transaction

CF Industries, Terra Agree to $4.7 Billion Merger After Yara Withdraws Bid

March 12, 2010

By Serena Saitto March 13 (Bloomberg) — Terra Industries Inc. , the fertilizer maker selling itself to CF Industries Holdings Inc. , will be paid more than twice CF’s original bid after rebuffing its suitor for more than a year while holding talks with rivals including Yara International ASA. CF’s bid climbed from an original $2.1 billion in January 2009 to the $4.7 billion offer that Sioux City, Iowa-based Terra said yesterday it accepted. Following CF’s first bid, Terra Chief Executive Officer Michael Bennett held preliminary conversations with competitors in the crop-nutrient industry to gauge their interest in an alternative deal, Terra said in the filing yesterday. A Terra spokeswoman declined to identify the other companies. After CF made public its original offer for Terra on Jan. 15, 2009, Yara CEO Joergen Ole Haslestad telephoned Bennett to express Yara’s continued interest in a takeover. Terra had rebuffed advances from Yara after talks between Bennett and then-Yara CEO Thorleif Enger from May to July 2008, according to the filing. As the year progressed, Terra rejected seven unsolicited offers from CF before Yara made its offer public. “No doubt that Terra did a great job for its shareholders,” said Stephen Velgot , a special situations analyst at Susquehanna International Group LLP in New York who wasn’t involved in the transaction. While pursuing Terra, Deerfield, Illinois-based CF fended off its own hostile suitor, Calgary-based Agrium Inc., which yesterday said it would allow its $5.43 billion offer for CF to expire. CF fell $3.88, or 3.9 percent, to $96.73 yesterday in New York Stock Exchange composite trading , paring its gain so far this year to 6.6 percent. Terra climbed 44 percent in the same period, while Agrium gained 12 percent. ‘Emptied Its Pockets’ Velgot said CF stock is likely to outperform its peers, given its currently discounted valuation. CF said it “emptied its pockets” with its seventh offer for Terra on Dec. 4 and “had at most nickels and quarters left in the context of signing a transaction,” according to the filing. The company withdrew its bid on Jan. 14. Yara agreed to buy Terra a month later for $4.1 billion. Only then did CF understand that Terra was up for sale, said a person familiar with CF’s strategy, explaining why CF waited for Yara’s move to double its first offer. The waiting added $123 million to CF’s tab for Terra, since CF paid the break-up fee its target owed to Oslo-based Yara, according to the filing. “CF went to great pain to sustain its independence from Agrium,” Velgot said. “Only time will tell if it was the right thing to do.” To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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IRS Extends Moratorium Until June 1 on Tax Levy Fought by Small Business

March 4, 2010

By Margaret Collins March 4 (Bloomberg) — The U.S. Internal Revenue Service will extend a moratorium on penalties until June 1 for failing to report transactions considered tax shelters. The rule applies to individuals or other taxpayers that fail to disclose transactions the IRS deems as potentially tax evading, such as employer contributions to post-retirement benefit funds. The levy is as high as $100,000 a year for individuals and $200,000 for all other taxpayers, according to the IRS. It is assessed each year a transaction is not reported and may be charged to both a business and its owner. The department will also “hold off” filing new lien notices on amounts owed, IRS Commissioner Doug Shulman told Congress yesterday. “The penalty has ended up snagging small businesses that weren’t advised of their responsibility to disclose,” Senator Ben Nelson , a Nebraska Democrat, said in a statement last month. The provision was designed to crack down on tax shelters for big corporations and wealthy individuals, and has been applied to small-business owners who’ve paid into retirement accounts for themselves and their employees without following IRS disclosure requirements, said Kathleen Pakenham, a New York- based partner at White & Case LLP , who represents 30 such clients. “Some of these businesses were assessed tax penalties as high as $300,000 per year but received a tax benefit for as little as $15,000 from the transaction,” Senator Charles Grassley , an Iowa Republican, said in a statement on Dec. 23. There were about 30 million businesses with fewer than 500 employees in 2008, according to the U.S. Small Business Administration’s Office of Advocacy. Bandage “It’s a Band-Aid,” said Pakenham of the moratorium. “It’s not addressing the underlying problem.” The Senate passed legislation on Feb. 9 that would make the fee assessed proportional to the tax benefit received. The House of Representatives has not yet passed a similar bill. The IRS’s moratorium suspends penalties on individuals who received less than $100,000 in savings from unreported transactions and under $200,000 for other taxpayers. The U.S. tax code assesses more than 150 penalties, according to a June report by the Government Accountability Office. In fiscal year 2007, the IRS levied more than 37.6 million civil penalties, totaling more than $29.5 billion, according to the GAO. To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net .

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AIG Sells Asian Life Unit to Prudential Plc for $35.5 Billion

March 1, 2010

By Kevin Crowley and Zachary R. Mider March 1 (Bloomberg) — American International Group Inc. agreed to sell an Asian life insurance unit with 20 million customers to Prudential Plc for $35.5 billion in the company’s biggest divestiture since it was bailed out by the U.S. Prudential, Britain’s biggest insurer, will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London-based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer. The sum raised in the sale would exceed the total of more than 20 other deals announced by AIG since its 2008 rescue. The firm had planned an initial public offering for the unit after an auction of the business previously failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, according to a person with knowledge of the matter. The agreement is “very good news for AIG and a major step toward quickly repaying U.S. taxpayers at a time when, in our view, the company appeared resigned to carrying out a time- consuming IPO,” said Emmanuelle Cales , an analyst at Societe Generale SA. AIG gained $2.45, or 9.9 percent, to $27.22 at 9:42 a.m. in New York Stock Exchange composite trading. Prudential fell 12 percent to 533 pence in London trading. Prudential had more than doubled in 12 months through Feb. 26, giving the insurer a market value of 15.3 billion pounds before the purchase was announced. China, Australia Prudential’s purchase is Chief Executive Officer Tidjane Thiam’s first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to data compiled by Bloomberg. New York-based AIG will own about 11 percent of Prudential following the transaction, Thiam told reporters today. Prudential is trying to boost sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets spanning China to Australia. The price is about 50 percent greater than Prudential’s market value. Hong Kong-based AIA, founded in 1919, sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows. “It shows the company is very bullish on the Asia market,” said Luo Yi , a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” McKinsey & Co. has estimated that 40 percent of global life insurance premium growth will be in Asia in the next five years. ‘Faster Track’ “A sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today. AIG gave a $9 billion stake in American Life Insurance Co., known as Alico, and $16 billion in AIA, its biggest non-U.S. life insurance units, to the Federal Reserve in December. AIG will redeem the Fed’s $16 billion interest in AIA with proceeds from the sale and repay about $9 billion more on its Fed credit line , the insurer said today. The $10.5 billion in securities obtained from Prudential will be sold “over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods,” AIG said in a statement. Proceeds will be used to repay debt on the credit line, the company said. Credit Line AIG owed about $25 billion on the line as of last week. The insurer had drawn more than $40 billion before reducing the sum in December when it turned over stakes in the units. The Federal Reserve Bank of New York agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down its debt with an equity interest in the life units before completing a sale. The plan reduced pressure on AIG to sell in early 2009 when potential bidders were hobbled by losses and the inability to raise funds. Prudential is paying about 1.69 times the embedded value of AIA in 2009. Chinese insurers are trading for about 2.9 times embedded value, and Axa Asia Pacific Holdings trades at about 1.7 times, according to Thiam. Embedded value estimates a company’s net worth excluding new business. “Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart , who oversees about $3.3 billion at 7 Investment Management in London, including Prudential shares. “It puts them into a different league.” The insurer plans to list its shares on both the Hong Kong Stock Exchange and the London Stock Exchange following the transaction. It will keep its headquarters in London. Rights Offering Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. The shares are likely to be sold for 40 percent less than today’s price, Thiam told reporters. Prudential will pay about $1 billion in fees and other costs related to the offer. Lazard Ltd. is also advising Prudential on the deal. The offering would be the biggest since Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s largest. “If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard , a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said. India, China Talks Thiam said Prudential is in talks with regulators in India and China. The insurer intends to keep its stake in a joint venture with China’s Citic Group, he said. In India, where both Prudential and AIG have separate joint ventures, regulators have told the company it can’t have two licenses, Thiam said. MetLife Inc. has said it is in talks to buy AIG’s Alico, which operates in more than 50 countries outside the U.S. The insurers are discussing a price of about $15 billion, according to people with knowledge of the matter. AIG’s bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer. AIG is getting advice on the AIA deal from Goldman Sachs Group Inc. and Citigroup Inc., and Blackstone Group LP is working with the AIG board on its overall restructuring plan. Morgan Stanley is counseling the New York Fed. Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net ; Zachary Mider in New York at zmider1@bloomberg.net

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General Motors Plans to Shut Hummer After China’s Government Blocks Sale

February 25, 2010

By Katie Merx Feb. 25 (Bloomberg) — General Motors Co. said it will close Hummer after Chinese regulators blocked Sichuan Tengzhong Heavy Industrial Machinery Co. ’s purchase of the brand, whose military-style vehicles clash with government policy. A Tengzhong purchase of Hummer would have bucked China’s promotion of fuel-sipping small cars, which includes cutting the sales tax on vehicles with engine displacements of less than 1.6 liters. The H2 Hummer has a 6.2-liter V-8 engine . “The government still wants overseas acquisitions as long as it fits into its plans,” said Wang Liusheng , Shenzhen-based analyst at China Merchants Securities. “This is a standalone case.” Winding down the brand will take several months, Nick Richards , a GM spokesman, said yesterday. Some of the 3,000 people now employed at Hummer work on other vehicles, so GM doesn’t know how many jobs will be lost, he said. Tengzhong hasn’t provided China’s Ministry of Commerce with a reasonable purchase plan and the government seeks to encourage renewable, green and environmentally friendly energy consumption, Yao Jian , spokesman for the ministry, said at a briefing today in Beijing, without elaborating. Tengzhong’s proposal failed to provide information about its investment model and fund raising plans, Yao said. ‘Doesn’t Fit’ “The Hummer brand was very much a product of its time,” said Aaron Bragman , an analyst at IHS Global Insight in Troy, Michigan. “In today’s much more environmentally conscious world, it’s a brand that just doesn’t fit in.” The company had planned to finance the deal using cash and loans, Chief Executive Officer Yang Yi said in June. He didn’t say how much the SUV-maker would cost. Chinese and Western banks are backing away from funding the deal, the New York Times reported yesterday, citing people close to the transaction. Tengzhong was “unable to obtain clearance of the transaction from the Chinese regulators within the proposed deal time frame,” according to a statement from the Chengdu-based company. The sale was worth $150 million, people familiar with the matter said on Oct. 8, a day before GM and Tengzhong announced a deal. Bridge Parts Tengzhong, a closely held manufacturer whose products include bridge parts, would have vaulted into the passenger-auto industry by buying Hummer. The company had said it wanted to expand the unit into China and other markets outside the U.S., which accounted for about two-thirds of Hummer’s sales under GM. Richards, the Hummer spokesman, said GM would consider “viable alternatives for all or part of the brand during wind down.” GM also had said in December it would shut Saab, only to revive talks and reach an agreement with Spyker Cars NV on Feb. 23. Unloading Hummer was part of GM’s plan to cut its U.S. brands to four from eight after bankruptcy. Absent a last-minute buyer Hummer will join Saturn and Pontiac in being shut as GM focuses on its top-selling domestic vehicle lines. China is encouraging automakers to build more fuel- efficient cars including hybrids to help win sales overseas and to reduce oil imports and pollution at home. Incentives for smaller vehicles combined with rural subsidies boosted nationwide sales in China last year to 13.6 million, helping it supplant the U.S. as the world’s largest auto market. Government Agency A Chinese government agency indicated that it wouldn’t give approval for Tengzhong to buy Hummer, said three people briefed on the deal, who asked not to be identified because the talks weren’t public. GM first said it planned to sell Hummer at its June 2008 annual meeting as record fuel prices prompted the biggest U.S. automaker to focus on developing more fuel-efficient cars. U.S. sales for the unit fell 67 percent last year as the economy faltered, GM slid into a 40-day government-backed bankruptcy and Hummer’s fate was unresolved. Hummer sales began in 1999 with the $140,000 H1, a 7,600- pound SUV (3,400 kilograms) patterned after the all-terrain military vehicle popularized for road use by actor Arnold Schwarzenegger , now California’s governor. The 6,600-pound H2 debuted in 2002, followed by the 4,700-pound H3 in 2005. ‘Rest in pieces’ “Closing Hummer simultaneously improves the health of GM, China and the planet,” said Daniel Becker , director of the Safe Climate Campaign at the Center for Auto Safety, an advocacy group in Washington. “Hummer should rest in pieces.” U.S. deliveries for Hummer peaked at 71,524 in 2006, according to Autodata Corp., an industry researcher based in Woodcliff Lake, New Jersey. Last year’s total was 9,046. To contact the reporter on this story: Katie Merx in Detroit at kmerx@bloomberg.net ; Stephanie Wong in Shanghai at swong139@bloomberg.net

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GM Ending Hummer: Controversial Brand To Be Discontinued (PHOTOS)

February 24, 2010

The AP is reporting that the Hummer brand is no more, after a deal with a Chinese manufacturer fell through. It’s not GM’s first failed deal to sell a brand since it came out of bankruptcy, The New York Times notes . A deal to sell the Saturn line fell apart. After a few false starts, the Dutch company Spyker agreed to buy the Saab brand. (Scroll down for a slideshow retrospective on the Hummer brand.) Here’s the AP: “DETROIT – General Motors Co. said Wednesday it will shut down Hummer after its bid to sell the brand to a Chinese company collapsed. Heavy equipment maker Sichuan Tengzhong Heavy Industrial Machines Co. pulled out of the deal for Hummer, known for its hulking, military-like SUVs, because it was unable to get clearance from Chinese regulators within the proposed deal timeframe, the manufacturer said in a separate statement. GM said it will continue to honor existing Hummer warranties. “We are disappointed that the deal with Tengzhong could not be completed,” said John Smith, GM vice president of corporate planning and alliances. “GM will now work closely with Hummer employees, dealers and suppliers to wind down the business in an orderly and responsible manner.” GM has been trying to sell the loss-making brand for the last year and found a suitor in Tengzhong, but resistance from Chinese regulators created difficulties from the start. As recently as Tuesday private investors were trying to set up an offshore entity in a last-minute effort to complete the acquisition head of a Feb. 28 deadline. Hummer is the second brand after Saturn that GM has failed to sell as part of its restructuring. GM sold Swedish brand Saab to Dutch carmaker Spyker Cars NV earlier this year. Pontiac is being discontinued. GM is focusing its efforts on its four remaining brands: Chevrolet, GMC, Cadillac and Buick.” Last month Bloomberg reported that Hummer’s management was expecting a deal to come through. It’s unclear why the deal fell through. Here’s Bloomberg: “While the transaction approval process is not proceeding as quickly as originally forecasted, we’re optimistic about the progress that has occurred to date,” Jim Taylor, Hummer’s chief executive officer, said in an e-mailed statement. “There are more than 3,000 people directly employed in the design, build and sale of Hummer vehicles. As such, we are committed to giving the sale every reasonable opportunity toward a successful conclusion.” Check out these PHOTOS of the Hummer brand:

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Zain Board Said to Accept Bharti Airtel’s Offer for Its African Phone Unit

