Posted Sep 22nd 2008 2:00PM by Tom Taulli Filed under: Deals
In the current market, it's certainly nice to be Warren Buffett. Many companies are looking for cash infusions, and of course, are making calls to the dealmaking guru.
So, recently Buffett reached a deal to purchase Constellation Energy Group (NYSE: CEG), which operates a variety of energy assets such as nuclear power plants, for $4.7 billion. To do this deal, Buffett used his MidAmerican Energy Holdings Co. vehicle, of which Berkshire Hathaway (NYSE: BRK.A) owns 80.5% of the common stock.
As should be no surprise, Buffett wasn't the only player interested in the deal. In fact, KKR, TPG and Electricité de France (EdF) made a bid for Constellation as well and were actually willing to offer 32% more.
But Constellation rejected the bid.
Not long ago this would have been an attractive bid, but in light of the credit crunch and botched deals, private equity firms have gotten a black eye.
Regulatory approval is also problematic, especially with the involvement of French based EdF. Although, Buffett has a track record as a long-term investor, which should allay fears.
Besides, Buffett quickly invested $1 billion into Constellation so as to stabilize things as the recent financial turmoil wreaked havoc on the company. In other words, he has a lot of leverage in this deal – even if rivals put together much higher bids.
Posted Jul 11th 2008 8:30AM by Tom Taulli Filed under: Deals
When it comes to a mega M&A deal that involves an old-line company and a founding family, Warren Buffett is often on speed-dial. For example, his firm, Berkshire Hathaway (NYSE: BRK.A), provided $4.4 billion in financing for the Wrigley Co. (NYSE: WWY) buyout.
Now,Warren is plunking down some more cash on another big deal: Dow Chemical Co's (NYSE: DOW) $18.8 billion cash purchase of Rohm & Haas Co. (NYSE: ROH). In this case, the contribution comes to about $3 billion in the form of a convertible preferred structure, which has a nice 8.5% coupon rate. As a result, Berkshire will become Dow's largest shareholder.
Yes, the US economy continues to be bleak and there is lots of fear. But for long-term investors such as Warren Buffett, this is an ideal time to pick up juicy opportunities.
In fact, this is evidence that the smart money sees lots of value from M&A deals – especially transformative ones. Then again, in order to compete on a global scale, there is a need for economies of scale.
For the most part, Dow focuses on petroleum-based chemicals. As for Rohm & Haas, it deals primarily with adhesives, personal care products, paints and so on. In other words, Dow is trying to find ways to diversify things.
However, the deal for Rohm & Haas is no slam dunk. It's not easy to make such a transaction in a tough economic environment. Plus, Dow is paying a massive premium – thus setting a high bar for performance.
Overnight, Belgian newspaper De Standaard wrote that, based on its sources, Warren Buffett backs an InBev buy-out of Anheuser-Busch (NYSE: BUD).
Is it any wonder? BUD can try to greatly improve its earnings on its own, but with 50% of the US beer market, that may be hard. It can hope that buying the piece of Mexican brewer Grupo Modelo that it does not already own will help profits. More likely it will increase debt or dilute current shareholders.
BUD's problem is that its shares may never see $60 again. They have risen above that on the InBev offer. A look at the company's long-term shock chart shows it has never been this high before.
If Buffett makes his backing of the InBev offer public, most of the BUD investors are likely to follow. He will have done all of them a favor.
Douglas A. McIntyre is an editor at 247wallst.com.
It seems that luxury really is immune to a slowing economy, despite all the debates for and against this notion. If not, you would never know it if you read about NetJets. This is a fractional ownership plan operation of private jets that owned by none other than Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) The fractional private jet owner has announced an expansion plan.
While fractional ownership may be a luxury to the "nth degree," it often does actually make sense for many. When millions (or billions) of dollars are on the line, it gets pretty simple to justify the expense. Private equity executives and employees
Not only is NetJets expanding, it's expanding in Ohio where it has 2,022 employees along with Flight Safety International. It has decided to not only keep its NetJets campus in Columbus, Ohio, it has decided to invest more than $200 million to build a campus there that will create an additional 810 jobs there.
Isn't Ohio one of the top foreclosure states? It sounds like there might at least be 810 more houses that won't get foreclosed on around Columbus, Ohio.
