In a week of moderate deal activity, financial and energy companies made most of the news. One among the big deals of the week came from PNC Financial Services Group, Inc. that agreed to buy the U.S. retail banking unit of Royal Bank of Canada to tap the southeast markets. The cash and stock deal is expected to close in next March.
During the week, Dentsply International Inc. agreed to buy AstraZeneca Plc's Swedish unit Astra Tech AB for about $1.8 billion in cash, to expand in dental implants business.
Meanwhile, brewer SABMiller Plc Monday offered to buy Australia's Foster's Group Ltd. for about $9.98 billion. However, Foster's rejected the offer.
Firms that made deal news this week include Carpenter Technology Corp., which agreed to buy privately-held Latrobe Specialty Metals, Inc. and Gaz Métro Limited Partnership, which made a counter offer for Central Vermont Public Service Corp.
PNC Financial to buy RBC's U.S. retail banking unit
PNC Financial Services Group, Inc. (PNC) has agreed to buy U.S. regional retail banking operations of Royal Bank of Canada (RY, RY.TO) for $3.62 billion in a cash and stock deal.
The transaction price consists of $3.45 billion for the purchase of RBC Bank (USA) and $165 million for some credit card assets.
The US unit has about $25 billion of assets, and operates 424 branches in six southeast states. PNC gets to enter attractive southeast markets through the purchase. The deal, which is anticipated to close in March 2012, would be accretive to earnings by the end of 2013 or sooner.
PNC plans to fund the cash consideration with cash on hand, debt issuance and a preferred stock offering. The stock payment will be such that RBC's stake in PNC will not exceed 4.9 percent.
Moody's Investors Service affirmed its ratings and positive outlook on PNC and its subsidiaries, while placing its ratings on RBC Bank (USA) under review. "...PNC has demonstrated an ability to successfully integrate acquisitions and to use them as a platform for organic growth," the ratings agency said.
In affirming PNC's ratings, Moody's considered the modest size of RBC Bank (USA) relative to PNC, as well as PNC's healthy financial fundamentals and proven acquisition track record.
Moody's also affirmed the ratings of Royal Bank of Canada. "The divestiture of these loss-making operations frees up capital and will provide RBC with additional resources to respond to regulatory changes or reinvest in businesses where the bank has a competitive advantage," said Peter Nerby, a Moody's Senior Vice President.
PNC closed Monday at $56.66, down from the prior close of $57.79, on 11.85 million shares.
RY settled at $55.65, compared to the previous close of $55.54, on 729,900 shares. On the Toronto Stock Exchange, the company's stock closed at C$54.54, up from the previous session's C$54.33, on 2.67 million shares.
Carpenter to buy Latrobe Specialty Metals
Specialty metals manufacturer Carpenter Technology Corp. (CRS) Monday said it has agreed to buy privately-held Latrobe Specialty Metals, Inc. for about $558 million.
Carpenter will issue 8.1 million shares valued at about $388 million to Latrobe's owners including private equity firms Hicks Equity Partners and The Watermill Group and will also pay $170 million in cash to eliminate Latrobe debt. The deal is expected to close in the first quarter ending September 30.
Latrobe supplies essential materials to several sectors including the aerospace, defense, energy, medical and industrial steel. It is in operation since 1913 and employs over 800 people.
The deal will help Carpenter improve its position in promising segments such as aerospace and energy. It is projected to be accretive in the first year, including one-time costs associated with the merger, and highly accretive from then on.
Meanwhile, Moody's Investors Service said the deal would have no impact on Carpenter's Baa3 ratings. The rating outlook is stable.
CRS closed Monday at $51.92, up from the previous close of $47.88, on 1.78 million shares.
Foster's rejects SABMiller offer
British brewer SABMiller Plc (SBMRY.PK, SAB.L) Monday offered to buy Australian beer maker Foster's Group Ltd. (FGL.AX, FBRWY.PK) for about $9.98 billion. Foster's rejected the A$4.90 per share in cash offer stating it significantly undervalues the company.
Foster's was being seen as an acquisition target since last year after it announced plans to spin off its wine operations. The struggling wine operations were demerged in mid-May.
SABMiller has said that it would continue to seek engagement with the Board of Foster's to put an agreed proposal to Foster's shareholders.
Moody's said, "To the extent that a transaction emerges, Foster's overall credit profile could benefit from SABMiller's well-diversified geographic presence and its global scale which positions it as one of the world's largest brewers."