February 14, 2010

By Fiona MacDonald Feb. 14 (Bloomberg) — Zain’s board accepted an offer by Bharti Airtel Ltd. , India’s largest wireless operator, to purchase most of its African assets, according to a person familiar with the matter. Bharti’s offer marks the Indian company’s third attempt to enter the continent. Bharti made a $10.7 billion offer for the assets, Al-Rai reported yesterday. Zain announced today in a statement to the Kuwait bourse that its board would meet to discuss an offer for its African assets, excluding Sudan and Morocco. Kuwait’s state- run KUNA news service said Zain’s board unanimously approved the transaction, without saying how it obtained the information. Trading in the shares was suspended. New Delhi-based Bharti made an offer for Zain’s African assets and has been waiting for the Kuwaiti company’s approval, a person familiar with Bharti’s offer also said. Bharti’s billionaire chairman and biggest shareholder Sunil Mittal is seeking to enter Africa, one of the world’s fastest- growing telecommunications markets, as competition intensifies on his home turf. His company failed last year to buy MTN Group Ltd. for about $23 billion, its second attempt to take over the South African company. “The Indian market is moving towards saturation and it’s important for mobile phone companies to look at emerging markets such as Africa for growth,” said R.K. Gupta, portfolio manager and managing director at Taurus Asset Management in New Delhi. “My only worry is that there is this dangerous trend of Indian companies trying to buy overseas assets at any cost. If you get a company at cheap valuation or fair cost it’s O.K., but if you pay aggressively it’s going to affect profitability for years.” 40 Million Subscribers For Zain’s main shareholders, led by the Kharafi Group, the transaction would end almost a year-long effort to sell the company as a whole or in parts. Zain bought Celtel International for $3.4 billion in 2005 to expand into 13 African countries, including Kenya and Nigeria, the continent’s most populous nation. The company has more than 40 million subscribers in Africa, about 62 percent of its client base. More than half of its $7.4 billion of annual sales in 2008 came from Africa, according to Bloomberg data. Zain shares have soared 23 percent in the last week, giving the company a market value of 4.64 billion Kuwaiti dinars ($16 billion). In the past year, Luxembourg-based Millicom International Cellular SA has said it would be interested in some of Zain’s assets. Also France’s Vivendi SA , the owner of the world’s largest music company, entered talks to buy the African assets last year, walking away in July, saying that the purchase didn’t fit “its usual criteria of profitability and financial discipline” for a potential investment. MTN In August, MTN said it may consider buying the African units of Zain if talks to merge with Bharti failed. The company may only consider the purchase if there are no “regulatory problems,” MTN Chief Executive Officer Phuthuma Nhleko said at a presentation in Johannesburg. Bharti and MTN called off merger talks on Sept. 30, scrapping a transaction that would have been the world’s biggest cross-border deal last year. Abandoning talks for the second time in two years, Bharti said the structure of the deal failed to get approval from the South African government. Bharti faces mounting competition in its home market in India. The company has slashed call rates to as little as 0.01 rupee a second to keep customers after overseas carriers including Japan’s NTT DoCoMo Inc. and Norway’s Telenor ASA entered the Indian market with cut-price plans. Meanwhile, Zain’s many previous attempts to sell the group or some of its assets have failed. This month, Saad al-Barrak resigned as Zain’s chief executive officer after delays in the proposed sale of the company by the Kharafi Group, Zain’s second-largest shareholder. Kharafi announced in September it signed a preliminary agreement to sell a 46 percent stake in Zain, valued at $13.7 billion, to a group led by India’s Vavasi Group and Malaysian billionaire Syed Mokhtar Al-Bukhary . At the time, the sellers and buyers pledged to complete the deal in four months. To contact the reporter on this story: Fiona Macdonald in Kuwait on fmacdonald4@bloomberg.net

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Portugal Offers Investors Premium to Sell 3 Billion Euros of 10-Year Bonds

February 10, 2010

By Caroline Hyde and Esteban Duarte Feb. 10 (Bloomberg) — Portugal is offering higher yields than investors demand to hold its existing debt to sell 3 billion euros ($4.1 billion) of bonds. The south European nation, which is struggling to cut its budget deficit, is pricing the 10-year securities to yield 140 basis points over the benchmark mid-swap rate. That’s more than 20 basis points, or 0.2 percentage point, wider than where the government’s benchmark 2019 bonds are trading, according to data compiled by Bloomberg. Portugal has pledged to reduce its budget gap of 9.3 percent of gross domestic product by more than half in three years. Today’s bond sale may be helped by speculation the European Union is close to agreeing a bailout for Greece, whose debt crisis roiled credit markets for weeks and sent the cost of insuring against government defaults soaring. “Portugal wants to be sure the deal works,” said Simon Ballard , a credit strategist at Royal Bank of Canada in London. “They’re pitching it so that it sells, given that we’re in uncharted waters with all that’s been happening on Europe’s periphery.” The sale attracted 13 billion euros of orders, according to a banker involved in the transaction who declined to be identified. Barclays Capital, Banco Espirito Santo SA, Credit Agricole CIB, Goldman Sachs Group Inc. and Societe Generale SA are managing the issue, the banker said. Benchmark Issue The 140 basis point-spread compares with the 135 basis points Portugal paid when it priced its 4 billion-euro issue of 10-year benchmark bonds in February 2009, according to data compiled by Bloomberg. Those notes are now trading at a spread of 117 basis points, the data show. Alberto Soares, chairman of Portugal’s government debt agency in Lisbon, said the pricing of the new bonds was “excellent” compared with the initial spread of last year’s benchmark issue, and that today’s deal was “a success.” Market conditions “are different at every given moment,” he said. Standard & Poor’s lowered the outlook on Portugal’s A+ rating to negative in December and Moody’s Investors Service also has a negative outlook on its Aa2 rating. Fitch Ratings reduced the outlook on its AA grade to negative in September. The nation’s public debt will rise to 91 percent of economic output by 2011, from 77 percent last year, according to European Commission forecasts. Portuguese Prime Minister Jose Socrates said today the government’s plan to cut the budget deficit to 8.3 percent of economic output this year is an “important effort.” Premium ‘Is Right’ “It’s right for the market to price in significant risk premiums for Portuguese bonds,” said Steven Mansell , an interest-rate strategist at Citigroup Inc. in London. “You may argue that Portugal is not Greece, but there’s a clear risk of contagion. It has low growth potential and a high budget deficit which will require a similar type of fiscal adjustments.” Credit-default swaps used to hedge against losses on Portugal’s debt tumbled today as German Finance Minister Wolfgang Schaeuble briefed lawmakers on steps he may take to aid Greece. The contracts dropped 5 basis points to 199.5, while default swaps on Greece fell 23 to 357, down from a record 428 basis points reached on Feb. 4, according to CMA DataVision prices. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company or country fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Greek Bailout German Finance Minister Wolfgang Schaeuble told lawmakers that options for helping Greece extended beyond loan guarantees, according to an official who attended a briefing today at the parliament in Berlin. Germany is examining means of helping Greece regain market confidence as Chancellor Angela Merkel prepares for a summit of European Union leaders tomorrow. “Given the improvement in market sentiment focused on Greece, investors are inclined to demand less of a premium” for today’s Portugal bond sale, said Wilson Chin , a fixed-income strategist at ING Groep NV in Amsterdam. “If any country had issued two days ago they would have likely had to offer more in terms of a premium.” Portugal has already reduced the interest rate on the new bonds from the initial guidance as expectations of a European rescue package for Greece mounted, said a banker involved in the transaction. The country earlier offered to pay about 145 basis points to 150 basis points over midswaps. The spread on Portugal’s new bonds should narrow further relative to benchmarks as the notes trade in the secondary market, according to Harvinder Sian , a senior bond strategist in London at Royal Bank of Scotland Group Plc. “It should tighten from here on the back of EU solidarity comments at the summit on Thursday,” said London-based Sian. “Portugal is also promising to cut the deficit faster and signs of austerity should aid confidence.” To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net ; Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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Air Products Revives $7 Billion Airgas Bid With Threat to Lobby Investors

February 5, 2010

By Andrew Noel Feb. 5 (Bloomberg) — Air Products and Chemicals Inc. said it is prepared to take its latest $7 billion bid for Airgas straight to shareholders after its rival spurned two prior attempts to create the largest U.S. industrial gas company. The $60-a-share bid, 38 percent higher than Airgas’s closing price yesterday, followed two prior approaches that were rejected by Airgas management, Allentown, Pennsylvania-based Air Products said in a statement today. Air Products Chief Executive Officer John McGlade said he’s willing to take all necessary steps to acquire Airgas after requests for friendly talks failed. A combination would create a company with about $13 billion in sales, replacing current U.S. market leader Praxair Inc. and narrowing the gap on Air Liquide SA of France and Germany’s Linde AG. “It’s a bold and interesting move,” John Racquet, managing director of industrial-gas advisory firm Spiritus Consulting, said in a phone interview. “Air Products will become an integrated gas company and that’s long overdue.” Airgas would bring a U.S. customer base for packaged and compressed gas for clients such as hospitals. Air Products had exited that market after failing to gain the critical mass needed to match the profitability of larger rivals, Racquet said. Industrial gas companies separate air into components which are sold to steel, electronics or health-care clients. Air Products shares trading in Germany declined to the equivalent of $72.3 as of 9:45 a.m. local time. They closed at $73.69 in the U.S. yesterday. Airgas climbed to the equivalent of $56 in Germany, after closing at $43.53 locally yesterday. Hostility “While we would strongly prefer to proceed through friendly negotiations, you should not doubt our resolve to take the necessary actions to complete this transaction,” McGlade said in a letter to his counterpart at Airgas, Peter McCausland . “Your continuing refusal to engage with us will serve only to further delay your shareholders’ ability to receive a substantial all-cash premium.” Airgas , which generated $4.35 billion in sales in its last fiscal year, lowered its annual earnings forecast on Jan. 28, after a dip in sales at its rental-welder business as construction demand slowed. The stock fell 9.8 percent in U.S. trading that day. Combining the two companies would generate “substantial” savings of $250 million, Air Products said in the statement. The bid by Air Products includes about $5.1 billion of equity and $1.9 billion of assumed debt. Air Products, which is being advised by JPMorgan Chase & Co., said it’s prepared to make disposals to ease regulatory concern. JPMorgan has also committed funding to the transaction. Airgas is the largest U.S. distributor of industrial, medical, and specialty gases and the largest producer in the country of nitrous oxide and dry ice, according to the company’s Web site. Founded in 1982 and built through more than 400 acquisitions, Airgas employs more than 14,000 people. For Related News and Information: Top Stories:TOP Link to Statement:NSN KXCTRM3T6SQP Company News:ARG US CN Company News:APD US CN

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Air Products Threatens to Go Hostile on $7 Billion Offer to Acquire Airgas

February 5, 2010

By Andrew Noel Feb. 5 (Bloomberg) — Air Products and Chemicals Inc. said it is prepared to take its latest $7 billion bid for Airgas straight to shareholders after its rival spurned two prior attempts to create the largest U.S. industrial gas company. The $60-a-share bid, 38 percent higher than Airgas’s closing price yesterday, followed two prior approaches that were rejected by Airgas management, Allentown, Pennsylvania-based Air Products said in a statement today. Air Products Chief Executive Officer John McGlade said he’s willing to take all necessary steps to acquire Airgas after requests for friendly talks failed. A combination would create a company with about $13 billion in sales, replacing current U.S. market leader Praxair Inc. and narrowing the gap on Air Liquide SA of France and Germany’s Linde AG. “It’s a bold and interesting move,” John Racquet, managing director of industrial-gas advisory firm Spiritus Consulting, said in a phone interview. “Air Products will become an integrated gas company and that’s long overdue.” Airgas would bring a U.S. customer base for packaged and compressed gas for clients such as hospitals. Air Products had exited that market after failing to gain the critical mass needed to match the profitability of larger rivals, Racquet said. Industrial gas companies separate air into components which are sold to steel, electronics or health-care clients. Air Products shares trading in Germany declined to the equivalent of $72.3 as of 9:45 a.m. local time. They closed at $73.69 in the U.S. yesterday. Airgas climbed to the equivalent of $56 in Germany, after closing at $43.53 locally yesterday. Hostility “While we would strongly prefer to proceed through friendly negotiations, you should not doubt our resolve to take the necessary actions to complete this transaction,” McGlade said in a letter to his counterpart at Airgas, Peter McCausland . “Your continuing refusal to engage with us will serve only to further delay your shareholders’ ability to receive a substantial all-cash premium.” Airgas , which generated $4.35 billion in sales in its last fiscal year, lowered its annual earnings forecast on Jan. 28, after a dip in sales at its rental-welder business as construction demand slowed. The stock fell 9.8 percent in U.S. trading that day. Combining the two companies would generate “substantial” savings of $250 million, Air Products said in the statement. The bid by Air Products includes about $5.1 billion of equity and $1.9 billion of assumed debt. Air Products, which is being advised by JPMorgan Chase & Co., said it’s prepared to make disposals to ease regulatory concern. JPMorgan has also committed funding to the transaction. Airgas is the largest U.S. distributor of industrial, medical, and specialty gases and the largest producer in the country of nitrous oxide and dry ice, according to the company’s Web site. Founded in 1982 and built through more than 400 acquisitions, Airgas employs more than 14,000 people. For Related News and Information: Top Stories:TOP Link to Statement:NSN KXCTRM3T6SQP Company News:ARG US CN Company News:APD US CN

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BNY Mellon Agrees to Acquire PNC’s Global Investment Unit for $2.3 Billion

February 2, 2010

By Colleen McElroy Feb. 2 (Bloomberg) — BNY Mellon announced a definitive agreement to acquire PNC’s Global Investment Servicing Inc. business, a provider of custody, fund accounting, transfer agency and outsourcing solutions for asset managers and financial advisors. The purchase price of $2.31 billion includes the purchase of $1.57 billion of stock and repayment of intercompany debt from PNC. BNY Mellon plans to raise $800 million in equity as part of the transaction. The all-cash acquisition, which will be accretive in the first year, is expected to close in the third quarter of 2010.

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Transaction Fee On Haiti Donation Leads College Student To Create Anti-Wachovia Facebook Page

January 29, 2010

Several days after 21-year-old Heather Lynn used her Wachovia debit card to donate $10 to Yele Haiti ‘s earthquake fund, she noticed on her online billing statement that the bank had deducted a 3% “international service fee” from the donated amount. Since the four major credit card companies had waived their transaction fees on donations to Haiti, Lynn says, she assumed that Wells Fargo, Wachovia’s parent company, had done the same. “I called customer service to ask if they were waiving fees like Visa and Mastercard did for Haiti relief funds, but the unsympathetic customer service representative said ‘No,’” Lynn told HuffPost. “I just don’t understand how a bank can make a profit from a tragedy, let alone get away with it.” Lynn, an art major at Old Dominion University in Norfolk, Va., immediately moved all her money to the Bank of Hampton Roads, a local community bank, and created a Facebook page to raise awareness of Wachovia’s policy. The page, called “Wachovia = Fail,” attracted more than 200 “fans” in a week and a slew of comments from people who are angry over Wachovia’s ways of business. “I was really surprised at the response,” said Lynn. “People seem really pissed off about it.” Michael Klosterman, a spokesman for Wells Fargo, defended the bank’s response to the Haiti disaster, saying the money it donated to Haiti more than makes up for their transaction fees. “We have given $100,000 to the American Red Cross, and on January 19 we pledged an additional $250,000 to support the non-profits in Florida that are mobilizing the relief efforts,” Klosterman said. “We decided that donating a sum of money would be quicker and more beneficial than waiving transaction fees because the funds would get to the people quicker. It would take the equivalent of $35 million in transactions to raise the amount of money we actually donated.” Regardless, the bank may still lose some customers. Judging by the response to Lynn’s “Wachovia = Fail” Facebook page, a lot of people are frustrated with the bank for reasons having nothing to do with Haiti. “I left 11 dollars in their bank,” commented one angry Facebooker. “Now they want to bill me for 40 bucks more for leaving it. I’m not surprised they are trying to cash in on Haiti donations. SCUM!”