This morning we have several pieces that are key for buyout and private equity investors alike. Deals are continuing as you will see below, but they are not as traditional in public to public deals, and private equity deals will be looking different than 2007 (duh!). Here is a digest of some of the deals:
Nationwide Financial Services, Inc. (NYSE: NFS) has received a buyout offer from its parent company, which already controls the company via a Class B share ownership. This will end up being a mutual insurance company again rather than a stock insurance company. At least that is the case if it agrees to be bought.
The Blackstone Group, L.P. (NYSE: BX) posted earnings this morning that were under estimates and actually were a net loss after charges. You'll want to see the comments from Steve Schwarzman, because this will show you the tone for 2008 in private equity land. At least they have a good dividend now.....
The rumors or speculation surrounding Sprint Nextel Corp. (NYSE: S) are continuing, yet it is having almost no net impact on the stock. Speculators have been noting Carlos Slim of Mexico may want to bundle this one or that even Deutsche Telecom (NYSE: DT) may want to bundle it up either in a buyout or in a strategic investment of sorts.
Shares of Greenbrier Cos. (NYSE: GBX) are up more than 20% today after famed activist investor Carl Icahn disclosed that he had acquired a 9.5% stake in the company.
According to the 13-D filed with the SEC: "The Reporting Persons acquired their positions in their Shares in the belief that they are undervalued. On February 1, 2008, Representatives of the Reporting Persons notified the Chief Executive Officer of the Issuer that the Reporting Persons acquired the Shares and that the Reporting Persons are interested in having discussions with the Issuer about a possible business combination of the Issuer and ARI."
Mr. Icahn also owns a 53.7% stake in American Railcar Industries (NASDAQ: ARII), whose shares popped more than 17% on the news that Icahn is pushing for some sort of alliance between the two companies.
It's interesting that Icahn is not the only super-investor who sees potential in rail-related companies. Warren Buffett has also been investing heavily in the railroad industry.
For an excellent discussion of the compelling rationale behind these investments, check out this piece from Michael Brush.
Posted Feb 1st 2008 8:45AM by Jon Ogg Filed under: Deals
General Electric Company (NYSE: GE) might be getting to look into the eyes of private equity quite a bit closer now. Lee Equity Partners has brought on Robert C. Wright, Vice Chairman and Director of G.E., to serve the firm in the role of Senior Advisor.
Audible Inc. (NASDAQ: ADBL) is being downgraded today to "Hold" from "Buy" at Citigroup, although this is just after the run-up from the acquisition announcement and isn't really indicative of anything besides the exit call.
Keeping up with Rio Tinto plc (NYSE: RTP) is starting to look like counting the votes in the Iowa caucus. This merger goal and action is changing daily. It is obvious these metals and mining firms are trying to consolidate into just a few major international players so they can control the supply side of the equation to influence prices. Is that a conspiracy theory? Remember, OPEC already does that.
It's no secret that most mergers and acquisitions fail to create value. The Wall Street Journal's "Manager's Journal" takes a look at a common problem with mergers: But if the past is a guide, markets will focus on assets, portfolios and business synergies and overlook a key to whether the deal is successful: people.
People issues are often the root of failed deals, our research shows. That is because they are frequently an afterthought in the frenzy of a deal. Dealmakers gather reams of financial, commercial and operational data. But they often pay scant attention to what we call human due diligence -- understanding the culture of an organization, the roles that individuals play, and the capabilities and attitudes of its people.
This is certainly the strategy of Warren Buffett, whose conglomerate Berkshire Hathaway (NYSE: BRK.A) has grown successfully by focusing on acquisitions with strong management that wants to stay on. Berkshire avoids integration/people problems by integrating new companies as little as possible.
Given the importance of relationships in the outcome of deals, you have to wonder if some of the more contentious buyouts are doomed to fail. For instance, Finish Line's (NASDAQ: FINL) acquisition of Genesco (NYSE: GCO): When Genesco reported a bad quarter, Finish Line suggested that it might attempt to back out of the proposed merger agreement. Now lawsuits and rhetorics are flying and shares of Finish Line are scraping five-year lows. It raises the question: If the merger does end up being completed (possibly because Finish Line has no choice), will these people be able to work together?
