M&A - A Weekly Recap

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In a vibrant week for deals, several billion-dollar acquisitions were announced, cutting across continents and sectors.

The week opened with the news that Allied World Assurance Co. Holdings AG and Transatlantic Holdings Inc. are combining to create a global leader. The all-stock deal is structured as a merger of equals.

V.F. Corp. Monday said it is acquiring Timberland Co. to enhance its footing in Outdoor & Action Sport segment. The name behind brands such as Wrangler, North Face and Vans expects the deal to add to earnings in 2011.

Meanwhile, LM Ericsson Telephone Co. has agreed to acquire Telcordia Technologies, Inc. to enhance its software and service support offerings.

Other companies that hit the deal scene this week include Energy Transfer Equity, L.P., which Thursday announced a definitive merger agreement to acquire Southern Union Co. and New Zealand's Reynolds Group Holdings Ltd., which has offered to buy Graham Packaging Co.

Transatlantic, Allied World Assurance to merge

Specialty insurer Transatlantic Holdings Inc. (TRH) Sunday said it has signed a definitive merger agreement with Switzerland-based Allied World Assurance Co. Holdings AG (AWH) to create a leading, global specialty insurance and reinsurance firm. The deal is estimated to value Transatlantic at $3.2 billion.

The transaction is structured as a merger of equals. Shareholders of Transatlantic will receive 0.88 Allied World common shares for each of their Transatlantic common shares.

Following the merger, Transatlantic shareholders will own about 58 percent of the combined company, with Allied World shareholders owning the remaining.

TRH closed on Monday at $48.19, higher than Friday's close of $44.01, on 4.3 million shares. However, AWH settled at $55.44, compared to the previous close of $58.07, on 2.03 million shares.

V.F. to acquire Timberland

V.F. Corp. (VFC), the maker of Wrangler jeans, Monday agreed to acquire smaller rival Timberland Co. (TBL) for $43 per share in cash. The deal has a total enterprise value of about $2 billion, net of cash acquired.

The offer price represents a 43.4 percent premium to Timberland's closing stock price of $29.99 in the previous session. The deal is expected to close in the third quarter.

The purchase is expected to boost VF's outdoor & action sports business to 50 percent of total revenues, with the addition of the Timberland and Smartwool brands to its portfolio, which already includes The North Face, Vans, JanSport, Reef, lucy, Eastpak, Napapijri and Eagle Creek.

The acquisition is expected to add $0.25 per share to VF's earnings in 2011 and $0.75 per share in 2012, inclusive of acquisition costs and other related expense.

VF's Chief Executive Officer Eric Wiseman told Bloomberg in a telephone interview that the deal makes compelling strategic and economic sense.

Moody's Investors Service has affirmed VF's senior unsecured ratings at A3 as well as its Prime-2 commercial paper rating. The rating outlook remains stable.

"We believe the acquisition of the well recognized Timberland brand will further enhance the position of VF's Outdoor & Action Sport segment which already includes brands such as The North Face and Vans. The acquisition will improve VF's overall diversification, as Timberland significantly enhance VF's position in the footwear category," Moody's said.

Additionally, Moody's noted that Timberland currently generates majority of its revenues outside North America which the ratings agency considers as a positive. "We consider acquisition integration a core competency of VF and we expect the company will be able to successfully integrate this acquisition," it said.

VFC closed Monday's regular trade at $101.01, up from the prior close of $91.80, on 4.21 million shares.

Meanwhile, TBL surged on the news, settling at $43.20 on 22.51 million shares, compared to the previous session's close of $29.99 on 739,100 shares.

Horizon acquires APR Energy

Horizon Acquisition Co. Plc (HZN.L) Monday said it has acquired APR Energy, along with its service company Falconbridge Services Llc, for $855 million in a cash and stock deal. The company paid $359 million in cash and $495 million in its shares.

APR has a key position in the global market for gas and diesel fired temporary power plants. It is principally focused on emerging markets, where demand for temporary power solutions is strong.

HZN.L closed Friday at 950 pence, up 1.75 pence or 0.18 percent, on 1,187 shares and the shares were temporarily suspended from listing. Horizon will be renamed APR Energy Plc and is expected to be re-admitted on the London Stock Exchange by the end of September.

Honeywell to buy EMS Technologies

Diversified conglomerate Honeywell International, Inc. (HON) agreed Monday to acquire communication equipment maker EMS Technologies, Inc. (ELMG) for $33 per share in cash, or about $491 million, including net cash.