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Alan Meese: The New DOJ: Lessons Learned From the Ticketmaster Live Nation Decision

January 29, 2010

The Obama administration’s announcement yesterday to approve, with some modifications, the merger between Live Nation and Ticketmaster marked a fittingly undramatic end to what many hoped would be the watershed to a new economic policy. The administration’s decision instead reflected a commitment to principle over politics and pragmatism over populism. Many hoped that the Live Nation-Ticketmaster merger would fall prey to a new economic populism. When the companies announced their plans to merge, some characterized the merger as a consolidation of “entertainment powerhouses” designed to inflate ticket prices and squeeze consumers. Public figures, including none other than Bruce Springsteen, condemned the combination. Members of Congress piled on, characterizing the transaction as a naked combination of industrial titans and demanding action from antitrust enforcers. The history of antitrust policy is replete with such populist anger towards supposed industrial power, and the Sherman Act itself was largely created in response to a screaming public. Typical demands for rigorous enforcement come from small and technologically obsolete companies resisting the onslaught of new competitive forces. Typical demands for restrained enforcement come from politically-connected professional establishments that disdain competition and decry enforcement as unwanted government interference. This politicization of antitrust, from all ideological corners, rarely results in sound economic policy and has led both to overzealous enforcement, protecting inefficient firms from more efficient rivals, and to permissive restraints, giving sanction to destructive cartels and monopolies. The Live Nation-Ticketmaster merger would have been another procompetitive victim to an angry public. Our careful analysis of the proposed merger reveals that it is much more a response to Schumpeterian technological change than an effort to concentrate market power. In other words, the companies are combining forces to pursue an innovative business model, one that pursues new consumer demands and responds to the rise of electronic music. It is not an attempt to acquire a stranglehold over an industry that technological change has made increasingly resistant to strangleholds. The populist anger directed at the proposed merger — which was in no small part fueled by the companies’ smaller competitors who feared having difficulty competing effectively against the new company– characteristically did not discern the complexities of the industry and evaluate the merger’s likely competitive impact. Of course, few in Washington brake for complexity. Which is why it is a relief the Obama administration did. Despite being ridiculed as “the dismal science,” economics is a necessary ingredient to policies that enhance consumer welfare and disperse the plentiful benefits of market competition. Even while the Obama Administration might engage in antitrust saber rattling, its approval the Live Nation-Ticketmaster and the associated consent decree shows the triumph of economic reasoning that is often counterintuitive to policy advocates. Its settlement further extracts concessions that further enhances competition, promotes innovation, and protects consumers. It is the commendable product of careful analysis reflects a deliberate navigation across the minefield of antitrust politicization. While reasonable minds might differ with both our own analysis of the merger and the administration’s conclusion, such differences should focus on the merits the transaction and not rhetoric from politicos. Bruce Springsteen himself admonished all of us to avoid leaping to compulsive conclusions when he observed, “God have mercy on the man who doubts what he’s sure of.” Effective antitrust requires nothing less. Alan Meese is the Ball Professor of Law at William and Mary. Barak Richman is a Professor of Law and Business at Duke University.

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Alan Meese: The New DOJ: Lessons Learned From the Ticketmaster Live Nation Decision

January 29, 2010

The Obama administration’s announcement yesterday to approve, with some modifications, the merger between Live Nation and Ticketmaster marked a fittingly undramatic end to what many hoped would be the watershed to a new economic policy. The administration’s decision instead reflected a commitment to principle over politics and pragmatism over populism. Many hoped that the Live Nation-Ticketmaster merger would fall prey to a new economic populism. When the companies announced their plans to merge, some characterized the merger as a consolidation of “entertainment powerhouses” designed to inflate ticket prices and squeeze consumers. Public figures, including none other than Bruce Springsteen, condemned the combination. Members of Congress piled on, characterizing the transaction as a naked combination of industrial titans and demanding action from antitrust enforcers. The history of antitrust policy is replete with such populist anger towards supposed industrial power, and the Sherman Act itself was largely created in response to a screaming public. Typical demands for rigorous enforcement come from small and technologically obsolete companies resisting the onslaught of new competitive forces. Typical demands for restrained enforcement come from politically-connected professional establishments that disdain competition and decry enforcement as unwanted government interference. This politicization of antitrust, from all ideological corners, rarely results in sound economic policy and has led both to overzealous enforcement, protecting inefficient firms from more efficient rivals, and to permissive restraints, giving sanction to destructive cartels and monopolies. The Live Nation-Ticketmaster merger would have been another procompetitive victim to an angry public. Our careful analysis of the proposed merger reveals that it is much more a response to Schumpeterian technological change than an effort to concentrate market power. In other words, the companies are combining forces to pursue an innovative business model, one that pursues new consumer demands and responds to the rise of electronic music. It is not an attempt to acquire a stranglehold over an industry that technological change has made increasingly resistant to strangleholds. The populist anger directed at the proposed merger — which was in no small part fueled by the companies’ smaller competitors who feared having difficulty competing effectively against the new company– characteristically did not discern the complexities of the industry and evaluate the merger’s likely competitive impact. Of course, few in Washington brake for complexity. Which is why it is a relief the Obama administration did. Despite being ridiculed as “the dismal science,” economics is a necessary ingredient to policies that enhance consumer welfare and disperse the plentiful benefits of market competition. Even while the Obama Administration might engage in antitrust saber rattling, its approval the Live Nation-Ticketmaster and the associated consent decree shows the triumph of economic reasoning that is often counterintuitive to policy advocates. Its settlement further extracts concessions that further enhances competition, promotes innovation, and protects consumers. It is the commendable product of careful analysis reflects a deliberate navigation across the minefield of antitrust politicization. While reasonable minds might differ with both our own analysis of the merger and the administration’s conclusion, such differences should focus on the merits the transaction and not rhetoric from politicos. Bruce Springsteen himself admonished all of us to avoid leaping to compulsive conclusions when he observed, “God have mercy on the man who doubts what he’s sure of.” Effective antitrust requires nothing less. Alan Meese is the Ball Professor of Law at William and Mary. Barak Richman is a Professor of Law and Business at Duke University.

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Vale Agrees to Purchase Bunge’s Fertilizer Assets for $3.8 Billion in Cash

January 27, 2010

By Diana Kinch Jan. 27 (Bloomberg) — Vale SA said it bought Bunge Ltd.’s fertilizer assets in Brazil for $3.8 billion in cash as the South American nation, the world’s biggest producer of coffee, sugar and orange juice, seeks to cut its dependency on imports. Vale will acquire 100 percent of Bunge Participacoes e Investimentos SA, which owns phosphate rock mines and assets in Brazil and Bunge’s 42.3 percent share in Fertilizantes Fosfatados SA, or Fosfertil, a Brazilian fertilizers producer, the company said today in an e-mailed statement. Rio de Janeiro-based Vale, the world’s biggest iron-ore producer and second-largest nickel miner, is seeking to increase investments in fertilizers in Brazil, Peru and Argentina as Brazil aims to reach self-sufficiency in crop nutrients. The company plans to become a global fertilizer supplier, Chief Financial Officer Fabio Barbosa said Aug. 4. Vale said that once the transaction gains approval from regulators, the company will launch a mandatory offer to buy out the common shares held by minority shareholders of Fosfertil. “The transaction is instrumental to the consolidation of Vale’s strategy on focusing on Brazil as the main market for its production of phosphates,” Vale’s Chief Executive Officer Roger Agnelli said in the statement. To contact the reporter on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net

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Downgrade Risk Falls to 15-Month Low as Greece Sells Bonds: Credit Markets

January 26, 2010

By Emre Peker and Alan Goldstein Jan. 26 (Bloomberg) — The rise in corporate bond yields eased as Greece raised $11.3 billion and Standard & Poor’s said the number of companies and governments at risk of credit-rating downgrades fell to the lowest in 15 months. Greece’s ministry of finance said it received 25 billion euros ($35 billion) of orders for 8 billion of five-year notes sold late yesterday in Athens. Adobe Systems Inc. raised $1.5 billion in its first bond offering at narrower yield spreads than initially expected. Vietnam sold $1 billion of 10-year notes yielding 6.95 percent, the low end of its proposed range. S&P said the number of global issuers poised for lower ratings fell to 804 this month from 824 in December and 936 a year ago. Bond sales fell 52 percent last week and borrowing costs increased for the first time in eight weeks on investor concern the pace of economic recovery would slow. The extra yield investors demand to own corporate bonds instead of Treasuries was unchanged yesterday at 164 basis points, or 1.64 percentage point, after expanding 3 basis points last week, the Bank of America Merrill Lynch Global Broad Market Corporate Index showed. “We had a strong run through December and into the first 10 or 12 days of 2010, so a little pullback was to be expected,” said Tom Houghton , vice president and portfolio manager at Advantus Capital Management in St. Paul, Minnesota, who manages $2 billion in corporate bonds. “We’re not too concerned about it.” Swaps, Loans Elsewhere in credit markets, the cost to protect bondholders from default fell in the U.S. for the first time since Jan. 11. Fitch Ratings said it expects the rally in leveraged loans to extend through 2010. The five-year securities sold by Greece yield 6.2 percent, the nation’s ministry of finance said late yesterday in an e- mailed statement. The ministry offered the debt at yields of 0.3 percentage point more than that of the nation’s existing debt with similar maturities. Prime Minister George Papandreou’s government is struggling to reduce a budget deficit of 12.7 percent of gross domestic product and needs to sell 53 billion euros of debt this year, the equivalent of about 20 percent of GDP. Greece’s credit rating was cut by S&P, Moody’s Investors Service and Fitch last month. “It showed we have the ability to raise funds that we need,” Spyros Papanicolaou , head of the nation’s debt agency, said by phone from Athens yesterday before the sale was completed. “We expect the spread to start to tighten after the sale because Greece has been misread and misjudged.” The cost to protect sovereign debt from default dropped the most in a week. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments from Germany to Greece declined 2.5 basis points to 83 basis points, according to CMA DataVision. A drop signals a rise in investor confidence. Greek, Portugal, Spain Swaps on Greek sovereign debt fell 10 basis points to 328, according to CMA, after rising to a record 350 last week. Swaps on Portugal dropped 8 basis points to 142, while contracts on Spain tumbled 10 basis points to 119. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. U.S. Contracts Greece’s sale, combined with speculation that Ben S. Bernanke will be confirmed as Federal Reserve chairman, contributed to a decline in credit-default swap indexes in the U.S. Contracts on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies, fell about 0.5 basis point to 95.5 basis points, according to CMA. “One of the things people were very concerned about on Friday appears to be less of a concern, and that’s Bernanke,” said Timothy Policinski , managing director and senior money manager in Cincinnati at Fort Washington Investment Advisors Inc. The firm manages $25 billion in fixed-income assets. Adobe sold $600 million in five-year bonds that yield 3.288 percent, or 93 basis points more than similar-maturity Treasuries, and $900 million of 10-year notes that yield 4.828 percent, or a spread of 120 basis points, according to data compiled by Bloomberg. The San Jose, California-based company initially offered the five-year notes at a spread of 100 basis points and the 10- year notes at 125 basis points, according to a person familiar with the transaction who declined to be identified because the terms weren’t set. Money at Work “It seems like investors still have money to put to work, and that hasn’t changed from last week,” said Anne Daley , managing director in U.S. fixed-income syndicate at Barclays Capital in New York. “New issues continue to see solid oversubscription.” New York-based S&P said fewer borrowers may face ratings cuts because it either downgraded or gave stable outlooks to issuers that had been at risk. Governments and companies in the forest products, building materials and media and entertainment industries saw the biggest changes, S&P said. The rebound in the U.S. leveraged-loan market will continue in 2010, with new issuance rising “marginally” on increased mergers and acquisitions and leveraged buyouts, according to Fitch . About $240 billion of loans were originated in 2009 after fourth-quarter offerings more than doubled to $84 billion from a year earlier, the ratings company said yesterday in a statement. “New issuance will benefit from the recent pickup in M&A and LBO activity,” said Fitch, which is based in New York and London. Loans this year “will depend heavily on the pace of U.S. economic growth,” Fitch said. Leveraged loans are rated below Baa3 by Moody’s and less than BBB- by S&P. BMW Bonds In Europe, Bayerische Motoren Werke AG sold 742 million euros of asset-backed debt at a lower yield than existing notes from the world’s largest maker of luxury cars, according to data compiled by Bloomberg. The securities, which have an average life of 1.88 years, priced to yield 85 basis points more than the one-month Euro interbank offered rate. That compares with a spread of 95 basis points dealers bid for AAA rated notes sold by the Munich-based carmaker in 2007 and maturing in less than a year, according to HSBC Holdings Plc prices. Investors are returning to the market for securitized debt after record losses in 2007 and 2008, when consumer defaults spread through to debt payments. JPMorgan Chase & Co. predicts sales may rise to about 50 billion euros this year, from 8 billion euros in 2009. Vietnam Sale Vietnam’s bond sale offered higher yields than the Philippines and Indonesia. Demand for the notes reached $2.4 billion, said a person familiar with the transaction who declined to be identified. Developing nations from Turkey to Slovenia have sold more than $14 billion in overseas bonds this year, according to Bloomberg data. Spreads on emerging-market debt widened 15 basis points last week to 299, after expanding 19 basis points in the previous five-day period, according to JPMorgan Chase & Co.’s Emerging Markets Bond Index. To contact the reporters on this story: Emre Peker in New York at epeker2@bloomberg.net ;

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Greek Bond Sale in Euros May Yield as Much as 365 Basis Points Over Swaps

January 25, 2010

By Caroline Hyde and Anchalee Worrachate Jan. 25 (Bloomberg) — Greece’s sale of bonds in euros due August 2015 may be priced to yield about 375 basis points more than the benchmark mid-swap rate, according to a person with knowledge of the transaction. Credit Suisse Group AG, Deutsche Bank AG, EFG Eurobank Ergasias SA, Goldman Sachs Group Inc., Morgan Stanley and National Bank of Greece SA will manage the issue, the country’s debt management agency said last week. The yield on Greece’s existing five-year bonds declined 7 basis points to 5.86 percent as of 9:50 a.m. in London. That narrowed the difference with comparable German debt, the European benchmark, to 357 basis points, from 365 basis points last week, which was the widest since Greece joined the euro in 2001. Greek Finance Minister George Papaconstantinou said on Jan. 20 that the country is under no pressure to sell debt and that 50 percent of its bond sales this year will come in the second quarter. He also said the government’s considering bond sales in Asia and the U.S. and may also market debt to Greek retail investors. Greece sold 2 billion euros of bonds in a private sale in December, according to data compiled by Bloomberg. Earlier this month, the country sold about 3.6 billion euros of 52-week, 26- week and 13-week Treasury bills at auction. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net ; Caroline Hyde in London at chyde3@bloomberg.net

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Tyco Agrees to Purchase Brink’s in Cash, Stock Deal Valued at $2 Billion

January 18, 2010

By Rob Delaney Jan. 18 (Bloomberg) — Tyco International Ltd. , the world’s largest maker of security systems through its ADT unit, agreed to buy Brink’s Home Security Holdings Inc. in a cash and stock transaction valued at $2 billion. Brink’s shareholders can choose to receive $42.50 in cash, Tyco shares or a combination of cash and stock, Schaffhausen, Switzerland-based Tyco said today in a statement. The transaction has been approved by the boards of both companies, Tyco said. “This transaction provides us the opportunity to further strengthen our position in the residential and commercial security industry,” Tyco Chief Executive Officer Ed Breen said in the statement. Tyco plans to combine the Irving, Texas-based company’s home security business, called Broadview Security, into its ADT unit, Tyco said. Tyco, which is run from New Jersey, rose 26 cents to $37.54 on Jan. 15 in New York Stock Exchange composite trading . The shares climbed 65 percent last year. Brink’s Home Security rose 6 cents to $31.42. To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net .

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Heineken Will Buy Femsa’s Beer Unit in Transaction Valued at $7.7 Billion

January 11, 2010

By Celeste Perri Jan. 11 (Bloomberg) — Heineken NV agreed to buy the beer division of Fomento Economico Mexicano SAB in an all-share transaction valued at 5.3 billion euros ($7.7 billion). Femsa will own a 20 percent economic interest in Heineken Group as a result of the purchase, the Amsterdam-based company said in a statement posted on its Web site today. Heineken expects to achieve so-called synergies of 150 million euros a year by 2013, it said in the statement. The purchase will boost the Dutch brewer’s earnings per share after two years, the company said. “I am confident that this transaction will generate considerable future value for stakeholders in both groups,” Heineken Chief Executive Officer Jean-Francois van Boxmeer said in the statement. To contact the reporters on this story: Celeste Perri in Amsterdam at cperri@bloomberg.net .