Meanwhile, Nomura Equity Research said, "...with Fosters rejecting SABMiller's approach rather than
entering into negotiations, we believe it has left SABMiller in a relatively weak bargaining position, even if a rival bid is unlikely, with a probability to have to offer a further increase ...to secure Foster's board approval."
SAB.L closed Monday at 2,182 pence, up from the previous close of 2152 pence, on 1.66 million shares.
FGL.AX surged to close at A$5.14 on 102.98 million shares in its next trading session on Tuesday, compared to the prior close of A$4.53 on 9.09 million shares.
Atlantic Power to acquire Capital Power Income
Independent electricity producer Atlantic Power Corp. (AT, ATP.TO) Monday revealed an arrangement agreement with Capital Power Income L.P. (CPX.TO, CPA_UN.TO) to acquire Capital Power Income for C$19.40 per limited partnership unit, payable in cash or shares. The deal is reportedly valued at $1.11 billion.
The offer price represents about 4 percent premium to Capital Power Income's closing stock price in the previous trading session. The company had begun seeking strategic alternatives as early as last October.
The transaction, anticipated to be complete in the fourth quarter of the year, is estimated to add 1,245 megawatts to Atlantic Power's 871 megawatts holdings.
CPX.TO closed Monday at C$26.88, up from the prior close of C$26.79, on 125,400 shares.
AT shares settled lower at $15.25 from Friday's close of $15.41 on 416,000 shares.
ATP.TO ended down at C$14.89, compared to the previous close of C$14.96, on 299,000 shares.
Inter Pipeline Fund to buy petroleum storage business
Inter Pipeline Fund (IPL_UN.TO) Monday said it has entered into an agreement to acquire four petroleum storage terminals in Denmark from a subsidiary of DONG Energy A/S for about C$500 million.
The deal more than doubles Inter Pipeline's storage capacity in Western Europe to about 19 million barrels. It also complements the company's existing storage operations in the U.K., Ireland and Germany and will establish the firm as the fourth largest independent storage business in Europe.
"From an investor perspective, this is an immediately accretive transaction that adds new long-life energy infrastructure assets with stable cash flow characteristics to our portfolio," David Fesyk, President and Chief Executive Officer of the company, said.
The deal, expected to close in October, will be funded with available sources of credit.
RBC Capital Markets views the acquisition as a modest positive for Inter Pipeline stock, owing mainly to the contracted cash flows for the acquired business and the attractive forecast cash flow accretion.
"Our enthusiasm for the transaction is somewhat tempered as we see the European bulk liquids storage business as being less attractive to investors compared to the Alberta-based liquids pipeline segment," the brokerage added.
IPL_UN.TO closed Monday's regular trade at C$15.41, up from the previous session's close of C$15.50, on 406,654 shares.
Susquehanna to buy Tower Bancorp
Susquehanna Bancshares Inc. (SUSQ) Monday said it has agreed to acquire Tower Bancorp Inc. (TOBC) in a stock and cash transaction valued at about $343 million.
Tower shareholders will have the option to receive 3.4696 shares of Susquehanna common stock or $28 in cash for each of their shares, and $88 million of the aggregate consideration will be paid in cash.
Tower Bancorp, Inc. is a Harrisburg, Pennsylvania-based commercial bank with 49 branches and $2.6 billion in assets as of March 31.
The deal will enhance Susquehanna's presence in central and southeastern Pennsylvania, while significantly increasing its market share in the Pennsylvania counties of Chester, Dauphin and Franklin.
The deal, expected to be complete in the first quarter of 2012, is estimated to be immediately accretive to Susquehanna's earnings per share and 10 percent accretive to 2013 earnings per share.
Following the announcement, RBC Capital Markets reduced its 2011 earnings estimates on Susquehanna to $0.40 from $0.45 and lowered the estimate for 2012 to $0.62 from $0.75. The price target was reduced to $12 from $14.
TOBC, which had closed on Monday at $26.80 on 1.55 million shares, rose on Tuesday to settle at $26.80 on 1.55 million shares.
After closing Monday at $8.34 on 710,500 shares, SUSQ fell to close on Tuesday at $7.70 on 8.27 million shares.
Dentsply to buy Astra Tech AB
Dentsply International Inc. (XRAY) has agreed to buy drugmaker AstraZeneca Plc's (AZN, AZN.L) Swedish healthcare and dental business Astra Tech AB for about $1.8 billion in cash, which would more than double its position in dental implants.