The offer represents a 33 percent premium to EMS' closing stock price of $24.80 in the previous trading session.

The deal is expected to enhance Honeywell's offerings in mobile computing technologies and satellite communications within its Automation and Control Solutions division and Aerospace segment. The acquisition is scheduled to close in the third quarter.

Honeywell expects the deal to be dilutive in 2011 by three to four cents, and accretive in 2012.

HON settled Monday at $55.71, compared to the previous close of $55.53, on 3.15 million shares.

ELMG surged on the news to close at $32.80 on 5.64 million shares, compared to the previous close of $24.80 on 105,400 shares.

Wendy's/Arby's to sell Arby's

Fast food chain Wendy's/Arby's Group, Inc. (WEN) has agreed to sell most of Arby's Restaurant Group, Inc. to a buyer formed by private equity firm Roark Capital Group for about $430 million. The company will retain an 18.5 percent ownership interest in the business.

Wendy's/Arby's will receive about $130 million of cash at closing and the buyer of the second largest quick-service sandwich chain in the U.S. will assume about $190 million of debt. The deal is also expected to trigger an income tax benefit of $80 million to Wendy's/Arby's.

It was in January that Arby's, which specializes in slow roasted and freshly sliced roast beef sandwiches, began exploring strategic alternatives.

Meanwhile, Moody's Investors Service said the ratings and outlook for Wendy's / Arby's Restaurants, LLC would not be affected by the sale of Arby's and the outlook remains developing.

The announcement appears to be a neutral event and the ratings and outlook will be revisited after the transaction is consummated and the terms and conditions are finalized, the ratings agency said. If the sale is consummated as currently proposed, the ratings would likely be affirmed with a stable outlook, Moody's added.

WEN closed Monday at $4.56, up from the prior close of $4.52, on 9.91 million shares.

Gerber Scientific to be bought by Vector Capital

Integrated automation equipment maker Gerber Scientific, Inc. (GRB), which was nearing the final stages of a restructuring, Monday said it has agreed to be acquired by funds affiliated with technology investor Vector Capital for about $281.8 million in cash.

The $11 per share offer marks a 35 percent premium to Gerber Scientific's closing price of $8.12 on June 10. Additionally, each shareholder will receive for every share a non-transferable right to receive contingent cash payments at future times on some conditions. The transaction is expected to close in the second half of the year.

GRB shares surged on the news to close Monday at $10.99 on 23.11 million shares.

Avis Budget to buy Avis Europe

Vehicle rental operator Avis Budget Group, Inc. (CAR) Tuesday said it agreed to acquire its licensee UK-based car rental company Avis Europe Plc (AVE.L) for about $1 billion. Avis Budget is already competing with Hertz Global Holdings, Inc. (HTZ) to buy Dollar Thrifty Automotive Group, Inc. (DTG).

Avis Budget will pay 3.15 pounds for each Avis Europe share, representing a premium of around 60.2 percent over its stock price on Monday. The acquisition is scheduled to close in October.

The deal will give Avis Budget increased presence in international markets, including India and China, and is expected to be accretive to its earnings per share on a pro-forma basis with synergies. It is expected to strengthen the company's growth opportunities with multi-national corporate clients.

After the announcement was made, Moody's Investors Service affirmed the B1 Corporate Family Rating and Probability of Default Rating of Avis Budget, reflecting the "highly complementary strategic fit" between the North American car rental operations of Avis and the European operations of Avis Europe.

Moody's expects "the proposed financing structure of the transaction, combined with $30 million in cost savings and Avis Europe's current run rate of $536 million in gross EBITDA, to result in pro forma consolidated credit metrics that are similar to Avis' current stand alone metrics."

CAR closed Tuesday at $17.17, up from the prior close of $15.96, on 4.31 million shares.

AVE.L surged on the news to settle at 310.70 pence, compared to the previous close of 196.60 pence, on 12.4 million shares.

Reynolds bids for Graham Packaging

New Zealand-based Reynolds Group Holdings Ltd. has offered to acquire Graham Packaging Co. Inc. (GRM) for $25 per share in cash. The offer, announced Tuesday, gives Graham a total enterprise value of $4.5 billion. The offer exceeds an earlier bid of $19.56 per share or $4.1 billion from Silgan Holdings Inc. (SLGN).