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Stirling Resources (ASX:SRE) To Finalise Monarch Gold (ASX:MON) Transaction

December 18, 2009

Stirling Resources (ASX:SRE) To Finalise Monarch Gold (ASX:MON) Transaction

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Spyker’s Chief Muller Says EIB Is Biggest Obstacle to Reaching Saab Deal

December 17, 2009

By Ola Kinnander Dec. 17 (Bloomberg) — Spyker Cars NV’s plan to buy General Motors Co.’s Saab unit hinges on the European Investment Bank approving a loan before the end of December, the Dutch luxury-car maker’s chief executive officer said. GM and Spyker are not the “potential problem for this transaction,” Victor Muller said in a phone interview from his home in Amsterdam today, adding that winning EIB support before year-end is the biggest obstacle. So far, the European Union’s lending arm has sent “neutral signals” on approving a 400 million-euro ($574 million) loan that is key to the sale and which the Swedish government must guarantee, said Muller. “It’s mainly now down to the government agencies,” Muller said. “That’s really the main issue. We’re getting lots of support from the Swedish government.” Spyker, the maker of $235,000 sports cars, emerged as the frontrunner to buy Saab this month after Koenigsegg Group abandoned its bid on Nov. 24. GM’s Chief Executive Officer Ed Whitacre said on Dec. 15 that the Detroit-based carmaker will shut the unit if it doesn’t reach a deal with Spyker by the end of this month. GM has separately agreed to sell some technologies for Saab’s 9-3 and 9-5 models to Beijing Automotive Industry Holding Co. The EIB was not immediately available for comment. Koenigsegg Canceled Deal Koenigsegg Group canceled its planned acquisition of Saab, saying it ran out of time because delays in closing the acquisition had “resulted in risks and uncertainties” that prevented it from implementing a new business plan for the Swedish carmaker. The EIB in August delayed a decision on whether to give Saab a loan, which it eventually granted the Trollhaettan, Sweden-based company on Oct. 21. While the EIB approved the loan to Saab, the bank must now re-evaluate the financing with Spyker as the new owner. The Dutch carmaker is using Koenigsegg’s business plan in its bid and plans to keep Saab’s management if it buys Saab, Muller said. “In October, the EIB approved the Koenigsegg deal, which was exactly the same deal — the same lender, same borrower and the same business plan,” Muller said. “The only thing changed is the shareholder, so they have to do due diligence on that.” According to Koenigsegg Group’s plan for Saab as of September, the automaker was to become profitable by 2012 with annual sales of at least 100,000 cars. No Signed Deal No deal will be signed with GM until the EIB has decided on whether Saab can get the loan with Spyker as the new owner, Muller said. Spyker is also waiting for the European Commission to decide whether potential Swedish loan guarantees for the EIB funding distorts competition and for the Swedish state to decide whether it will give Saab the guarantees, said Muller. “There is very little point in signing an agreement until the time that the governmental agencies have approved the transaction,” Muller said. “Everybody knows exactly what the deadline is. There is no misunderstanding about that,” he said, adding GM’s chief executive officer had been “blatantly clear” about a Dec. 31 deadline. Saab is likely to win European Commission approval for the EIB loan, Johnny Kjellstroem, who is negotiating the case with the European Union’s regulatory arm on behalf of the Swedish government, said last week. It’s possible that the European Commission will reach a decision this month, he said. The EIB gives funding to projects throughout the European Union and raises funds it then lends on under favorable terms, according to its Web site. Recent projects include funding for energy efficiency and urban regeneration in cities and financial support for small businesses as well loans to the European automotive industry. To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ;

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Spyker’s Chief Muller Says EIB Is `Biggest Problem’ to Reaching Saab Deal

December 17, 2009

By Ola Kinnander Dec. 17 (Bloomberg) — Spyker Cars NV’s plan to buy General Motors Co.’s Saab unit hinges on the European Investment Bank approving a loan before the end of December, the Dutch luxury-car maker’s chief executive officer said. GM and Spyker are not the “potential problem for this transaction,” Victor Muller said in a phone interview from his home in Amsterdam today, adding that winning EIB support before year-end is the biggest obstacle. So far, the European Union’s lending arm has sent “neutral signals” on approving a 400 million-euro ($574 million) loan that is key to the sale and which the Swedish government must guarantee, said Muller. “It’s mainly now down to the government agencies,” Muller said. “That’s really the main issue. We’re getting lots of support from the Swedish government.” Spyker, the maker of $235,000 sports cars, emerged as the frontrunner to buy Saab this month after Koenigsegg Group abandoned its bid on Nov. 24. GM’s Chief Executive Officer Ed Whitacre said on Dec. 15 that the Detroit-based carmaker will shut the unit if it doesn’t reach a deal with Spyker by the end of this month. GM has separately agreed to sell some technologies for Saab’s 9-3 and 9-5 models to Beijing Automotive Industry Holding Co. The EIB was not immediately available for comment. Koenigsegg Canceled Deal Koenigsegg Group canceled its planned acquisition of Saab, saying it ran out of time because delays in closing the acquisition had “resulted in risks and uncertainties” that prevented it from implementing a new business plan for the Swedish carmaker. The EIB in August delayed a decision on whether to give Saab a loan, which it eventually granted the Trollhaettan, Sweden-based company on Oct. 21. While the EIB approved the loan to Saab, the bank must now re-evaluate the financing with Spyker as the new owner. The Dutch carmaker is using Koenigsegg’s business plan in its bid and plans to keep Saab’s management if it buys Saab, Muller said. “In October, the EIB approved the Koenigsegg deal, which was exactly the same deal — the same lender, same borrower and the same business plan,” Muller said. “The only thing changed is the shareholder, so they have to do due diligence on that.” According to Koenigsegg Group’s plan for Saab as of September, the automaker was to become profitable by 2012 with annual sales of at least 100,000 cars. No Signed Deal No deal will be signed with GM until the EIB has decided on whether Saab can get the loan with Spyker as the new owner, Muller said. Spyker is also waiting for the European Commission to decide whether potential Swedish loan guarantees for the EIB funding distorts competition and for the Swedish state to decide whether it will give Saab the guarantees, said Muller. “There is very little point in signing an agreement until the time that the governmental agencies have approved the transaction,” Muller said. “Everybody knows exactly what the deadline is. There is no misunderstanding about that,” he said adding GM’s chief executive officer had been “blatantly clear” about a Dec. 31 deadline. Saab is likely to win European Commission approval for the EIB loan, Johnny Kjellstroem, who is negotiating the case with the European Union’s regulatory arm on behalf of the Swedish government, said last week. It’s possible that the European Commission will reach a decision this month, he said. The EIB gives funding to projects throughout the European Union and raises funds it then lends on under favorable terms, according to its Web site. Recent projects include funding for energy efficiency and urban regeneration in cities and financial support for small businesses as well loans to the European automotive industry. To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ;

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Dubai Sold Abu Dhabi $10 Billion Five-Year Bonds to Repay Nakheel’s Debt

December 16, 2009

By Vivian Salama and Haris Anwar Dec. 16 (Bloomberg) — Dubai borrowed $10 billion from Abu Dhabi this week by selling its neighbor five-year bonds paying an annual interest rate of 4 percent, said a person close to the government, who is familiar with the transaction. Those are the same terms Dubai paid for $10 billion from the Abu Dhabi-based central bank in February and another $5 billion from government-controlled National Bank of Abu Dhabi PJSC and Al Hilal Bank in November. Abu Dhabi’s government provided the funds to Dubai on Dec. 14 to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion Nakheel PJSC bond payment that roiled global financial markets. The rest of the money will cover Dubai World’s interest and operating costs until the company reaches a standstill accord with creditors, Dubai’s government said. “This information should go some way toward mitigating market speculation about potential hidden costs of this funding and whether there are any assets involved in the transaction,” said Chavan Bhogaita , head of credit research at National Bank of Abu Dhabi, the United Arab Emirates’s second-largest lender by assets. Dubai World said Dec. 1 it’s seeking to restructure $26 billion of debt, less than half the $59 billion of liabilities it had at the end of 2008. Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report Dec. 8. Dubai Autonomy Abu Dhabi is the largest of the seven emirates that formed the U.A.E. in 1971 and owns more than 90 percent of its oil reserves, the world’s sixth largest. Dubai, the second-largest emirate, has traditionally guarded its autonomy, keeping full control of economic affairs. After the emirate and its state-controlled companies borrowed $80 billion to diversify away from dwindling oil supplies, Dubai’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum , has been forced to seek Abu Dhabi’s help three times this year as credit dried up, triggering a property crash in the city state. To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net Haris Anwar in Dubai on Hanwar2@bloomberg.net

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JPMorgan Sells $500 Million of Commercial Mortgage Bonds Without Fed Aid

December 10, 2009

By Sarah Mulholland Dec. 10 (Bloomberg) — JPMorgan Chase & Co. sold $500 million in securities backed by commercial mortgages without aid from a Federal Reserve program to jumpstart lending, according to a person familiar with the transaction. The five-part offering marks the third sale of commercial mortgage-backed securities in less than a month following a drought that lasted more than a year, according to data compiled by Bloomberg. The largest top-rated portion priced to yield 2.05 percentage points more than benchmark interest rates, said the person, who declined to be identified because terms are private. Real estate companies are taking advantage of investor appetite for the securities to pay down maturing debt. The JPMorgan issue is backed by debt on 55 retail properties across the U.S. owned by Oak Brook, Illinois-based Inland Western Retail Real Estate Trust, the person said. The market opened Nov. 16 as Developers Diversified Realty Corp. sold similar bonds, the first offering of commercial mortgage-backed debt since June 2008. “Clearly there is a demand for well underwritten assets,” said Scott Buchta , head of investment strategy at Guggenheim Securities LLC in Chicago. Today’s sale is backed by a $625 million loan from JPMorgan to Inland Western. The loan allowed the company to pay off “virtually all,” of its 2009 maturities, and a “substantial portion,” of 2010 debt, Inland Western Chief Executive Officer Steven Grimes said in a Dec. 1 statement. Developers Diversified, based in Beachwood, Ohio, sold its bonds through the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF. Both today’s sale and a $460 million Bank of America Corp. issue on Dec. 4 were sold outside of TALF. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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Raymor Industries approuve une offre d’investissement privé de 6 500 000 $ et une proposition amendée aux créanciers

December 7, 2009

MONTREAL, QUEBEC–(Marketwire – 7 déc. 2009) – Raymor Industries Inc. (“Raymor” ou la “Compagnie”) (TSX CROISSANCE:RAR) annonce aujourd’hui qu’elle a approuvé une lettre d’offre en date du 4 décembre 2009 décrivant les modalités d’une offre d’investissement privé (la “Transaction”) de Georges Durst, Rolland Veilleux ainsi que d’autres investisseurs qui se joindront au groupe d’acheteurs (collectivement, l’ “Acheteur”) d’un montant de 6 500 000 $ en faveur de Raymor. La Transaction est conditionnelle à l’annulation de tous les titres d’équité de la Compagnie en circulation, incluant les actions, bons de souscription, options, droit d’achat et de souscription d’actions et droit de conversion en actions, pour une valeur nominale, aux termes d’un mécanisme à l’entière satisfaction de la Compagnie, et à la création de nouvelles actions ordinaires et privilégiées conformément aux modalités de la lettre d’offre.

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Yankees Trade Relief Pitcher Bruney to Nationals for Player to Be Named

December 7, 2009

By Jay Beberman Dec. 7 (Bloomberg) — The New York Yankees traded relief pitcher Brian Bruney to the Washington Nationals for a player to be named. Bruney, 27, was 5-0 with a 3.92 earned run average in 44 appearances last season. The Yankees announced the transaction in a press release.

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Zions Leads Bank Stocks on Plan to Reduce Deferred Tax Assets, Swap Shares

November 23, 2009

By Dakin Campbell Nov. 23 (Bloomberg) — Zions Bancorporation , Utah’s largest lender, rose 13 percent, the most of any company in the KBW Bank Index , after saying it will reduce the value of deferred tax assets and offer to exchange preferred shares for common. Hedging strategies would allow the bank to cut the asset value by $148 million amid rising interest rates, the Salt Lake City-based lender said today in a regulatory filing . Deferred tax assets are used to reduce future income-tax expenses during profitable periods. “There had been a concern that they would have to take a valuation allowance against this deferred tax asset,” said Dennis Klaeser , an analyst at Raymond James & Associates. “The potential size of the allowance would be reduced with this transaction.” Zions has posted four straight quarterly losses and isn’t expected to make money until at least 2011, according to analysts surveyed by Bloomberg. In addition to benefits from the tax change, Zions said the swap of preferred shares may increase tangible common equity, a cushion against loan losses. Zions rose $1.57 to $14.12 at 4:19 p.m. New York time on the Nasdaq Stock Market. It climbed as high as $14.71 earlier today, and has plunged 42 percent this year. Zions reported a third-quarter deferred tax asset balance of $688 million, up from $644 million the quarter before, on higher provisions and loan losses, according to company filings. Zions said it will exchange as many as 5.6 million depository shares, which are tied to preferred shares, for common stock, according to a statement. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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People’s United Financial Agrees to Buy Financial Federal for $738 Million

November 23, 2009

By Linda Shen Nov. 23 (Bloomberg) — People’s United Financial Inc. , the Connecticut lender that had $2.5 billion earmarked for acquisitions, agreed to buy Financial Federal Corp. for $738 million in cash and stock to expand in equipment financing. People’s United will pay Financial Federal shareholders $11.27 in cash and one share of People’s United common stock, Bridgeport-based People’s United said in a statement today. Based on closing prices on the Nasdaq Stock Market Nov. 20, the offer was worth $27.74 a share, 35 percent higher than Financial Federal’s closing price last week. People’s United Chief Executive Officer Philip Sherringham said in July he was considering acquisition candidates with assets of $200 million to $400 million from Maine to Washington, D.C. Sherringham kept the bank profitable as borrowers lost jobs and foreclosures rose to a record last year. Financial Federal , People’s United’s first purchase since its 2007 acquisition of Chittenden Corp., “provides a valuable complement to our existing business lines,” Sherringham said in the statement. “This transaction offers opportunities for People’s United to grow our highly profitable equipment- financing business with established, experienced staff in new markets throughout the country.” People’s United gained 65 cents, or 4 percent, in composite trading at 9:41 a.m., while Financial Federal surged a record 37 percent to $28.05, the highest price since October 12, 2007. Earnings Effect The purchase of New York-based Financial Federal is expected to be “significantly accretive” to operating earnings in 2010 and to have a “slight positive effect” on the bank’s capital levels, People’s United said. The bank said in a regulatory filing that it would add 25 percent to operating earnings “based on consensus estimates.” The acquisition is expected to close during the first quarter of 2010 and includes a termination fee of $26 million. The deal may also increase People’s United’s tangible common equity to 19 percent from 18.6 percent, the bank said. Morgan Stanley advised People’s United on the deal, and its legal counsel was Simpson, Thacher & Bartlett LLP. Keefe, Bruyette & Woods advised Financial Federal and Covington & Burlington LLP acted as legal counsel. To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

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Developers Diversified Sells Commercial Mortgage-Backed Debt Through TALF

November 16, 2009

By Sarah Mulholland Nov. 16 (Bloomberg) — Developers Diversified Realty Corp. sold $400 million of debt backed by shopping centers in the first sale of commercial-mortgage bonds through a U.S. program to jumpstart lending. The $323.5 million top-rated portion priced to yield 140 basis points more than benchmark swap rates, according to people familiar with the transaction who declined to be identified because terms are private. Investor demand allowed the company to reduce the so-called spread from as much as 175 basis points, or 1.75 percentage points, the people said. The offering from Beachwood, Ohio-based Developers Diversified, managed by Goldman Sachs Group Inc. , is the first to use the Federal Reserve’s Term Asset-Backed Securities Loan Facility since it was opened to the debt in June. While representing a “positive for the market,” the transaction won’t necessarily lead to a flood of issuance, said James Grady , managing director at Deutsche Asset Management in New York. “It is a small step in the right direction, but I would caution against making too much out of it,” said Grady, who oversees about $240 billion in investments. “Clearly there was good demand for this deal. But this is a unique deal and that doesn’t mean that another transaction would get similar reception.” Boost Returns Investors can take out loans from the Fed’s TALF to purchase the AAA portion of the bond sale, enabling them to boost returns with borrowed cash. TALF was started in March to revive the market for bonds backed by consumer and small business loans. Buyers aren’t required to take out loans from the Fed to purchase the bonds, and many investors buying the Developers Diversified offering may have paid cash, Grady said. The tighter spread on the debt means that some investors won’t be able to get the returns they were looking for, and it may not be worth it to take out the Fed loan. Spreads were “pleasantly tight,” Grady said, and highlight value to be found in debt sold in previous years before issuance came to a halt. Top-ranked commercial mortgage-backed securities with a similar maturity are trading at about 3.5 percentage points more than benchmarks, JPMorgan Chase & Co. data show. In January, the debt was trading at about 13 percentage points over the benchmark. Older Bonds Spreads on the older bonds should tighten in response to the appetite for the Developers Diversified sale, even with the “potential stigma” attached to securities issued during the boom years, according to a Nov. 13 report from JPMorgan analysts led by Alan Todd in New York. The government has made reviving the commercial-mortgage bond market a priority as plunging property values and a pullback in lending threaten to derail an economic recovery. U.S. commercial real estate prices are down 40.6 percent from the October 2007 peaks, according to Moody’s Investors Service. Sales of commercial mortgage-backed debt slumped to $12.2 billion last year from a record $237 billion in 2007, choking off financing to borrowers with maturing debt, according to JPMorgan Chase. Other companies seeking to sell debt for TALF include Vornado Realty Trust and Inland Western Retail Real Estate Trust, according to company filings. Bank of America Corp. is working to put together a bond offering backed by office and industrial properties in Florida for Fortress Investment Group LLC, though that sale is likely to be sold outside of the TALF, according to a person familiar with the offering. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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Unilife Announces Appointment of New Independent Director

November 11, 2009

LEWISBERRY, PA–(Marketwire – November 11, 2009) – As announced on 1 September 2009, Unilife Medical Solutions Limited (“Unilife” or “the Company”) ( ASX : UNI ) ( PINKSHEETS : UNIFF ) is currently undertaking a transaction to redomicile the Unilife group in the United States of America (“US”) and is also seeking to list on NASDAQ. With a view to strengthening the credentials of the Unilife board prior to Unilife’s redomiciliation in the US (“Proposed Transaction”) and to meet NASDAQ independence requirements, the Company today announced it has appointed Mr John M. Lund to its Board of Directors as a non-executive member.