The combination is expected to enhance Dentsply's revenue by about 25 percent. The deal would be immediately accretive to its adjusted earnings per share by $0.12 to $0.17 in the first full-year after completion. It will add $0.30 - $0.40 per share to earnings by the third year.
Including transaction-related amortization, the deal, expected to close in the second half of 2011, would be modestly dilutive to earnings in the first full year.
Meanwhile, Moody's Investors Service placed Dentsply's Issuer Rating of Baa1 and Prime-2 commercial paper rating under review for possible downgrade. Moody's said the review would focus on the company's business plan and financial profile, including the increased leverage and integration risk from the acquisition of Astra Tech, as well as the industry outlook for its products.
XRAY closed on Wednesday at $38.32 on 2.81 million shares, compared to the previous close of $37.61 on 1.02 million shares.
AZN settled at $49.19, up from the previous close of $49.17, on 1.27 million shares.
AZN.L closed at 3,046 pence, compared to the previous close of 3025 pence, on 3.34 million shares.
Gaz Métro makes offer to CVPS
Canadian natural gas distributor Gaz Métro Limited Partnership on Thursday offered to acquire utility Central Vermont Public Service Corp. (CV), or CVPS, for $35.25 per share in cash, topping an offer made by utility Fortis Inc. (FTS.TO) late last month. The offer includes assumption of about $230 million of CVPS debt.
Gaz Métro plans to combine CVPS with its Green Mountain Power Corp. to create the largest electricity distributor in Vermont. The combination will serve nearly 250,000 customers.
CVPS has said its board of directors would review the offer from Gaz Metro "in due course based on our fiduciary responsibilities and contractual commitments to Fortis Inc."
CV surged on the news to settle at $35.65, up $1.24 or 3.60 percent, on 1.15 million shares.
Williams makes offer to Southern Union
Natural gas producer Williams Companies Inc. (WMB) Thursday offered to buy Southern Union Co. (SUG) for $39 per share in cash, or an enterprise value of $8.7 billion. The offer tops the $33 per share bid made by Energy Transfer Equity L.P. (ETE).
The proposal by Williams represent a premium of 18 percent over the $33 per share price offered by Energy Transfer Equity last week.
The combination of Williams and Southern Union will create a pipeline operator with nearly 30,000 miles of regulated pipelines.
SUG, which closed Thursday up $0.34 at $34.15, surged about 15 percent in afterhours and was at $39.20.
Having closed lower by $0.09 at $29.23, WMB slipped $0.56 in the extended trade and was at $28.67.
ETE lost $1.71 or 3.75 percent in the extended trade. The shares had ended regular trade at $45.57.
PSEG to sell remaining Texas generating asset
PSEG Power LLC, a unit of utility Public Service Enterprise Group (PEG), Friday morning said it has agreed to sell its remaining Texas generating asset to Odessa Power, LLC for $335 million.
The sale is expected to close during the third quarter. There is no debt attached to the asset. Odessa Power is a subsidiary of Energy Capital Partners II, LP.
PEG closed Thursday at $31.58 on 2.8 million shares. The stock is inactive in pre-market.
Related News
Offers sweeten for TMX
During the week, both London Stock Exchange Group Plc (LSE.L) and investor group Maple Group Acquisition Corp. sweetened their offers for TMX Group, Inc. (X.TO), the operator of the Toronto Stock Exchange and TSX Venture Exchange.
London Stock Exchange Wednesday offered a special dividend to shareholders of the combined company, which is expected to be about C$660 million, or 416 million pounds. This will see TMX Group shareholders receive C$4 per TMX share, and LSE shareholders receive 84.1 pence per share. Including the cash dividend, the LSE offer is estimated to be valued at C$48.93 per share.
Meanwhile, Maple, which went hostile last week, Wednesday sweetened its offer for TMX to C$50 per share or about C$3.8 billion in cash and stock. The current offer is to acquire up to 80 percent of the outstanding common shares of TMX in cash.
The enhanced offer provides C$40 in cash per share, an increase of C$6.40 in cash per share, plus ongoing ownership stake in Maple. Earlier, each TMX share was to be exchanged for C$33.52 in cash plus 0.3016 of a Maple share. TMX has said its Board would "reassess" the offer.
For comments and feedback: editorial@rttnews.com