Reynolds Group is a wholly-owned subsidiary of New Zealand billionaire Graeme Hart's private investment firm Rank Group Ltd. It makes consumer food packaging products including Reynolds Wrap aluminum foil. The proposed transaction is expected to close in the second half of the year.

GRM ended the regular trade on Tuesday at $25.63, up from the prior close of $21.95, on 10.73 million shares.

Friday, Graham Packaging announced the signing of a definitive agreement to be acquired by Reynolds Group. The company has terminated the merger agreement with Silgan.

Ericsson to buy Telcordia

Swedish telecom equipment maker LM Ericsson Telephone Co. (ERIC) has agreed to acquire telecom software firm Telcordia Technologies, Inc. from private equity firms Providence Equity Partners, LLC and Warburg Pincus for $1.15 billion in cash.

The acquisition of Telcordia, which generated annual revenues of $739 million in the 12 months ended January 31, will make Ericsson one of the biggest Service Provider Information Technology vendors in the global market, as it will be able to enhance its software and service support offerings.

The transaction is expected to close in the fourth quarter. It is estimated to be accretive to Ericsson's earnings per share within a year of closing.

Providence Equity and Warburg Pincus acquired Telcordia in 2005 from Science Applications International Corp. (SAIC) for $1.35 billion in cash.

Moody's Investors Service said the sale is modestly profitable for Telcordia's private equity investors, despite appearances that the price was less than what they paid for Telcordia in 2005. Moody's expects the existing Telcordia debt will be repaid as part of the Ericsson transaction.

Jean-Michel Salvador, an analyst at Alphavalue in Paris, told Bloomberg that the price is not very expensive. According to Salvador, operators want to evolve their networks, without changing them, and software and services have an important role in it.

ERIC closed Tuesday's regular trade at $14.06, up from the prior close of $13.74, on 3.38 million shares.

Meanwhile, business software and services provider Amdocs Ltd. (DOX), which was reportedly interested in buying Telcordia, Friday said it has agreed to acquire Canada's Bridgewater Systems Corp. (BWC.TO) for C$8.20 per share in a cash deal, totaling C$211 million.

Bridgewater provides policy, subscriber management and network control solutions for mobile and convergent service providers. The deal is expected to be completed within 90 days.

DOX closed Thursday's regular trading session at $29.21, up $0.30 or 1.04 percent.

BWC.TO settled at C$6.33, up C$0.06 or 0.96 percent.

Nyrstar to buy Breakwater Resources

Breakwater Resources Ltd. (BWR.TO) has agreed to be acquired by Belgium's zinc producer Nyrstar NV (NYRSF.PK) for about C$663 million, the Canadian company said Wednesday.

Breakwater is a mining, exploration and development company. It produces zinc, copper, lead and gold concentrates. The company operates in three mines in Chile, Honduras and Canada. It is also preparing the Langlois mine in Quebec, Canada for production in the first quarter of 2012.

The agreement includes a friendly take-over offer of C$7 per share in cash and a special dividend of C$0.50 per share. The total consideration represents a premium of around 44 percent to Breakwater's closing share price in the previous trading session.

BWR.TO climbed on the news to close at C$7.42 on 43.2 million shares, compared to the previous close of C$5.20 on 248,300 shares.

Energy Transfer Equity to buy Southern Union

Energy Transfer Equity, L.P. (ETE) Thursday announced a definitive merger agreement to acquire Southern Union Co. (SUG) for $7.9 billion, including about $3.7 billion of Southern Union debt.

Southern Union stockholders will exchange their common shares for newly issued Series B units of Energy Transfer having a value of $33 per share, representing a premium of about 17 percent to Southern Union's closing share price on June 15.

The Series B units are expected to be listed for trading on the NYSE and will be entitled to an annualized distribution yield of not less than 8.25 percent.

Through the deal, Energy Transfer will have direct ownership of assets complementary to the assets owned and operated by its master limited partnership subsidiaries Energy Transfer Partners, L.P. (ETP) and Regency Energy Partners LP (RGNC).

The combined company will include over 44 thousands miles of natural gas pipelines and around 30.7 billion cubic feet per day of natural gas transportation capacity.

The deal, expected to close in the first quarter of 2012, will thus make Energy Transfer one of the largest natural gas infrastructure players in the U.S. It is estimated to be immediately accretive to Energy Transfer's distributable cash flow.