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Goldman Sachs Manages First Sale of Commercial Mortgage Debt Under TALF

November 9, 2009

By Sarah Mulholland Nov. 9 (Bloomberg) — Goldman Sachs Group Inc. is underwriting $400 million of bonds backed by an Ohio real estate company’s shopping centers in the first sale to tap a U.S. program to unlock lending in the commercial mortgage market. The bond is backed by 28 properties owned by Developers Diversified Realty Corp. , according to people familiar with the transaction who declined to be identified because terms are private. The offering comes a month after Goldman Sachs made a loan to the Beachwood, Ohio-based company in part to repay debt on the properties and others. The Federal Reserve opened its Term Asset Backed Securities Loan Facility in June to newly issued commercial mortgage-backed securities to stimulate lending and avert a wave of foreclosures as borrowers fail to refinance. There have been no new sales of the debt since June 2008, according to data compiled by Bloomberg. “It would be good for the market psyche to actually see a new deal done,” said Kent Born , senior managing director at PPM America Inc., an investment manager in Chicago. “But as a practical matter it’s not going to get us back to the type of deals that were the bread and butter of the market merely two years ago.” Investors can take out loans from the Fed’s TALF to purchase the top-rated securities from Developers Diversified. The TALF was started in March to revive the market for debt backed by consumer and small-business loans. Fortress Sale The Developers Diversified sale comes as Bank of America Corp. puts together a $650 million offering for Fortress Investment Group LLC , backed by office and industrial properties in Florida, according to a person familiar with the transaction. The issue may be sold outside the Fed program, the person said. Both the Developers Diversified and Fortress offerings are different from the commercial-mortgage backed securities sold during the boom in that they’re from single borrowers. Securities sold as the market peaked in 2007 bundled loans from as many as 300 borrowers, according to data compiled by Bloomberg. The process of pooling debt from so many borrowers can take several months, and banks are hesitant to write new loans and hold them on their books, said Christopher Hoeffel , a managing director real estate investor Investcorp International Inc. in New York. JPMorgan’s Plans As credit markets have stabilized and financial institutions make bets the worst has passed, signs are emerging that some banks are willing to take on the risk. During the past two weeks, JPMorgan Chase & Co. began quoting loans to commercial borrowers with the intent of pooling them to be sold as bonds, though no loans have been closed yet, according to a person familiar with the program. “This is a very positive sign for the market,” Hoeffel said. “While it’s only a toe in the water, banks are actually taking the execution risk of a securitized exit.” New underwriting standards are stringent, and the proceeds available to borrowers will not be enough to pay off existing debt for many property owners, Hoeffel said. “There will need to be additional capital from outside the banks, in the form of equity, preferred equity or mezzanine debt, in order to make deals work,” Hoeffel said in an e-mail. Banks wary of holding loans during the time it takes to build a pipeline have limited assets to dedicate to new commercial real estate loans, Hoeffel added. The government has made reviving the commercial-mortgage bond market a priority as plunging property values and a pullback in lending threaten to derail an economic recovery. U.S. commercial real estate prices are down 40.6 percent from the October 2007 peaks, according to Moody’s Investors Service. Sales of commercial mortgage-backed debt slumped to $12.2 billion last year from a record $237 billion in 2007, according to JPMorgan Chase & Co. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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TPG-Led Group To Buy IMS Health for About $5.2 Billion in Cash Transaction

November 5, 2009

By Meg Tirrell, Jason Kelly and Serena Saitto Nov. 5 (Bloomberg) — IMS Health Inc. agreed to sell itself to investment funds managed by TPG and the CPP Investment Board for $5.2 billion in the biggest leveraged buyout of 2009. Stockholders of IMS, which provides prescription data to drugmakers and analysts, will receive $22 a share in cash, the Norwalk, Connecticut-based company said today in a statement. The deal, expected to close in the first quarter of 2010, represents a 31 percent premium over yesterday’s closing price. Private-equity firms are resuming deal-making after a two- year drought triggered by the global credit crisis. Financing for new deals is becoming available as equity and debt markets stabilize and buyout managers have a collective $400 billion in unspent capital, according to researcher Pitchbook Data Inc. “This transaction enables our shareholders to realize substantial value from their investment in IMS with an immediate cash premium,” IMS Chief Executive Officer David Carlucci said in the statement today. “We will continue our focus on expanding into new markets.” The deal includes assumption of debt, IMS said. The company had cash and equivalents of $301.7 million, and total debt of $1.34 billion as of Sept. 30, according to a statement last month. IMS rose $4.04, or 24 percent, to $20.85 at 9:44 a.m. in New York Stock Exchange composite trading, after jumping 11 percent this year before today. Advisers IMS hired Foros Securities LLC last month to advise a special board committee on possible transactions, and Deutsche Bank Securities Inc. was its financial adviser. The takeover follows private equity deals including Blackstone Group LP’s $2.3 billion agreement to buy Anheuser- Busch InBev NV’s amusement park division and KKR & Co. ’s purchase of Oriental Brewery Co. from the same company. Fort Worth, Texas-based TPG was created in 1992 and has about $45 billion in assets under management. Its deals include the 2007 purchase, with KKR, of power producer TXU Corp. for $43.2 billion, including assumed debt. That agreement stands as the largest leveraged buyout in history. Managed by David Bonderman and James Coulter , TPG earlier this week said it would buy a majority stake in natural gas equipment company Valerus Compression Services LP. Canada Pension Plan The CPP Investment board, or Canada Pension Plan Investment Board, teamed with Ontario Teachers’ Pension Plan to pursue an unsolicited A$6.8.billion ($6.2 billion) takeover of Transurban Group, Australia’s biggest toll road operator. Transurban rejected the Oct. 27 proposal because it was “incomplete,” the Melbourne-based company said today. Morris, Nichols, Arsht & Tunnell LLP and Sullivan & Cromwell LLP were legal advisers. Lazard provided IMS with a fairness opinion. Goldman, Sachs & Co., Bank of America Merrill Lynch, Barclays Capital, Evercore Partners and JPMorgan Chase & Co. acted as financial advisers to TPG and CPP. Ropes & Gray LLP provided legal advice. CPP was also separately advised by Torys LLP. To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net ; Jason Kelly in New York at jkelly14@bloomberg.net ; Serena Saitto in New York at ssaitto@bloomberg.net

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Buffett to Acquire Burlington Northern for $26 Billion in His Biggest Deal

November 3, 2009

By Andrew Frye Nov. 3 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in what he described as an “all-in wager on the economic future of the United States.” The purchase, the largest ever for Berkshire, will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn’t already own. Including his previous investment and debt assumption, the deal is valued at $44 billion, Omaha, Nebraska-based Berkshire said today in a statement. The railroad’s stock closed yesterday at $76.07. Berkshire has been building a stake in the Fort Worth, Texas-based railroad since 2006 as Buffett looked for what he called an “elephant”-sized acquisition allowing him to deploy his company’s cash hoard, which was more than $24 billion at the end of June. Trains stand to become more competitive against trucks with fuel prices high, he has said. “It is Warren being Warren, taking advantage of a market that is soft at a time when the possibility for competitive bids is relatively low,” said Tom Russo , a partner at Gardner Russo & Gardner, which holds Berkshire shares. “He looks at this as a business that has advantages against other forms of transportation.” At $100 a share, Buffett is paying 18.2 times Burlington Northern’s estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey . That compares with the 13.4 multiple for the Standard & Poor’s 500 Index as of yesterday’s close. Shares of Burlington Northern, the largest U.S. railroad, dropped 13 percent in the 12 months through yesterday. Union Pacific, CSX Competing railroad Union Pacific Corp. ’s ratio was 13, while Jacksonville, Florida-based CSX Corp.’s was 13.1, Bloomberg data show. Union Pacific rose $4.35, or 7.9 percent, to $59.41 at 4 p.m. in New York Stock Exchange composite trading. CSX climbed 7.3 percent. Burlington Northern surged to $97. Berkshire Class A shares rose $1,700, or 1.7 percent, to $100,450. The deal culminates a search by Buffett, 79, that sent him to Europe looking for possible acquisitions and lamenting in letters to shareholders that he and Vice Chairman Charles Munger couldn’t find companies they considered large enough to meaningfully add to annual earnings . Buffett needs “elephants in order for us to use Berkshire’s flood of incoming cash ,” he said in his annual letter to shareholders in 2007. “Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game.” Trains, Trucks Burlington Northern, with pretax income of $3.37 billion on revenue of $18 billion last year, would be Berkshire’s second- largest operating unit by sales. The McLane unit, which delivers food to grocery stores and restaurants by truck, earned $276 million on revenue of $29.9 billion in 2008. Berkshire’s largest business is insurance, with units including auto specialist Geico Corp. Buffett, who is the company’s chairman and chief executive officer, has said he likes insurance because he gets to invest the premiums paid by customers until the cash is needed to pay claims. The insurance businesses last year collectively earned $7.51 billion on revenue of $30.3 billion. Buffett will use $16 billion in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments, he told the CNBC. Berkshire will have more than $20 billion in consolidated cash after the purchase, he said. Cash Hoard “It doesn’t mean we’re out of business, but it does mean that we won’t be making any huge deals for a while,” Buffett told the network today. He said earlier this year the company needs at least $10 billion in cash to be ready for unforeseen events such as catastrophe claims at its insurance units. Berkshire would get $264 million from Burlington Northern if the railroad’s board accepts a higher bid, according to a regulatory filing today. Buffett built Berkshire into a $150 billion company buying firms that he deems to have durable competitive advantages. His largest purchases include the 1998 deal for General Reinsurance Corp. for more than $17 billion. Buffett expanded into power production with the purchase of MidAmerican Energy Holdings Co. , and last year bought Marmon Holdings Inc., the collection of more than 100 businesses, from the Pritzker family. Marmon’s Union Tank Car unit manufactures and leases railroad cars. He expects the economy to recover, he said in an interview in September with his company’s Business Wire unit. “We are still tossing out 14 trillion worth of product a year,” he said. “It will return. It’s already returned with most people in most ways, but it’s not back 100 percent. It’ll get there.” ‘Simple Bet’ The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars. The world’s largest economy expanded at a 3.5 percent pace from July through September, Commerce Department figures showed last week. “It’s a pretty simple bet,” said Mario Gabelli , CEO of Gamco Investors Inc., which has holdings in Berkshire and Burlington Northern. “Warren knows the assets. He’s been involved in basic businesses like this for years.” Buffett is increasing his stake in an industry that doesn’t have any competitors for certain types of freight. Federal law requires some chemicals to be moved only by rail. Railroads burn less diesel fuel than trucks for each ton of cargo carried, giving companies such as Burlington Northern and Omaha-based Union Pacific a grip on bulk commodities such as coal. That fuel-efficiency advantage also gives railroads a share of the profits from moving goods such as Asian imports of cars and other consumer goods sent to U.S. West Coast ports. Fuel Prices From ships, containers are loaded onto railcars to be hauled to so-called intermodal terminals, where they’re transferred to trucks for the final leg of their journey. Buffett said in 2007 that railroads may prosper at the expense of trucks. “As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.” Berkshire’s board approved a 50-to-1 split of its Class B shares as part of the acquisition plan, the company said in a second statement. Berkshire will schedule a shareholder meeting to vote on an amendment to the company’s certificate of incorporation that’s needed to split the stock. B share typically trade for about a thirtieth of the price of A shares. Stock Split Most of the shares exchanged for Burlington Northern stock will be Class A shares, Berkshire said. Splitting the B shares is designed to accommodate the smallest holders who elect for a tax-free swap of the railroad’s stock, it said. Goldman Sachs Group Inc., Evercore Partners Inc., and Cravath Swaine & Moore LLP are advising Burlington. Berkshire didn’t disclose a financial adviser and said Munger Tolles & Olson LLP furnished legal advice. Matthew Rose , the chief executive officer of Burlington Northern, said he struck the deal with Buffett after the two met in Texas. Buffett, named by Forbes as the second-richest American, was visiting because he has other business interests in the state, Rose said. “We spent a couple hours talking about the economy and the business,” Rose told Bloomberg Television. “The next day I got a call. He asked me to meet on a Friday night down in downtown Fort Worth. It was a relatively short conversation; he told me what he wanted to do. The next day we fired up the process.” Antitrust Review Burlington Northern operates 32,000 miles of track, with 6,700 locomotives, according to its Web site . Most of the carrier’s network is west of the Mississippi, where it competes with Union Pacific. The U.S. Department of Justice will conduct an antitrust review, which Burlington expects to be completed by the first quarter of next year, the company said today in a conference call with analysts and investors. Burlington Northern said two-thirds of the shares that aren’t held by Berkshire must vote in favor of the transaction for it to proceed under Delaware law. The railroad said it anticipates a shareholder meeting in the first quarter of 2010 and the completion of the transaction “very shortly thereafter.” To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .

