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Mergers & Acquisitions - A Weekly Recap

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Continuing the trend of the previous week, the week ended June 27 had very few high-value deals. The week opened with waste haulers Republic Services, Inc. and Allied Waste Industries, Inc. revealing a possible combination valued at over $6 billion. The deal will result in an entity that will be a closer competitor to the industry leader Waste Management Inc.

Oilseed processor Bunge Ltd. said Monday it is acquiring Corn Products International, Inc. for about $4.2 billion to add corn-based sweeteners to its portfolio. In its third attempt, oil and gas company BG Group PLC made a hostile offer for Australia's Origin Energy Ltd. The offer price is the same as what it offered for the second time.

Other companies that made acquisition-related announcements during the week include SeverStal, Esmark Inc, Coca-Cola FEMSA, Orbotech Ltd., Photon Dynamics, Inc., Duke Energy Corp.


Bunge to buy Corn Products International for about $4.2 bln

Bunge Ltd. (BG), the world's largest oilseed processor, Monday revealed a deal to acquire Corn Products International, Inc. (CPO) for about $4.2 billion in stock and $414 million in assumption of debt.

The announcement sent Corn Products' shares up more than 21% on the NYSE, while shares of Bunge declined over 7%. Corn Products closed Monday's regular trade at $50.75, up from the previous close of $42.90. After opening at $126.07, Bunge shares closed Monday's regular trade at $110.70.

The offer price marks a 31% premium to Corn Products' closing price of $42.90 on June 20. As per the deal, Corn Products stockholders will receive common shares of Bunge with a market value of $56 for each common share of Corn Products. The transaction is expected to close in the fourth quarter of 2008.

The purchase will help Bunge add corn-based sweeteners to its portfolio as there is surge in demand for soft drinks and processed foods in emerging economies such as China and India.

According to Credit Suisse analyst Robert Moskow, Bunge would become a more formidable competitor in global grain processing by broadening the products it sells to customers, strengthening customer relationships, driving down costs by combining logistics and risk management, and extending Bunge's reach into new markets.

Moskow added that Corn Products, the fourth-largest maker of high-fructose corn syrup in the U.S., would give Bunge new customers in Pakistan, South Korea and Thailand.

Meanwhile, Deutsche Bank Tuesday reiterated its "Buy" rating on the shares of Bunge, citing continued demand for soya-related products, improving capacity utilization in key markets and the importance of South America in global agribusiness.

Commenting on the offer, the firm said the acquired business would benefit from Bunge's origination, risk management and logistics capabilities, particularly in the current era of high and volatile commodity prices. Bunge will be able to leverage its fixed cost logistics network by running more products through the system. The brokerage retained its "Hold" rating on Corn Products.

Republic Services to buy Allied Waste Industries for $6.07 bln

Putting an end to speculation, waste hauler Republic Services, Inc. (RSG) Monday said it agreed to acquire larger rival Allied Waste Industries, Inc. (AW) for about $6.07 billion in stock.


Allied shares closed Monday's regular trade at $13.29, lower than the closing price of $13.56 on Friday. The stock declined 13% since June 13, when the discussions between the two companies were first made public. Republic Services finished Monday at $30.98, below the previous close of $31.19.

The deal, anticipated to close in the fourth quarter, is expected to be accretive to Republic Services' earnings per share in the first year after the merger.

The combination will help two industry leaders consolidate in a scenario where incomes are dwindling owing to the decline in the housing market, which has led to a decrease in demand for debris removal.

Republic Services will pay Allied shareholders $0.45 worth of a Republic share for each share held. This translates to about $14.04 per share based on Republic's closing stock price of $31.19 Friday. The price marks a 3.5% premium on Allied's closing price on June 20.

Standard & Poor's analyst Stewart Scharf reportedly said the combination is a way of creating a bigger company, to be a No. 2 player to the largest waste collection and disposal company Waste Management Inc (WMI). It's a way of reducing costs further as they try to improve the top line, he added.

Scharf estimates that Republic will have about 17% of the national market after the merger. Waste Management has about 25% of the national market.

Goldman, Sachs & Co. analysts led by David Feinberg, said in a note to clients that a competing offer for Allied is unlikely. Goldman said rational pricing in the solid-waste industry would be among the benefits of the transaction and would help Waste Management as well.

BG Group makes hostile offer for Origin Energy

Following rejection of its two earlier offers, U.K.-based oil and gas company BG Group plc (BG.L) Tuesday made a hostile offer for Australia's Origin Energy Ltd. (OGFGF.PK), which values the company at A$13.8 billion or about $13.1 billion in cash.

Following the announcement, Origin shares rose above the bid price. Origin added 93 cents or 6% to a record A$16.45 before closing at A$16.42 in Sydney. BG shares lost 24 pence or 1.9% and finished at 1,236 pence in London.