For a list of other deals that could find themselves struggling because of people problems, check out Private Equity Deals that have Hit Snags. If consummation isn't smooth, then integration isn't likely to be either.
Warren Buffett is considering the purchase of a substantial minority share of Bear Stearns Companies (NYSE: BSC), according to The New York Times. Bear Stearns is holding talks that could result in the sale of 20% of the company. Other potential investors include Bank of America (NYSE: BAC) and the China Construction Bank.
Bear Stearns has been hit hard by the mortgage crisis and problems in the credit markets over the last few months. From early April to mid-August, Bear Stearns stock lost nearly a third of its value, falling from over $157 to $103 per share. In June, two Bear Stearns funds that made big bets on mortgage-backed securities were closed after suffering heavy losses.
Bear Stearns' CEO, James E. Cayne, reportedly demands a high premium for outside investors, as much as 40% above the public share price. But given the problems the company has been having, and the doubts that exist about its viability, Cayne would be wise to sell to Buffett at the market price. He may even want to give him a discount, given that a Buffett stake would send a very strong signal that Bear Stearns is here to stay.
Not surprisingly, Bear Stearns shares are up sharply on the news, closing at $123, up $8.76 or 7%.
One of the dirty little secrets of Wall Street has been that mergers and acquisitions destroy value for the shareholders of the acquiring company the vast majority of the time. Companies overestimate synergies, overpay for companies, and then have the dreaded "integration problems."
But according to Bain Capital management consultant David Harding, there may be a solution to that problem: He has found that by retaining key employees at acquired companies, and giving them the leeway to manage as they had when their companies were independent.
This isn't a surprising finding. Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) is one of the few successful conglomerates out there. It has added value through acquisitions by always retaining top-level management, and given the incentives to run the business as though it were the only source of income for their families for the next 100 years.
It's funny to see private equity big shots announcing their "findings" about acquisition strategies, even though it's already been common sense to people like Warren Buffett for decades. After all, wouldn't it make sense to keep on the management of a successful company?
In the second post of my new feature Serious Money: AIG, ALL, CB, HIG, MET, ORI - cheap insurance, after considerable review, The Allstate Corp. (NYSE: ALL): came out on top, looking like the bargain of the group. It appears such a bargain that I would think Berkshire Hathaway (NYSE: BRK.A) should be looking at parting with some of its cash to buy it. Allstate's closing stock price Wednesday was $59.86; the following were its stated metrics:
Dividend Yield: 2.52%
Price-to-sales ratio - P/S: 1.06
Price-to-book ratio - P/B: 1.09
Price-to-cash-flow - P/CF: 7.53
Return-on-invested capital - ROIC: 20.1%
Price-to-earnings ratio - P/E: 7.64
Everything about Allstate that I have been able to find indicates that this stock is screaming "Buy me, buy me" and could be acquired. It is capitalized at a little over $37 billion (large but still manageable) and has a long term debt-to-equity ratio of 0.2 compared to Berkshire's 0.3. Furthermore, Berkshire's ROIC is only 9.66 currently - half that of Allstate. Given that Allstate is a direct seller of insurance through its own network of agents, a model not unlike Berkshire's other insurance companies, it seems like Warren Buffett should be looking in this direction. This would reduce cash which is a drag on earnings and put it to good use with immediate benefits.
BloggingBuyouts is provided for informational purposes only. Nothing on the service is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. The contributors who provide the content of BloggingBuyouts may, from time to time, hold positions in the securities discussed at the time of writing and they may trade for their own accounts. Such holdings will be disclosed at the time of writing. By using the site, you agree to abide to BloggingBuyouts' Terms of Use.
BloggingBuyouts is the best resource for news, opinion, and research on the least understood, most powerful force driving financial markets today -- private equity investing. Michael Rainey, editor.
For more coverage of America's favorite publicly traded stocks, check out BloggingStocks
In the current market, it's certainly nice to be Warren Buffett. Many companies are looking for cash infusions, and of course, are making calls to the dealmaking guru.
When it comes to a mega M&A deal that involves an old-line company and a founding family, Warren Buffett is often on speed-dial. For example, his firm, 