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Berkshire Buys Burlington Northern for $34 Billion in Biggest Buffett Deal

November 3, 2009

By Dan Kraut Nov. 3 (Bloomberg) — Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in the company’s biggest takeover under Warren Buffett. Buffett’s firm will buy the 77.4 percent of the railroad it doesn’t already own for $100 a share, valuing the transaction at about $44 billion, including $10 billion in outstanding debt, Omaha, Nebraska-based Berkshire said in a statement today distributed by Business Wire. That compares with the railroad’s closing price yesterday of $76.07. “It’s an all in-wager on the economic future of the United States,” Buffett said in the statement. Berkshire plans to split each of its Class B shares into 50 new shares to help the acquisition. To contact the reporter on this story: Dan Kraut in New York at dkraut2@bloomberg.net

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Hector Ruiz Will Leave Globalfoundries Amid Galleon Insider-Trading Case

November 2, 2009

By Ian King Nov. 2 (Bloomberg) — Hector Ruiz , the most prominent executive tied to the Galleon Group LLC insider-trading case, is stepping down as chairman of Globalfoundries Inc., a spinoff of Advanced Micro Devices Inc. Ruiz, 63, will be on leave of absence before resigning on Jan. 4, Globalfoundries said today in a statement. Ruiz is the AMD executive government prosecutors say provided nonpublic information to Danielle Chiesi , alleged to be part of the Galleon insider-trading ring, a person familiar with the matter said last week. Ruiz, who stepped down as AMD’s chief executive officer last year, was instrumental in the company’s plan to spin off its manufacturing plants, becoming chairman of Globalfoundries, the new company created from the deal. Chiesi allegedly traded on information about that transaction. “The shockwaves of this controversy seem to be extending really far,” said Charles Elson , chairman of the University of Delaware’s corporate-governance center in Newark, Delaware. “The higher the profile of the individual involved, the more vigilant the industry will become. It makes everyone else much more sensitive.” Prosecutors have released parts of recorded conversations between Chiesi, a former Bear Stearns Asset Management official, and an AMD executive, in which they allegedly discussed the timing of the spinoff of AMD’s plants. The unnamed executive told Chiesi about the transaction in September 2008, ahead of the announcement of the deal, according to court documents. No Charges Ruiz had already been planning to step down — he had submitted his resignation in September, which would take effect in January, Sunnyvale, California-based Globalfoundries said. Board member Alan E. Ross , the former CEO of Broadcom Corp., will replace Ruiz, serving as interim chairman until a permanent replacement is chosen by the board. Last week, International Business Machines Corp. replaced Senior Vice President Robert Moffat , who is accused by prosecutors of leaking information on the transaction that created Globalfoundries to Chiesi. Ruiz hasn’t been charged with wrongdoing in the case, and prosecutors don’t say he profited from insider trading. Jeremy Fielding of Finsbury Group, who is representing Ruiz, declined to comment. Globalfoundries hasn’t been approached as part of the investigation and isn’t conducting its own inquiry, spokesman Richard Mintz said. AMD isn’t commenting on the matter, said spokesman Drew Prairie . AMD, also based in Sunnyvale, rose 9 cents to $4.69 at 11:48 a.m. in New York Stock Exchange composite trading. The stock has more than doubled this year. ‘Dead if This Leaks’ The unnamed AMD executive allegedly told Chiesi that there was a 99 percent chance the plant-spinoff agreement would be disclosed before earnings were announced — a prediction that came true, prosecutors said. On Oct. 7, 2008, AMD said it would offload its manufacturing arm as part of an $8.4 billion investment from the Abu Dhabi government. The shares jumped 8.5 percent that day. AMD reported earnings on Oct. 16, 2008. According to one of the criminal complaints, Chiesi discussed the AMD transaction with a co-conspirator not named as a defendant on Aug. 27, 2008. “You just gotta trust me on this,” Chiesi is quoted as saying. “Here’s how scared I am about what I’m gonna tell you on AMD.” Chiesi and the co-conspirator talk a little more, prosecutors said, and Chiesi states, “I swear to you in front of god, you put me in jail if you talk.” Later, the government said, she’s quoted as saying: “I’m dead if this leaks. I really am… and my career is over. I’ll be like Martha f—ing Stewart.” Chiesi has denied any wrongdoing. Abu Dhabi Globalfoundries owns former AMD factories in Dresden, Germany, and is building a new plant in upstate New York. While AMD remains Globalfoundries’ largest customer, manufacturing all its computer processors, the company is trying to sign up other chipmakers that are outsourcing production. That strategy puts it into competition with Taiwan Semiconductor Manufacturing Co. and United Micro Electronics Co. , the two contract manufacturers of chips. In September, the Abu Dhabi government agreed to buy Singapore-based Chartered Semiconductor Manufacturing Ltd. to combine it with closely held Globalfoundries. In July, Globalfoundries announced it had signed up STMicroelectronics NV as its first customer beyond AMD. Immigrant to CEO Ruiz’s career has spanned more than 30 years at some of the world’s biggest semiconductor makers. A Mexican immigrant, he worked at Texas Instruments Inc. and then Motorola Inc. , where he became the head of its chip unit. AMD founder Jerry Sanders hired Ruiz from Motorola in 2000, grooming him as a successor. Ruiz had the top job at AMD from 2002 until Globalfoundries was created. AMD is Intel Corp. ’s only major competitor in the $32 billion market for personal computer microprocessors. Under Ruiz, AMD shares advanced to $42.10 in February 2006, before declining as Intel stepped up competition. The stock reached a low of $1.80 in November 2008. The stock fell almost 6 percent on Oct. 28, a day after the person familiar said Ruiz was the AMD executive cited in the insider-trading documents. Ruiz received total compensation of $2.97 million in 2008, the year he left AMD. That included $1.12 million in salary and $1.36 million in option awards, according to the company’s proxy filing . He also was awarded a retirement bonus of $4.4 million and got a lump-sum payment of $3 million for successfully completing the Globalfoundries spinoff. To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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Detrimental Reliance Necessary ~ False SPIS Insufficient for Liability

November 1, 2009

“[131] I pause at this point to consider the involvement of the two real estate representatives in this transaction. They are not defendants and, hence, no evidence was tendered as to the standard of care they were required to perform. …

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Biggest real estate investment in U.S. history close to collapsing

October 27, 2009

billion for the Stuyvesant Town and Peter Cooper Village apartment complexes in 2006, the transaction marked the biggest real estate deal in U.S. history. Now, the owners are expected to let the New York City properties go into default within two or

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New Jersey Pays Goldman Sachs for Interest-Rate Swaps on Nonexistent Bonds

October 24, 2009

By Dunstan McNichol Oct. 23 (Bloomberg) — New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds that the state redeemed more than a year ago. The most-densely populated U.S. state is making the payments under an agreement made during the administration of former Governor James E. McGreevey in 2003, when New Jersey’s Transportation Trust Fund Authority sold $345 million in auction-rate bonds whose yields fluctuated with short-term interest costs. The agency finances road and rail projects. “This vividly shows the risk of entering into interest- rate swap agreements,” said Christopher Taylor , former executive director of the Municipal Securities Rulemaking Board in Alexandria, Virginia. “The world’s got to see what stupidity even the sophisticated investors like the transportation fund can get into.” While New Jersey replaced the debt with fixed-rate securities in 2008 after the $330 billion auction-rate bond market froze, the swap — in which two parties typically exchange fixed payments for ones based on floating interest rates — isn’t scheduled to expire until 2019. The state paid $940,000 under the agreement last month and a total of $11.4 million since the auction-rate bonds were redeemed. The expenditures come as the fund reaches its borrowing limit and Governor Jon Corzine , Goldman’s former chairman who was a U.S. senator when the contract was signed, seeks $400 million in budget reductions as tax receipts fall. Bond’s Life “The state has made it clear that true interest costs are measured over the life of bonds,” the New Jersey Treasurer’s office said in an e-mailed statement from spokesman Tom Vincz. “As this swap is applied as it was intended to be applied, with TTFA variable-rate bonds, true interests costs are projected to be below the average true interest costs for TTFA bonds,” the statement said, referring to the Transportation Trust Fund Authority by its acronym. “Unfortunately, Bloomberg misleadingly measured these costs over a brief window in time, which captured only the influences of the worst credit conditions in U.S. history.” Harvard Swaps Municipalities and universities across the U.S. have paid hundreds of millions to terminate swaps on variable-rate debt after interest costs, instead of climbing, fell to record lows in the worst credit crisis since the Great Depression. Harvard University last week disclosed it had given $497.6 million to investment banks to exit such agreements following similar terminations by New York’s Metropolitan Transportation Authority and the Oakland, California-based Bay Area Toll Authority. In New Jersey, the 3.6 percent fixed rate the trust fund is paying on the swap has pushed the cost to taxpayers of the original $345 million borrowing to 7.8 percent, the most the authority has paid since it was formed in 1985, according to records posted on its Web site. John McCormac, the Mayor of Woodbridge, N.J., state treasurer at the time of the 2003 deal, declined to discuss the issue in a telephone conversation today. “I have no recollection of anything,” he said. “Ask the treasurer.” Corzine spokesman Robert Corrales referred an inquiry today to the treasurer’s office for comment, and Goldman Sachs spokesman Michael DuVally referred to an earlier statement in which the bank said it is working with the state. Inheriting Swaps “This administration inherited a large swap portfolio and has worked over the last several years to terminate, reverse and prudently manage the derivatives to the benefit of the taxpayer,” the treasurer’s statement said. “This administration has initiated only two new swaps, which have been used to reverse pre-existing swaps and protect taxpayers from potential financial risks.” Payments on the swaps without underlying variable-rate bonds are draining money from a dwindling account that may not be able to support new projects because the $895 million in annual gasoline taxes and toll revenue dedicated to the transportation trust fund will be needed to pay debt service on $10.3 billion in debt. To help prop up spending, officials have suggested raising New Jersey’s 14.5 cents-a-gallon gasoline levy, the fourth- lowest among U.S. states, according to research by the Tax Foundation , a Washington, D.C.-based research organization. Pulaski Skyway New Jersey’s contract with Goldman Sachs Mitsui Marine Derivative Products L.P., a partnership of the bank and Japan’s Mitsui Sumitomo Insurance Group Holdings Inc. , allows the state to terminate the deal without penalty after 2011. Canceling before then would require a payment estimated at $37.6 million on Sept. 30, according to state records. The state’s payments on the swap in the past year have exceeded the $10 million budgeted to maintain the 76-year-old Pulaski Skyway , the 3-mile (4.8 kilometers) elevated road from Newark to Jersey City. “I’m sure there’s an explanation,” Corzine, 62, said during a brief interview as he left a contractors’ convention in New Brunswick, New Jersey, on Oct. 14. “They don’t just send money out.” “We believe treasury should continue to aggressively manage the termination, conversion and management of swaps that this administration inherited, while dealing with the realities of the most difficult credit conditions in history,” Corzine’s spokesman Steve Sigmund said in an e-mail. Cost Reduction “Through careful planning and prudent decision-making, we continue to seek out and find ways to reduce or minimize public finance costs supported by the budget and New Jersey taxpayers,” the treasury statement said. Corzine, a Democrat, is the only U.S. governor seeking re- election this year and tied in this month’s Quinnipiac poll with Republican Christopher Christie , 47, a former federal prosecutor. Each had about 40 percent, with a 2.8 percentage- point margin of error. New Jersey couldn’t reach acceptable terms when it tried to issue variable-rate bonds last year to replace the failed auction-rate securities hedged by the Goldman swap, the Office of Public Finance said in a three-page response to questions about the transaction. It is unfair to judge the ultimate performance of the 16-year agreement until it concludes in 2019, the agency said in the statement. “Cherry-picking one date in time for a net payment or net receipt of swap payment does not accurately or objectively reflect the true economics of the contract,” the office said in the e-mailed statement. Making Adjustment Goldman Sachs is working with officials to make adjustments in light of “changes in market conditions that have made the transaction less attractive,” spokesman Michael DuVally said in an e-mail. “The economics and risks involved in this transaction were fully understood when the authority decided to enter into this swap six years ago.” Acacia Financial Group Inc. , the Marlton, N.J.-based adviser on the fixed-rate bonds that replaced the auction securities, referred questions to the Office of Public Finance. “Decisions were made to proceed with the swap,” Vivian Altman , the trust fund’s adviser on the original debt issue in 2003, said in a phone interview. “I can’t speak to what discussions they had internally,” she said. “I would have no way of knowing. I just have no idea of what information they had been provided.” New Jersey, which Moody’s Investors Service called “one of the largest users of swaps in the municipal market,” has 28 such contracts outstanding on $4.4 billion worth of debt, according to a monthly valuation report. Trust Fund Agreement The trust fund agreement was made three years before Corzine became governor. Auction-rate obligations involved in the transaction were supposed to allow borrowers to realize short-term interest rates on long-term debt by offering the bonds for periodic resale. The market froze after banks that historically volunteered to buy unwanted securities stopped doing so during the global credit crisis. Kevin Willens , a managing director of Goldman and currently a director of the MSRB, which sets standards for banks and securities firms in the $2.8 trillion municipal market, presented the swaps proposal on the bank’s behalf, authority minutes show. Charts “described the success rates of swaps,” according to the minutes. Willens was not an MSRB director at the time. $9.9 Million New Jersey saved $9.9 million from 2003 to 2008 by issuing the auction-rate bonds instead of fixed-cost debt, the Office of Public Finance said in a report last year. The trust fund paid $4.5 million in penalty interest payments when the auction-rate market collapsed and some borrowers’ costs soared. After it failed to put together a sale of a different type of variable-rate bonds, New Jersey then issued 11-year, fixed-rate notes yielding 4.18 percent in August 2008, according to the Office of Public Finance. Refinancing the bonds cost $2.1 million, reducing the authority’s savings on the transaction to $3.3 million, state records show. Since then, the fund has paid almost four times that amount on a contract that hedges nothing. For New Jersey, the swap became “a tool for no purpose,” former regulator Taylor said. To contact the reporter on this story: Dunstan McNichol in Trenton at dmcnichol@bloomberg.net .

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Dubai World May Sell Bonds to Repay Maturing Nakheel Sukuk, Bankers Say

October 21, 2009

By Arif Sharif Oct. 21 (Bloomberg) — Dubai World , the state-owned holding company grappling with $40 billion of debt, may be able to sell bonds to repay loans, including a $3.5 billion Islamic bond due at year-end, two bankers familiar with the group’s plans said. Some of the money needed to settle the Islamic bond, or sukuk, of Dubai World’s real-estate unit Nakheel PJSC may be raised from a bond sale and the rest from local lenders, said the bankers, who declined to be identified because nothing has been decided yet. Some of Nakheel’s Middle Eastern bondholders may accept an offer to extend the bond’s maturity, they said. “Market sentiment has improved a lot,” said Abdul Kadir Hussain , chief executive officer of Mashreq Capital (DIFC) Ltd. , a Dubai-based fund management firm. Dubai will still “not only have to be pretty transparent about how the sukuk will be refinanced, but also what their strategy is to tackle the emirate’s entire debt situation,” he said. The cost of protecting against a default on Dubai’s bonds for five years has fallen 70 percent from a two-year high in February, ranking it between Lithuania and Lebanon, data compiled by Bloomberg show. A successful repayment of the Islamic bond, on which investors were concerned Nakheel may default after a slump in property prices, will make it easier for banks to reschedule $12 billion of Dubai World’s debt that mature during the next three years, the bankers said. $20 Billion Rescue Fund The decision to sell bonds will hinge in part on how much money Nakheel gets from a $20 billion rescue fund the government is raising, the bankers said. Both the fund and Dubai World’s creditors are seeking more disclosure on the company’s business plan, cash flow projections and its strategy to repay debt, they said. Creditors haven’t yet reached consensus on giving Dubai World more time to repay the loans, they added. Dubai will probably complete raising the second $10 billion for the support fund to help state-owned companies through the credit crisis by the end of next month, Mohammed Alabbar , a member of Dubai’s Executive Council said Oct. 9. A spokeswoman for Dubai World declined to comment. Credit-default swaps tied to Dubai’s bonds, or the cost to protect against default, have fallen to 288 basis points from 976 basis points on Feb. 17, according to CMA DataVision prices. “The government of Dubai is likely to be able to generate some demand from institutional investors in this region and internationally,” said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi PJSC. “The key will be how much demand exists and at what price.” Investor Roadshow Dubai World’s advisers, AlixPartners LLP, Deutsche Bank AG and NM Rothschild & Sons Ltd. have drawn up alternative plans to repay the sukuk depending on whether Dubai’s fund agrees to provide Nakheel with between $1 billion and $2 billion this year, the bankers said. The Government of Dubai will hold meetings with fixed income and Islamic investors in Asia, the U.A.E. and Europe starting Oct. 22, according to a banker involved in the transaction. The government is canvassing investor interest in the Dubai Civil Aviation Authority’s plan to sell bonds and pay down $1 billion of debt maturing next month, two bankers familiar with the transaction said Oct. 18. Dubai and its state-related companies borrowed $80 billion to help transform the emirate into a financial services and tourist hub. The seizure of global credit markets sparked concern the emirate will be unable to repay some of its loans. DP World, Nakheel Dubai World said Oct. 15 it expects to save more than $800 million in three years after completing a reorganization and cutting 12,000 jobs. The Dubai government-owned company controls DP World Ltd. , the world’s fourth-biggest port operator, developer Nakheel PJSC, which is building palm-tree shaped islands off the emirate’s coast, as well as Economic Zones World, an operator of business parks like Jebel Ali Free Zone. Dubai World had $59 billion in liabilities at the end of last year and assets of $100 billion, Nakheel told Nasdaq Dubai Aug. 20. Some $18 billion of Dubai World’s debt is with companies such as DP World which have enough cashflow to service their debt, two bankers said. The remaining $22 billion is the concern, they said. “We have the right organization size now for the current market,” Jamal Majid Bin Thaniah , Dubai World’s chief executive officer, said in an interview Oct. 15. The company has no “intentions at this point in time to sell businesses within Dubai World.” Dubai World and its advisers are negotiating with its lenders, which number more than 70 and include Abu Dhabi Commercial Bank PJSC and Emirates NBD PJSC , its two biggest creditors, a person familiar with the situation said last week. Other lenders to Dubai World include Credit Suisse Group AG , HSBC Holdings PLC , Barclays PLC , Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC , the person said. Representatives of Emirates NBD, HSBC, Credit Suisse, RBS and Lloyds declined to comment. Representatives for Abu Dhabi Commercial Bank and Barclays weren’t available to comment. To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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Bank of America Was Told U.S. Merrill Aid Would Boost Shares, E-Mail Shows

