman group being bought out by CW Capital.
But should a deal indeed lead to a transfer that avoids taxes, it could also draw scrutiny from state and city officials, according to legal experts, as it would mean foregone revenue during the recession.
"If the deal was reached in an effort to minimize significant New York state and New York City taxes, no doubt they are spending considerable time structuring in a way to minimize scrutiny by state and local tax officials," says Mark Edelstein, head of the real-estate group at the law firm Morrison & Foerster.
Tishman Speyer has long sought an exit, while CW Capital has plodded through the lengthy foreclosure process and beaten back two challenges by two separate hedge-fund managers.
Once a transfer does occur, regardless of the specific route, the keys would be turned over to CW Capital, a Boston-based special servicer of loans that has grown substantially amid the exploding world of distressed mortgages.
Anxiously awaiting a transfer have been the tenants at Stuyvesant Town, as the tenants association and Councilman Daniel Garodnick have been working for months with CW Capital on a plan for a conversion to co-ops or condominiums, which would likely unlock significant value in the short-term.
In a statement, Mr. Garodnick was critical of the postponement Monday, calling it a "distracting move that destabilizes what was on track to be an orderly process."
CW Capital, while not committing itself publicly to a conversion, has retained a law firm to handle a conversion: Kramer Levin. The foreclosure auction, should it occur, has been postponed to Oct. 13.
Never Underestimate Wily Bill Ackman
Last week, the Observer was prepared to count Bill Ackman out at Stuyvesant Town. The brash investor had lost an appeals court decision that meant he could not seize control of the massive East Side housing complex and force it into foreclosure, wiping out his and Winthrop Realty's $45 million investment. CW Capital, which represents the senior lenders on the property, was expected to prevail in a foreclosure auction scheduled for today.
But the sale has been called off, and it looks like Mr. Ackman might carry the day after all.
The auction is now scheduled for Oct. 13 because CW Capital is said to be in negotiations with Mr. Ackman and Winthrop for their $300 million in debt. The speculation is that by buying out Mr. Ackman, CW can force the complex into bankruptcy, saving it what the Journal says is $90 million in taxes and fees or as much as $200 million, according to Crain's.
With those kind of numbers, Mr. Ackman might go from getting wiped out to making a profit on his gambit. Not nearly what he would have made had he won the complex as a whole, which he set out to do this summer, but not a bad beat, either.
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Now it looks like his "worst case scenario" is getting his money back and perhaps double it. Or, he might get a stake in the property instead.
This is what I kept looking for because I knew that Ackman & Ashner were too smart to throw away $45 million.
In this case, it sounds like they knew what they were doing.
And paying Ackman even $70 million would be cheaper than paying transfer taxes of $90-200 million.