On a per share basis, the offer amounts to A$15.50 in cash, the same as BG Group's most recent bid price. BG Group had originally offered A$14.70 per share for Origin. The A$15.50 per share was rejected earlier by Origin as the company felt its coal-seam gas reserves were worth A$16 billion.

The acquisition will help BG Group, the largest supplier of LNG from the Atlantic Basin into Asia, gain gas resources in eastern Australia, which may feed its proposed liquefied natural gas project supplying utilities in northern Asia.

The offer marks a premium of 48% to Origin's share price of A$10.47 on April 29, the day prior to the announcement of the initial offer. The offer also represents a 72% premium over Origin's 90-day volume weighted average price on April 29.

In a research note, Merrill Lynch analysts Matthew Spence, Nathan Gee and Simon Chan said that by emphasizing the speculative nature of the Origin reserves upgrade, BG is probably softening the market up for a higher bid. Merrill has a ''Neutral'' rating on Origin stock.

SeverStal acquiring Esmark

Russia-based metals and mining company OAO SeverStal is acquiring U.S. steel maker Esmark Inc (ESMK) for $19.25 per share, it was announced Wednesday. The transaction, including debt, is valued at about $1.25 billion. Esmark closed Wednesday's regular trade at $20.47, higher than the previous close of $20.03.

Under the terms of the agreement, SeverStal will amend its tender offer to increase its offer price from the earlier $17 per share to $19.25 per share. Subsequently, Esmark would recommend its shareholders to tender their shares to SeverStal. The scheduled expiration date for the amended offer is July 18, unless extended.

SeverStal has also entered into an agreement to purchase Esmark's aggregate $110 million term loan facilities from India's Essar Steel Holdings Ltd, which also was engaged in the bidding war for Esmark.

Coca-Cola FEMSA buys Remil

Coca-Cola FEMSA, S.A.B. de C.V. (KOF), the largest Coca-Cola bottler in Latin America, Thursday revealed the purchase of Brazilian soda maker and brewer Refrigerantes Minas Gerais Ltda or Remil franchise territory from Coca-Cola Co. for $364.1 million. KOF closed Thursday's regular trade at $54.93, down $0.16 or 0.29%, on 150,175 shares.

Remil serves the cities of Belo Horizonte, Contagem, Curvelo, Divinópolis, Governador Valadares, Ipatinga, Juiz de Fora, Lavras, Leopoldina, Mariana, Montes Claros, Janaúba, and Petrópolis. The company had revenues about R$ 721 million for 2007.

The deal will help Coca-Cola FEMSA, the world's second-largest bottler of Coca-Cola drinks, expand its footprint in Brazil by more than a third and substantially increase the number of clients and customers to over 41 million.

Last year, the company, formed by Coca Cola Co. and Mexican drinks maker and brewer Femsa, acquired juice maker Jugos del Valle, having operations in Mexico and Brazil, for $370 million.

Orbotech to acquire Photon Dynamics

Orbotech Ltd. (ORBK) Thursday said it agreed to acquire Photon Dynamics, Inc. (PHTN) in a $290 million cash deal to create a global leader in yield management solutions. The acquisition is expected to close in the second half of the year.

Photon shares that closed Wednesday's regular trade at $11.56 surged on the buyout news, to finish at $15.15 Thursday. However, ORBK shares, which closed the previous day at $14.94, dropped to $13.86 when the regular trading closed Thursday.

Orbotech manufactures equipment for inspecting circuit boards and flat display panels, whereas Photon Dynamics is a provider of test and repair systems for the liquid crystal, flat panel display industry.

As per the agreement, the Yavne, Israel-based Orbotech will pay $15.60 per Photon Dynamics share in cash. This marks 35% premium to Photon Dynamics' closing price of $11.56 on Wednesday. The acquisition is the largest by Orbotech to date.

Duke Energy acquires Catamount Energy

Power company Duke Energy Corp. (DUK) Thursday revealed the purchase of privately held wind energy company Catamount Energy Corp from private-equity firm Diamond Castle Holdings for about $240 million. The deal price does not include $80 million of assumed debt.

DUK, which opened Thursday's regular trade at $17.56, reached a high of $17.63 before closing at the day's low of $17.23.
Catamount has about 300 megawatts of renewable energy operation facilities, with interests in the Sweetwater project in Nolan County, Texas, one of the largest wind projects in the world. The company also has nearly 1,750 megawatts of development interest in the U.S. and the U.K.

Duke intends to combine Catamount with Tierra Energy, a Texas-based wind developer that was bought by the company in May 2007 for undisclosed terms. By year-end, the combined entity is expected to have over 5,000 megawatts of wind energy under development in 12 states as well as approximately 500 megawatts of operating assets.

by RTT Staff Writer

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