October 20, 2009

By David Mildenberg Oct. 20 (Bloomberg) — Bank of America Corp. signed off on its government-assisted purchase of Merrill Lynch & Co. after U.S. regulators said the deal might boost the shares, e-mails from two executives showed. Instead, the stock collapsed. “The chairman of the Federal Reserve indicated it would be structured in a manner such that BAC stock should go up when announced,” Chief Financial Officer Joe Price said in a Dec. 29 e-mail to executives of the Charlotte, North Carolina-based bank, including Chief Executive Officer Kenneth D. Lewis . Merrill, the world’s biggest broker, agreed to be acquired after more than $50 billion of losses and writedowns tied to the collapse of the subprime-mortgage market. By Jan. 8, a week after the deal was completed and before details were disclosed, federal officials changed their view of the purchase, according to an e-mail from former Bank of America Treasurer Jeff Brown . Fed and Office of the Comptroller of the Currency officials “assign high probability the market will ‘attack us’ after learning of the ‘government assistance’ to us,” Brown said in a Jan. 8 e-mail to Price. Brown reminded the regulators that “1) they forced us into this position and 2) they had provided every assurance of a positive market response to any action from their chairman to our chairman. They just got silent.” The U.S. provided $20 billion in fresh capital and a $118 billion backstop on loans and mortgage-based securities to shore up the purchase. Michelle Smith , a Fed spokeswoman, didn’t have a comment. 1,000 Pages The e-mails are among more than 1,000 pages of documents sent last week to the House Oversight Committee . Bloomberg News was provided a portion of what the committee received in its investigation of the Merrill acquisition. A hearing is scheduled Oct. 22 at which two Bank of America directors and former General Counsel Timothy Mayopoulos are to appear. “The strategic wisdom of the Bank of America-Merrill Lynch deal is now obvious to everyone,” bank spokesman Lawrence Di Rita said in an interview. “These documents and e-mails reveal the good faith deliberations among those who understood that first.” Lewis told the committee June 11 that Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson pressed him to complete the deal in December after the bank had considered canceling the transaction amid Merrill’s mounting losses. Bank of America shares tumbled 47 percent in six trading days, from $13.54 on Jan. 8 to $7.18 on Jan. 16 when the company announced its first quarterly loss in 17 years and the $20 billion in U.S. aid to absorb potential Merrill losses. The bank also disclosed that Merrill posted a $15.8 billion fourth- quarter loss, leading to questions about Lewis’s failure to alert shareholders before the transaction was approved. Committee’s Investigation Bank of America provided documents to the committee Oct. 16 after agreeing to forego its right to keep discussions with its lawyers confidential. The bank didn’t make the documents public. The documents include “talking points” prepared by the bank’s law firm to be used by Lewis for a conversation in late December with Paulson about Merrill’s worsening finances. The memo and Price’s notes suggest the bank consider lowering the price for Merrill if Bank of America couldn’t cancel the transaction. The deal took effect Jan. 1 without any repricing. More documents citing internal bank discussions said that incoming Treasury Secretary Timothy Geithner , then president of the Federal Reserve Bank of New York, and incoming National Economic Council Director Lawrence Summers endorsed guarantees to the bank. “Ben also stated that Geithner and, in addition, Larry Summers, were both on board with the transaction,” according to “talking points” for a board meeting distributed Dec. 22 by Brian Moynihan , the bank’s general counsel. Geithner and Summers took office after President Barack Obama was inaugurated on Jan. 20. Summers’ Role The Obama administration said Summers had no position on the plan. “Summers received occasional briefings by Federal Reserve officials during the transition, but did not make, review, or approve decisions regarding financial institutions during that time,” White House spokesman Matthew Vogel said in an e-mailed statement. Moynihan’s Dec. 22 e-mail introducing the talking points said some characterizations of what Paulson and Bernanke said “are from our notes so we may not have the exact thoughts correctly stated but we tried to catch the gist of the conversations.” Taxpayers ‘Foot Bill’ The merger reflected a collaboration led by “ Ken Lewis , Henry Paulson, Ben Bernanke , Timothy Geithner and Larry Summers,” said Kurt Bardella , spokesman for U.S. Representative Darrell Issa , top Republican on the panel. “As a result of this collaboration, the taxpayers ended up footing the bill so Bank of America didn’t have to absorb Merrill Lynch’s losses.” After being nominated as Treasury Secretary, Geithner “was recused from any issues involving individual banks, including Bank of America,” spokesman Andrew Williams said. “It was perfectly natural and appropriate that the incoming Treasury secretary would be kept apprised of key developments, but he was not making decisions for the government.” Lewis, 62, said this month he plans to resign at the end of the year and a six-member committee is seeking his replacement. Bank finance executives Moynihan and Gregory Curl are internal candidates considered contenders to succeed Lewis, according to a person familiar with the matter. The bank has named Price as a potential successor. Brown left the bank and works for GMAC Inc. Shareholders stripped Lewis of his chairman’s title in April, and regulators directed the bank in May to overhaul its board and risk management. Bank of America shares have rebounded since January, closing at $17.16 yesterday in New York Stock Exchange composite trading. Revenue from Merrill has been essential to offset losses from Bank of America’s credit card and housing businesses, Lewis told analysts last week. To contact the reporter responsible for this story: David Mildenberg at dmildenberg@bloomberg.net

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One Dozen Small Stocks Survive My Screen Tests: John Dorfman

October 19, 2009

Commentary by John Dorfman Oct. 19 (Bloomberg) — I have nothing against large companies, but my heart belongs to small-cap value stocks. As I see it, the chances of finding a gem in the rough are greater with small stocks. They are less followed by analysts and investors, so the opportunities haven’t been exhaustively picked over. Last week I screened the 2,131 U.S. stocks with a market value between $250 million and $2 billion, using these filters: — Five-year sales and earnings growth averaging 10 percent a year or better. — Debt less than 50 percent of stockholders’ equity. — Price-to-earnings ratio below 15, measured on both the actual earnings for the trailing four quarters and the estimated earnings for 2009. — Price-to-book ratio (stock price divided by corporate net worth per share) and price-to-sales ratio (stock price divided by per-share sales) both below two. Here’s a run-down, in alphabetical order, of the stocks that survived these screens. Aaron’s Inc. , formerly known as Aaron Rents Inc., operates a so-called rent-to-own business. The Atlanta-based company leases appliances and furniture to mostly low-income consumers. If their monthly payments hit a certain total, the customers own the item. If not, they return it when they are done renting it. The industry has been hit with complaints that center on the high ultimate cost of the items, and alleged high pressure tactics in sales and collections. Whatever one thinks of the industry, Aaron’s financial results are attractive. Sales have grown at a 16 percent annual clip the past five years, earnings at 18 percent. This year analysts think it will post record earnings of $1.99 a share. Consistent Earnings Growth Amedisys Inc. , located in Baton Rouge, Louisiana, provides home health-care services and operates walk-in surgery centers. Since 2000 it has increased its earnings each year except for a small drop in 2003. This year analysts expect a 47 percent earnings jump, to $4.86 a share. America’s Car-Mart Inc. operates car and truck dealerships in the South, serving mostly consumers with poor credit histories. That may seem like an iffy business model, but the company must be doing something right. The Bentonville, Arkansas, company posted higher earnings in eight of the past 10 years. Worrisome Transaction American Oriental Bioengineering Inc. , based in Shenzhen, China, sells pharmaceuticals derived from traditional Chinese medicines. Its sales and earnings numbers look fine, but I am concerned about a $70 million real estate purchase in Beijing it made last year. The company has said it plans to use the site as a convention and training center. The wisdom of the transaction has been questioned by analysts , including one at Piper Jaffray who has a negative rating on the stock. Amerigroup Corp., with headquarters in Virginia Beach, Virginia, runs managed-care programs for Medicaid recipients in 11 states. Medicaid is the joint federal and state program providing health care for poor people. Medicaid is a scary area because state and federal governments often face budget pressures to cut benefits. Yet, with the stock trading at less than seven times earnings and 0.25 times revenue, I think the risk-reward ratio looks good. Esterline Tecnhologies Corp. , discussed in last week’s column, makes controls for military and civilian planes, electronic warfare devices, and materials that can resist extreme temperatures. The Bellevue, Washington, company’s stock trades for just over book value and 11 times earnings. EZCorp., JDA Software Austin, Texas-based EZCorp Inc. runs a chain of pawn shops and makes payday loans. After two losing years in 2000 and 2001, its earnings have marched higher every year. Six of seven analysts who follow the stock recommend it. One possible cloud: Payday loans, the fastest growing part of the company’s business, are controversial and may come under increasing regulation. JDA Software Group Inc. , based in Scottsdale, Arizona, makes software used by supply chain managers and Internet commerce businesses. It met the valuation tests when I ran my screen, but narrowly misses a couple of them now. I would consider buying it on dips. Meadowbrook Insurance Group, Inc., out of Southfield, Michigan is an insurance agency that does risk-management consulting and reinsurance brokering among other things. The company has been profitable since 2002, and at less than book value the stock looks cheap. Ignore the Analysts Navigators Group Inc. , based in New York, writes marine, energy and construction-engineering insurance policies worldwide. This year should be its 10th straight year of profitability. Most analysts dislike the stock, but I find it appealing at 13 times earnings and 1.3 times book value. Powell Industries Inc., which I last recommended in this column in 2002, makes equipment used to transmit and regulate electrical power. Among its big customers are utilities, refineries, energy companies and transportation companies. A strong balance sheet, with debt only 6 percent of equity, is one of the draws for this Houston-based company. Rounding out the list is Sterling Construction Co., a civil engineering and construction company also located in Houston. It paves highways, builds bridges, constructs sewers and does other projects for government customers. As a sideline it distributes pet supplies, automotive accessories and lawn-and-garden products. Six of eight analysts tracking the stock recommend it. Disclosure note: For clients and personally, I own shares in Amedisys, Esterline and Powell Industries. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Dubai Civil Aviation Said to Plan Bond Sale to Refinance $1 Billion Debt

October 18, 2009

By Haris Anwar Oct. 18 (Bloomberg) — Dubai Civil Aviation Authority may issue bonds to refinance a $1 billion sukuk maturing next month, two bankers familiar with the transaction said. Dubai Civil Aviation hired UBS AG, Dubai Islamic Bank, Standard Chartered Plc and Bank of Tokyo-Mitsubishi UFJ Ltd. to manage the Islamic and conventional bond sale, according to the bankers who declined to be identified because details of the deal are private. The state-owned company raised $1 billion in 2004 through Dubai Global Sukuk FZCO. The Islamic bonds, also known as sukuk, mature on Nov. 4. The new issue may signal the return of Dubai state-owned firms to the public debt market after the real-estate slump caused by the global credit crisis dried up funding. Dubai International Capital LLC, a private equity investor controlled by the emirate’s ruler, is seeking to raise $550 million through a syndicated loan to repay existing debt, a banker familiar with the transaction said on Oct. 14. The emirate needs to repay $6.8 billion in debt during the fourth-quarter, including $3.52 billion by Nakheel PJSC, according to Deutsche Bank AG. Rating firms earlier this year downgraded Dubai state-owned companies on concern the sheikhdom may not have sufficient funds to support its struggling entities after the credit crisis. CDS Drop Dubai Civil Aviation’s floating-rate note was trading close to par value on Oct. 16, rebounding from 92.5 cents on a dollar on Feb. 11. Dubai’s credit default swaps protecting five-year bonds from default have fallen 70 percent since reaching their highest in at least two years in February. A decline signals improved perception of credit quality. The swaps have dropped 2 percent this month. Dubai borrowed $10 billion as part of a $20 billion bond program by selling debt to the United Arab Emirates’ central bank in February to help state-related companies raise cash amid the credit crunch. Dubai, the second-biggest of seven sheikhdoms that make up the U.A.E., and its companies earlier borrowed more than $80 billion to transform the economy into a tourist and financial services hub. The emirate may raise the second $10 billion tranche next month, Mohammed Alabbar , who heads the government committee evaluating the impact of the global credit crisis on Dubai, told CNN on Oct. 9. To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

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Gas Natural Agrees to Sell 64% Energia Del Pacifico Stake for $1.1 Billion

October 17, 2009

By Joao Lima and Dick Schumacher Oct. 17 (Bloomberg) — Gas Natural SDG SA , Spain’s largest natural gas company, agreed to sell its 63.8 percent stake in Empresa de Energia del Pacifico SA of Colombia for $1.1 billion as part of a plan to cut debt. Colinversiones SA, Inversiones Argos SA and Banca de Inversion Bancolombia SA will buy the stake in the Colombian power company by making a bid for 66.1 percent of EPSA’s stock at 9,164.84 Colombian pesos ($4.96) a share, Barcelona-based Gas Natural said today in a regulatory filing. Gas Natural has agreed to accept this offer and predicted the transaction will complete before year-end. Gas Natural this year finished the acquisition of Union Fenosa SA to add power generation plants and utility clients as it faces increased competition in its domestic gas market. The natural gas supplier is now trying to cut debt following the purchase of that Spanish utility and has targeted asset sales of 3 billion euros ($4.5 billion). “The proceeds obtained from the sale of EPSA will allow the company to improve its financial structure, meeting the objectives announced after the purchase of Union Fenosa,” Gas Natural said in the statement. With the sale of the stake in EPSA, Gas Natural said today that it has reached 2.3 billion euros in asset sales and debt reduction. Net debt increased to 22.1 billion euros at the end of June and the company aims to cut it to about 18 billion euros at the end of the year. Asset Sales, Debt Gas Natural’s shares have dropped 14 percent this year, cutting the company’s market value to 12.5 billion euros. The stock fell 0.1 percent yesterday to 13.99 euros. Cia. Colombiana de Inversiones SA , the Medellin, Colombia- based holding company known as Colinversiones, on Sept. 22 had said it was interested in Gas Natural’s stake in EPSA. EPSA is a Colombian electricity distributor and power generator with installed capacity of about 1,000 megawatts, according to Gas Natural. Gas Natural said it will remain present in the Colombian market through natural gas and electricity distribution businesses. Gas Natural on July 21 said it agreed to sell other units including gas distribution pipelines and it that also planned to sell 2,000 megawatts’ worth of combined cycle plants. It has received “various” offers from companies interested in those power plants, Gas Natural Chief Executive Officer Rafael Villaseca said July 29. To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net ; Dick Schumacher in London at dschumacher@bloomberg.net .

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Charles H. Green: How Risk Management Is Strangling Our Economy

October 16, 2009

Scenario 1.

