M&A - A Weekly Recap

Add as your preferred news source on Google

Add Now

With the third-quarter reporting season nearly over, merger and acquisition activity has once again become vibrant. Several big deals, running into billions of dollars, were announced during the course of the week ended November 19.

One of the major deals of the week was announced by heavy equipment manufacturer Caterpillar Inc. In order to tap the increased demand for metals, especially from the emerging economies, the company has agreed to buy Bucyrus International, Inc., a maker of electric mining shovels and rotary blasthole drills. The deal is considered to provide Caterpillar with significant long-term opportunities.

In yet another deal, technology firm EMC Corp. (EMC) is buying peer Isilon Systems, Inc. (ISLN) to expand in the world of "Big Data." Isilon was said to be an acquisition target for the past few weeks after Hewlett-Packard Co. (HPQ) bought 3PAR.

The companies that hit the M&A headlines during the week include miner Anglo American Plc, which is selling two units to Australia-based OneSteel Ltd. Meanwhile, Walter Energy, Inc. has made a merger proposal to Canada-based metallurgical coal producer Western Coal Corp.

Caterpillar to Acquire Bucyrus International

Construction and mining equipment giant Caterpillar Inc. (CAT) is buying heavy mining equipment maker Bucyrus International, Inc. (BUCY) for $8.6 billion, including net debt.

As per the agreement, announced Monday, Bucyrus shareholders will receive $92 per share or $7.6 billion in aggregate in cash. The transaction represents an implied premium of 32% to Bucyrus' share price of $69.62 as of November 12.

The deal will help Caterpillar add drills and shovels needed for the mining industry, as demand is on the rise for mining equipment spurred by emerging economies, in addition to higher metal prices. The deal is expected close in mid-2011.

Larry De Maria, an analyst at Sterne, Agee & Leach in New York told Bloomberg that through the deal Caterpillar gets a chance to gain from growth in emerging markets. The company will also stand to benefit from a business that has opportunities in extensive after-market parts and services, De Maria noted.

Following the announcement, Moody's Investors Service affirmed its A2 long-term and Prime-1 short-term ratings of Caterpillar. The company's rating outlook remains stable. Bucyrus' Ba2 corporate family rating and probability of default ratings are under review for possible upgrade, the ratings agency said.

Moody's believes that the Bucyrus acquisition will materially strengthen Caterpillar's long-term position in the global mining equipment markets. The continuing recovery in Caterpillar's end markets and the success of its operating efficiency initiatives should enable it to remain well on track for generating credit metrics that are solidly supportive of the A2 rating during 2011, Moody's noted.

"The product portfolios and operating profiles of CAT and Bucyrus complement each other well, and the acquisition should afford CAT with considerable long-term opportunities to expand its revenue and earnings," Moody's said.

CAT closed Monday's regular trade at $81.82, up from the prior close of $81.04, on 15.79 million shares.

BUCY shares surged on the news to close at $89.80, compared to the previous close of $69.62, on 29.84 million shares.

El Paso Pipeline Partners to buy additional interests from parent

Natural gas transporter El Paso Pipeline Partners, L.P. (EPB) has agreed to acquire additional interests in assets from parent company oil and gas producer El Paso Corp. (EP) for $1.13 billion, the company said Monday. The deal is immediately accretive to the partnership's distributable cash flow.

The company will acquire the remaining 49% interest in Southern LNG Co., L.L.C. and El Paso Elba Express Co. L.L.C. as well as an additional 15% interest in Southern Natural Gas Co. The deal is expected to close this month.

In an interview with Bloomberg, Carl Kirst, a Houston-based analyst for BMO Capital Markets, said the deal is a bit bigger than anticipated. He is of the view that the price is good for El Paso, and not steep enough to prevent it from being immediately cash accretive.

Meanwhile, El Paso Pipeline Partners' wholly-owned operating subsidiary El Paso Pipeline Partners Operating, L.L.C. has proposed to issue $750 million of senior notes, which will be used as partial consideration for the acquisition.

Ken Austin, Moody's Vice President said the deal is consistent with the agency's expectation that the company will continue acquiring additional interests in the assets where it does not own a 100% interest with a balance of debt and equity. "The acquisition of the additional interest ...gives EPB's greater earnings and cash flows from these stable cash flow generating assets while also reducing some of EPB's structural complexity. "

EPB closed Monday at $34.48, down from the previous close of $34.68, on 757,300 shares. The stock dropped further on Tuesday to close at $32.75 on a volume of 8.41 million shares.

EP closed higher on Monday at $13.74, compared to the prior close of $13.46, on 9.64 million shares.

EMC to acquire Isilon Systems

Data storage solutions provider EMC Corp. (EMC) agreed Monday to acquire video storage systems vendor Isilon Systems, Inc. (ISLN) for $2.25 billion in cash.