Moody's Investors Service has placed Energy Transfer Equity's Ba1 Corporate Family Rating and Ba2 long-term debt rating under review for possible downgrade.

Moody's said the review for downgrade of Ba1 rating reflects the financing of the acquisition from a position of already strained leverage for the ETE consolidated group. It also reflects the increase in fixed charges tied to the newly issued Series B preferred units distributions as well as the execution and integration risk inherent in absorbing operations of SUG's scale.

However, Moody's affirmed Energy Transfer Partners' Baa3 senior unsecured note rating, but changed its outlook to negative.

ETE closed Thursday at $45.96, up 8.22 percent, on 1.58 million shares.

SUG jumped on the news to settle at $33.21, up 17.52 percent, on 19.7 million shares.

Capital One to buy ING Direct

Capital One Financial Corp. (COF) Thursday said it has agreed to buy ING Direct from Dutch financial services firm ING Groep NV (ING) for $9 billion in cash and stock, making the McLean, Virginia-based company the fifth largest depository institution and the leading direct bank in the U.S.

Capital One will pay ING Groep $6.2 billion in cash and issue about 55.9 million shares, valued at $2.8 billion. ING Groep will have a 9.9 percent stake in Capital One, as well as the right to a board seat.

Capital One expects to partly fund the cash portion of the deal through a public equity raise of about $2 billion and debt offerings of about $3.7 billion. The deal is estimated to be accretive to its earnings per share in 2012 and result in mid-single digit accretion in 2013.

Following the announcement, Moody's Investors Service placed the "C" unsupported Bank Financial Strength Rating and all long-term ratings of Capital One and subsidiaries under review for possible downgrade.

Moody's noted that the deal would significantly enhance Capital One's existing direct banking platform through the addition of ING Direct's deposit base of about $81 billion. It will also increase its exposure to residential mortgages through the addition of ING Direct's around $41 billion portfolio, the ratings agency added.

The transaction will increase Capital One's leverage and reduce key capital ratios at inception, Moody's said. The Prime-2 short-term rating of Capital One, N.A. and Capital One Bank (USA), N.A. were affirmed.

COF closed on Thursday at $49, up $1.13 or 2.36 percent, on 9.11 million shares. The stock slipped $0.05 in the extended trade.

ING shares, which closed higher by $0.01 at $11.29, rose nearly 4 percent in the extended trade to $11.74.

Tata Steel to sell Riversdale stake

India's Tata Steel Ltd. is selling its entire 26.27 percent stake in Australian coking coal miner Riversdale Mining Ltd. (RIV.AX, RFLMF.PK) to mining giant Rio Tinto Ltd. (RTNTF.PK,RIO,RIO.L,RTPPF.PK, RIO.AX) for $1.12 billion. Thus, Rio Tinto will be able to take full ownership of Mozambique-focused Riversdale.

Tata decided to sell the stake as Rio Tinto is delisting Riversdale and the Indian firm did not want to hold its equity investment in a delisted Riversdale without any joint venture agreement with the majority shareholder Rio Tinto.

According to Tata Steel, the sale price represents a doubling in value in less than four years since its first investment in Riversdale.

RIO.AX closed on Friday at A$77.82, up A$0.58 or 0.74 percent, on 3.5 million shares.

Tata Steel closed on the Bombay Stock Exchange at 572.25 Indian ruppes, up 19.10 rupees or 3.45 percent, on 1.13 million shares.

RELATED NEWS

Maple launches hostile bid for TMX

Maple Group Acquisition Corp. Monday announced a C$48 per share in cash offer for bourse operator TMX Group Inc. (X.TO, TSX_X.TO), offering to acquire 70 percent of the outstanding common shares in a hostile bid. The total value of the offer is estimated to be about C$3.7 billion.

TMX has been preferring a C$3.2 billion offer from London Stock Exchange Group Plc (LSE.L) made in February, and trumped Maple's superior offer of $3.6 billion that came last month, saying it was financially inadequate with execution risk and lack of information.

The TMX Board has now said, "it will reassess whether the Maple formal offer constitutes a superior proposal or could reasonably be expected to result in a superior proposal" compared to the London Stock Exchange's offer.

Terex boosts offer for Demag Cranes

Terex Corp. (TEX) Thursday raised its offer for German rival Demag Cranes AG (DMGCF.PK) to 45.50 euros per share from 41.75 euros per share offered on May 19. Demag has welcomed the boosted price and also recommended that its shareholders accept the offer.

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