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AB InBev Will Sell Eastern European Units to CVC for as Much as $3 Billion

October 15, 2009

By Andrew Cleary and John Martens Oct. 15 (Bloomberg) — Anheuser-Busch InBev NV agreed to sell beer brands in nine eastern European countries to CVC Capital Partners Ltd. for as much as $3 billion, reducing debt with its second asset sale to a buyout firm in a month. The world’s biggest brewer said it will get about 1.1 billion euros ($1.6 billion) in cash from CVC, which will also give AB InBev a six-year interest-bearing note worth about 300 million euros as a deferred payment obligation. Leuven, Belgium- based AB InBev will receive as much as $800 million in further compensation, depending on CVC’s return on investment. CVC is gaining assets including the Czech Republic’s Staropramen in the biggest leveraged buyout in continental Europe since Lehman Brothers Holdings Inc. filed for bankruptcy last year. AB InBev was created by the former InBev NV’s $52 billion purchase of Anheuser-Busch Cos. last year, the biggest deal ever in the brewing industry, which united brands from Budweiser to Stella Artois. “The disposals have been very fast, and the prices they’ve achieved haven’t deviated much from pre-crisis estimates,” Robert Jan Vos , an analyst at Fortis Bank Nederland NV in Amsterdam, said in an interview. “It won’t be very long until we see AB InBev back in the acquisition arena.” Vos has a “hold” rating on the shares. AB InBev’s managers, led by Chief Executive Officer Carlos Brito , receive bonuses when they reduce debt, and have said they would like to make more acquisitions. Shares of Mexico’s Grupo Modelo SAB have ben rising on speculation the Corona brewer may seek a merger with AB InBev. Three Buyouts The deal “enables us to exceed our stated commitment to achieve $7 billion in divestitures,” Brito said in the statement. The sale is expected to be complete by January. The brewer also has the right to make a first offer should CVC decide to sell the businesses. Today’s deal follows the brewer’s Oct. 7 announcement that it would sell the former Busch amusement parks to Blackstone Group LP for as much as $2.7 billion, also including deferred payments. In July, AB InBev sold its South Korean business for $1.8 billion to KKR & Co., with a provision granting the brewer the right to buy it back. Deferred payments and provisions for potential asset buybacks have helped the brewer “achieve decent prices,” according to Kris Kippers , an analyst at Petercam SA in Brussels, who has an “add” rating on AB InBev. “It aligns their interests with those of the buyer, and gives them an ongoing insight into how the business is performing. It also means CVC is assured of a nice exit,” he said by phone. Stock Rebound Shares of AB InBev rose 17 cents, or 0.5 percent, to 33.25 euros in Brussels trading as of 12:22 p.m. local time, and are set to close at their highest since May 2008. The stock has tripled since its Nov. 24 low of 10.32 euros, when AB InBev announced a rights offering to pay down Anheuser deal debt just as Lehman’s collapse roiled stock markets. CVC had talked with AB InBev since at least July as rival bidders including TPG Inc. dropped out. CVC got about $1 billion in senior debt from a group of banks to finance today’s deal. The acquired assets are located in Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia. Those beer markets are some of the world’s weakest. Weak Eastern Europe SABMiller Plc , AB InBev’s nearest rival, today said first- half European volumes fell 6 percent amid “depressed consumer spending” in markets including the Czech Republic and Romania. “I don’t think eastern Europe is quickly on the rebound, so getting those multiples in this market is pretty good,” Petercam’s Kippers said. “If you said last year they would have sold potentially $9.5 billion of assets at these prices, you would have been called a lunatic. And they’ve done it without selling big, strategic assets.” CVC will get the right to distribute other AB InBev brands in those countries, including Stella Artois and Beck’s, while AB InBev will retain the rights to brew and sell the Staropramen brand in Russia, Germany, the U.S. and U.K. At the time of the Anheuser deal, InBev said 40 senior executives, including Brito, will share 170 million euros of options if net debt falls to 2.5 times ebitda by the end of 2013. As of June 30, net debt had been cut to $53.1 billion, or 4.2 times ebitda as of June 30, down from 4.7 a year earlier. AB InBev’s statement gave figures in dollars for the transaction, though it said the terms of the deal were agreed to in euros. The brewer said the figures were calculated at an exchange rate of $1.4925 per euro. Barclays Plc and Lazard Ltd. advised AB InBev on the transaction. To contact the reporters on this story: Andrew Cleary in London at acleary7@bloomberg.net ; John Martens in Brussels at jmartens1@bloomberg.net .

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Bank of America Is Likely to Sell $800 Million Lehman Claim to Hedge Funds

October 8, 2009

By Josh Fineman and Christopher Scinta Oct. 8 (Bloomberg) — Bank of America Corp . is selling a claim with a face value of about $800 million that it holds against bankrupt Lehman Brothers Holdings Inc. , people familiar with the matter said. Hedge funds are likely the buyers of the claim, according to the people, who asked not to be identified because the transaction is private. Creditors from sovereign wealth funds to sports teams submitted more than 16,000 claims against Lehman before a Sept. 22 deadline. Morgan Stanley last month sold a $1.3 billion Lehman claim to several different investors for 38 cents on the dollar and Credit Suisse Group AG was trying to sell a $1 billion claim. Lehman claims with similar terms are currently selling for about 37 cents, the people said. The largest claim Lehman faces, for at least $48.8 billion, was filed by Wilmington Trust Co. as indenture trustee for various Lehman senior notes, according to Lehman claim administrator EPIQ Systems Inc. Wilmington Trust said its claim may be as much as $73.2 billion. Shirley Norton , a Bank of America spokeswoman, and Lehman spokeswoman Kimberly Macleod declined to comment. Creditors of a bankrupt company have to wait until after a bankruptcy plan is confirmed by the court to receive distributions, so some sell their claims to get paid faster. Lehman, once the fourth-largest investment bank, filed the largest bankruptcy in U.S. history, listing assets of $639 billion in its petition in September 2008. The New York- based company said it had $613 billion in debt. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: Joshua Fineman in New York at jfineman@bloomberg.net ; Christopher Scinta in New York bankruptcy court at csinta@bloomberg.net .

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GM Saturn Shutdown: Automaker To Shut Down Brand After Penske Walks Away

September 30, 2009

DETROIT — General Motors Co. said Wednesday it would shut down its Saturn brand after an agreement with Penske Automotive Group Inc. to acquire it fell apart. Penske, citing concerns of whether it could continue to supply vehicles after a manufacturing contract with GM ran out, ended talks with GM Wednesday to acquire the brand. GM CEO Fritz Henderson said in statement that Saturn and its dealership network will be phased out. “This is very disappointing news and comes after months of hard work by hundreds of dedicated employees and Saturn retailers who tried to make the new Saturn a reality,” Henderson said in a written statement. “PAG’s announcement explained that their decision was not based on interactions with GM or Saturn retailers.” In a statement, the Bloomfield Hills, Mich.-based auto retailer says an agreement with another manufacturer to continue producing Saturn vehicles after GM stopped making them fell through, leading Penske to terminate talks with GM. Penske said it negotiated terms and conditions to make Saturn cars with another manufacturer, but that company’s board of directors rejected the agreement. Penske spokesman Anthony Pordon would not identify the other manufacturer. “Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction,” the company said in a statement. In June, GM and Penske agreed to take over the Saturn brand and related dealerships, although GM would produce the vehicles for a limited period of time. GM said Saturn vehicle owners can still go to their Saturn dealer for service and would be able to go to a certified GM dealer for service once Saturn dealerships are closed. It was expected that GM would announce the completion of Saturn’s sale to Penske in the coming days. Share of Penske fell $1.93 to $17.25 in after hours trading. They rose $1.32, or 7.4 percent to $19.18 in regular trading Wednesday.

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Xerox to Buy Affiliated Computer Services for $5.8 Billion in Cash, Stock

September 28, 2009

By Katie Hoffmann Sept. 28 (Bloomberg) — Xerox Corp. agreed to buy Affiliated Computer Services Inc . in a deal valued at about $5.8 billion, making its biggest purchase to shift to technology services as sales of its printing equipment drop. The acquisition will help triple sales from services to about $10 billion, Xerox said today in a statement. The total price of the cash-and-stock deal was about 34 percent more than Dallas-based Affiliated Computer’s stock before today’s trading. Chief Executive Officer Ursula Burns , who took over in July, is increasing Xerox’s debt and more than doubling the workforce, sending the stock down and shaving about 10 percent off the purchase price. Her predecessor, Anne Mulcahy , helped Xerox avoid bankruptcy this decade by paring debt, exiting unprofitable businesses and shedding jobs . “It’s going to take a Herculean effort to integrate these two companies,” said Peter Falvey , a managing director at Revolution Partners LLC in Boston. “There is significant execution and integration risk. It’s a very bold bet.” Xerox, based in Norwalk, Connecticut, fell $1.30, or 14 percent, to $7.68 on the New York Stock Exchange at 4:15 p.m., bringing the per-share value of the transaction to about $56.50, compared with $63.11 before today’s trading. Affiliated Computer rose $6.61, or 14 percent, to $53.86, the biggest jump in 2 1/2 years. Affiliated Computer Chairman Darwin Deason , the company’s founder, will become one of Xerox’s largest shareholders. He will receive about $800 million for his stake, including cash, Xerox shares and about $300 million worth of convertible stock. Government Contracts The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000. “With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox and report to Burns, 51. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years. Credit-Rating Cut? Xerox will pay $18.60 a share in cash and 4.935 shares for every Affiliated Computer share, amounting to about $56.50, based on today’s closing prices. Xerox also will assume about $2 billion in debt. Xerox had $1.22 billion in cash and cash equivalents at the end of last quarter, and about $6.7 billion in long-term debt. Standard & Poor’s said today it may cut Xerox’s BBB credit rating , citing the increase in debt. The rating is two steps above junk. Mulcahy, who took over in 2001, had brought down the company’s debt from more than $18 billion the year before she took over. She cut at least 20,000 jobs to revive Xerox after the bursting of the technology bubble left Xerox with mounting borrowings and its first annual loss in five years. Under Mulcahy, Xerox stopped making personal copiers and started focusing on laser printers, as well as color printing. Earlier this month, Xerox said it would begin selling digital printers for packaging and labels, aiming to tap a new market. Services Acquisitions Deason said in the statement that he is “optimistic” about the combined company’s future and that he plans to remain a “long-term” investor. In 2007, Deason and Cerberus Capital Management LP failed in an attempt to buy Affiliated Computer for $6.2 billion. The company’s independent directors alleged that Deason hampered their attempts to find better offers, a squabble that resulted in them resigning. The recession may have hastened Xerox’s decision to expand in services as companies curbed spending for its equipment, said Falvey, whose investment bank worked with Xerox on a prior deal. This month, Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion to expand into computer services. Last year, Hewlett-Packard Co. bought Electronic Data Systems Corp. for $13.2 billion in a similar deal. ‘More Horizontal’ “There’s just no question that some of these big guys are looking to become more horizontal,” said Falvey. Computer Sciences Corp. and some Indian outsourcing companies may become targets, he said. Computer Sciences, the manager of networks for NASA and the U.S. Navy, rose $2.41, or 4.8 percent, to $53.20 on the New York Stock Exchange. Cognizant Technology Solutions Corp., another provider of consulting and computer services, gained 84 cents, or 2.2 percent, to 38.65 on the Nasdaq Stock Market. JPMorgan Chase & Co., Blackstone Group LP and Simpson Thacher & Bartlett LLP are advising Xerox on the transaction, and Citigroup Inc. and Cravath, Swaine & Moore LLP are working with Affiliated Computer. Evercore Partners Inc. and Ropes & Gray LLP are counseling a special committee of Affiliated Computer’s board. To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Xerox to Buy Affiliated Computer Services for $5.8 Billion in Cash, Stock

September 28, 2009

By Katie Hoffmann Sept. 28 (Bloomberg) — Xerox Corp. agreed to buy Affiliated Computer Services Inc . in a deal valued at about $5.8 billion, making its biggest purchase to shift to technology services as sales of its printing equipment drop. The acquisition will help triple sales from services to about $10 billion, Xerox said today in a statement. The total price of the cash-and-stock deal was about 34 percent more than Dallas-based Affiliated Computer’s stock before today’s trading. Chief Executive Officer Ursula Burns , who took over in July, is increasing Xerox’s debt and more than doubling the workforce, sending the stock down and shaving about 10 percent off the purchase price. Her predecessor, Anne Mulcahy , helped Xerox avoid bankruptcy this decade by paring debt, exiting unprofitable businesses and shedding jobs . “It’s going to take a Herculean effort to integrate these two companies,” said Peter Falvey , a managing director at Revolution Partners LLC in Boston. “There is significant execution and integration risk. It’s a very bold bet.” Xerox, based in Norwalk, Connecticut, fell $1.30, or 14 percent, to $7.68 on the New York Stock Exchange at 4:15 p.m., bringing the per-share value of the transaction to about $56.50, compared with $63.11 before today’s trading. Affiliated Computer rose $6.61, or 14 percent, to $53.86, the biggest jump in 2 1/2 years. Affiliated Computer Chairman Darwin Deason , the company’s founder, will become one of Xerox’s largest shareholders. He will receive about $800 million for his stake, including cash, Xerox shares and about $300 million worth of convertible stock. Government Contracts The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000. “With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox and report to Burns, 51. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years. Credit-Rating Cut? Xerox will pay $18.60 a share in cash and 4.935 shares for every Affiliated Computer share, amounting to about $56.50, based on today’s closing prices. Xerox also will assume about $2 billion in debt. Xerox had $1.22 billion in cash and cash equivalents at the end of last quarter, and about $6.7 billion in long-term debt. Standard & Poor’s said today it may cut Xerox’s BBB credit rating , citing the increase in debt. The rating is two steps above junk. Mulcahy, who took over in 2001, had brought down the company’s debt from more than $18 billion the year before she took over. She cut at least 20,000 jobs to revive Xerox after the bursting of the technology bubble left Xerox with mounting borrowings and its first annual loss in five years. Under Mulcahy, Xerox stopped making personal copiers and started focusing on laser printers, as well as color printing. Earlier this month, Xerox said it would begin selling digital printers for packaging and labels, aiming to tap a new market. Services Acquisitions Deason said in the statement that he is “optimistic” about the combined company’s future and that he plans to remain a “long-term” investor. In 2007, Deason and Cerberus Capital Management LP failed in an attempt to buy Affiliated Computer for $6.2 billion. The company’s independent directors alleged that Deason hampered their attempts to find better offers, a squabble that resulted in them resigning. The recession may have hastened Xerox’s decision to expand in services as companies curbed spending for its equipment, said Falvey, whose investment bank worked with Xerox on a prior deal. This month, Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion to expand into computer services. Last year, Hewlett-Packard Co. bought Electronic Data Systems Corp. for $13.2 billion in a similar deal. ‘More Horizontal’ “There’s just no question that some of these big guys are looking to become more horizontal,” said Falvey. Computer Sciences Corp. and some Indian outsourcing companies may become targets, he said. Computer Sciences, the manager of networks for NASA and the U.S. Navy, rose $2.41, or 4.8 percent, to $53.20 on the New York Stock Exchange. Cognizant Technology Solutions Corp., another provider of consulting and computer services, gained 84 cents, or 2.2 percent, to 38.65 on the Nasdaq Stock Market. JPMorgan Chase & Co., Blackstone Group LP and Simpson Thacher & Bartlett LLP are advising Xerox on the transaction, and Citigroup Inc. and Cravath, Swaine & Moore LLP are working with Affiliated Computer. Evercore Partners Inc. and Ropes & Gray LLP are counseling a special committee of Affiliated Computer’s board. To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Lone Star Funds Plans Offering of $239 Million in Subprime Mortgage Bonds

September 22, 2009

By Sarah Mulholland and Jody Shenn Sept. 22 (Bloomberg) — Lone Star Funds, the Dallas-based investment firm, plans to sell $239 million of securities backed by subprime mortgages, according to three people familiar with the transaction. The mortgages were purchased from CIT Group Inc., the New York-based lender, and have an average age of 33 months, according to a document obtained by Bloomberg News. Bank of America Merrill Lynch is underwriting the bonds. Ed Trissel, a spokesman for Lone Star, declined immediate comment. To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net ; Jody Shenn in New York at jshenn@bloomberg.net

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