The offer price of $33.85 marks a 29% premium to Isilon's closing price of $26.29 on November 12. The deal is expected to be completed later this year.

Isilon is a key player in the Scale-out network attached storage segment, which is expected to have an annual growth of about 36% reaching an estimated $6 billion in 2014.

The combination of EMC's Atmos and Isilon's solutions will offer customers low-cost storage infrastructure for managing massive amount of data, known as Big Data, produced by new generation applications in markets like life sciences, media and entertainment, and oil and gas.

The deal is expected to be accretive to EMC's fiscal 2011 adjusted earnings per share. The combined revenues from Isilon and EMC Atmos are expected to reach $1 billion run-rate during second half of fiscal 2012.

Following the announcement, FBR Capital Markets maintained its "Outperform" rating on the stock. "Strategically speaking we loudly applaud this deal as it strengthens EMC's NAS product footprint and distribution capabilities on the highly fertile scale out NAS segment," the brokerage said.

According to FBR, competitively the deal is a good step towards defending EMC's turf against strongly positioned storage vendors such as NetApp. "We also note that given EMC's massive success with integrating acquisitions of all sizes into the fold ...we have a high level of confidence in the
company's ability to absorb Isilon with minimal speed bumps over the next 6 to 12 months," it added.

EMC closed Monday at $21.45, down from the prior close of $21.72, on 18.62 million shares.

ISLN rose to $33.77 from the prior close of $26.29 on 35.70 million shares.

Anglo American To Sell Two Units To OneSteel

U.K.-based miner Anglo American Plc (AAL.L) has agreed to sell its Moly-Cop and AltaSteel businesses to Australia's OneSteel Limited (OST.AX, OSTLF.PK, OSTLY.PK), a manufacturer and distributor of steel and finished steel products, for $932 million on a debt and cash free basis.

The units generated $319 million in the first half of 2010 and had revenue of $642 million in fiscal 2009.

The deal helps OneSteel position itself as a global player in grinding media with participation in the world's largest and most attractive mining consumables markets. It also provides the company opportunity for future growth in mining consumables.

The transaction helps Anglo American focus on its core commodity businesses.

AAL.L closed Monday at 3,036 pence, up from the prior close of 3,012 pence, on 3.48 million shares.

After moving in a range of A$2.70-A$2.83, OST.AX closed unchanged at A$2.74 on 17.15 million shares.

Axa, AMP make joint offer for Axa Asia Pacific Holdings

French insurer Axa SA (AXAHY.PK) and Australian wealth manager AMP Ltd (AMLTF.PK,AMP.AX) Monday said they jointly proposed to acquire Axa Asia Pacific Holdings Ltd., or AXA APH, for A$13.3 billion.

AMP has agreed to buy 100% of AXA APH, including Axa's 54% stake. It will also retain Australia and New Zealand businesses, and will divest the Asian business to Axa.

As per the offer, AXA APH shareholders will receive the equivalent of A$6.43 per share, including cash and AMP shares, in addition to AXA APH's final dividend of up to 9.25 cents per share in 2010.

The deal is expected to be completed shortly after a shareholders' vote scheduled for March 2011.

Axa closed in Paris at EUR 13.54, up from the prior close of EUR 13.24, on 8.26 million shares.

AMP closed on the ASX at A$5.45, up from the previous close of A$5.33, on 33.10 million shares.

Allegheny Technologies to buy Ladish

Specialty metals manufacturer Allegheny Technologies Inc. (ATI) is buying aerospace metal components maker Ladish Co., Inc. (LDSH) for $778 million in a cash and stock deal, it was announced Wednesday.

Ladish shareholders will receive $24 in cash and 0.4556 of a share of Allegheny common stock for each of their shares. Based on Allegheny's average stock price over the 10 trading days ended on November 16, the aggregate consideration is $48 per Ladish share.

The deal will help Allegheny expand in the aerospace market. The company expects the deal to add at least $100 million of sales through market synergies.

The acquisition, expected to be completed in early 2011, is anticipated to be accretive to earnings after the first year. The transaction is estimated to generate positive cash flow immediately after closure.

Following the announcement, Moody's affirmed the Baa3 rating on Allegheny's notes and the Baa3 rating on Allegheny Ludlum's debentures due 2025, reflecting the ratings agency's expectation for profitability and adequate cash flow generation to cover requirements through the economic cycle. The rating outlook is stable.

"The acquisition of Ladish is viewed as a strategic opportunity to enhance ATI's strengths by providing the company with increased forging, casting and machining capabilities. Approximately 88% of Ladish sales are to the jet engine and aerospace industry with a reasonable balance between commercial and military sales," Moody's noted.

ATI closed Wednesday at $48.41, down from the previous close of $49.94, on 5.1 million shares.

LDSH soared to $45.42 from the prior session's $29.33 on 7.56 million shares. In the previous session, 118,000 shares changed hands.

VeriFone to buy Hypercom

Electronic payment equipment maker VeriFone Systems, Inc. (PAY) has agreed to acquire smaller rival Hypercom Corp. (HYC) for about $485 million in an all-stock deal, including net debt. Hypercom had previously rejected a $5.25 per share offer from VeriFone.

Hypercom shareholders will receive a fixed ratio of 0.23 shares of VeriFone common stock for each Hypercom share they own, valued at about $7.32 per share based on VeriFone's closing price of $31.84 on Tuesday.

The offer price of $7.32 per share marks a 19.4% premium to Hypercom's closing price of $6.13 on the same day.

The deal, anticipated to close in the second half of 2011, will help VeriFone extend to key markets in continental Europe. The transaction is expected to be solidly accretive to VeriFone during the first twelve months of combined operations, excluding one-time costs.

PAY closed Wednesday at $32.91, compared to the previous close of $31.84, on 5.64 million shares.

HYC closed at $7.13, up from the previous close of $6.13, on 27.07 million shares. In the previous session, only 312,700 shares changed hands.

Walter Energy makes offer to Western Coal

Western Coal Corp. (WTN.TO, WTN.L), a Canada-based metallurgical coal producer, Thursday said it has received a proposal from U.S.-based Walter Energy, Inc. (WLT) for a strategic business combination. The offer values Western's equity at C$3.3 billion.

The proposal mulls a plan of arrangement transaction whereby Western shareholders would receive a mixture of cash and Walter shares valued at C$11.50 per Western share. The offer marks a premium of 55.8% to Western's closing price of C$7.38 on the Toronto Stock Exchange on Wednesday.

The combination will create one of the world's largest pure-play publicly-traded producers of metallurgical coal. It will have synergistic technical expertise in open-pit and underground coal mining.

Following the announcement, FBR capital Markets noted that Western brings with it a good metallurgical coal growth profile through calendar year 2012, a declining cost structure, port access at Ridley, and a new and dynamic management team.

Western also has additional upside in three areas, namely Belcourt-Saxon (Peace River), Energy Build, its UK operations, and other Canadian exploration areas in and around its current production, FBR said. The brokerage reiterated its "Outperform" rating and its $98 price target on the stock.

WLT closed Thursday at $96.86, up $2.15 or 2.27%, on 4.95 million shares.

WTN.TO surged over 47% on the news, closing at C10.85, up C$3.47, on 39.27 million shares.

Cardinal Health to buy Kinray

Drug distributor Cardinal Health, Inc. (CAH) plans to buy closely-held pharmaceutical distributor Kinray, Inc. for $1.3 billion in cash.

Cardinal Health provides complementary products and services to healthcare providers and manufacturers, whereas Kinray is a distributor of branded and generic medicines, primarily in the New York metropolitan area.

The deal will help Cardinal Health increase its presence in community pharmacy and expand in the northeastern U.S.

Cardinal Health plans to complete the deal by year-end or early next year. The purchase may be slightly accretive to Cardinal Health's adjusted earnings in fiscal 2011 and add at least $0.12 in 2012.

CAH settled at $36.56, up $2.09 or 6.06%, on 6.8 million shares.

RELATED NEWS

BHP withdraws Potash bid

Mining giant BHP Billiton Group (BHP, BLT.L, BHP.AX) Sunday withdrew its $40 billion unsolicited tender offer for Canadian fertilizer maker Potash Corp. of Saskatchewan Inc. (POT, POT.TO), a week after the Canadian government blocked the deal as it does not provide a "net benefit" to the country.

At the company's annual general meeting later, the miner said the deal failure has not been a distraction to deliver on its strategy. The 150-year-old company said it is not going to change its strategy of pursuing large, tier one assets.

Blackstone boosts Dynegy offer; still fails to please Icahn

Private equity firm Blackstone Group (BX) has raised its offer for electric utility Dynegy Inc. (DYN) by $0.50 per share to $5.00 per share, but is still out of favor with billionaire investor Carl Icahn, who believes that the increased offer price undervalues Dynegy. Icahn and his affiliated investment vehicles recently increased their stake in the company to 12.9% from 9.95%.

"Today's $.50 per share increase, coming only one day after Blackstone stated that the $4.50 price is "a full and fair valuation" reassures my belief that the Dynegy/Blackstone transaction leaves too much shareholder value on the table for Blackstone, " Icahn said on Tuesday.

For comments and feedback contact: editorial@rttnews.com