Now that a month has passed without a $1 billion-plus buyout offer for a public company, it is clear that any revival in mergers and acquisitions will depend on the so-called strategic buyers.
The good news for investors, as well as investment bankers, is that a number of them are emerging. Even HSBC Holdings Plc., one of the earliest casualties of the US subprime mortgage market’s collapse, is getting into the act.
HSBC—Europe’s biggest bank by market value—is negotiating to buy a 51% stake in Korea Exchange Bank from Lone Star Funds, a US-based buyout firm. The holding in South Korea’s sixth largest bank is valued at $4.8 billion (around Rs19,680 crore), based on the closing price of 13,750 won (Rs550) on Wednesday.
TD Ameritrade Holding Corp. and E*Trade Financial Corp. are holding merger talks, according to a story on Wednesday in the Wall Street Journal. E*Trade, the smaller of the two online brokers by market value, has a $6.3 billion capitalization.
A “business combination” may also be in New York Mercantile Exchange Holdings Inc.’s (Nymex) future, according to a company statement. The phrase indicates that the Nymex’s owner, valued at $11.7 billion, is talking with companies rather than private equity firms.
Even firms that are not making deals now are assuring investors that a credit crunch, sparked by losses on loans to less-creditworthy home buyers, won’t impede future purchases. “If the right opportunity comes, we’re still ready,” Carlsberg A/S chief executive officer Nils Smedegaard Andersen said. Marius Kloppers, BHP Billiton Ltd’s CEO-designate, said much the same after BHP’s earnings report on Wednesday.
Buyout firms aren’t so lucky, and it shows. Their most recent bid of more than $1 billion was made on 23 July, when United Rentals Inc. accepted a $4 billion offer from Cerberus Capital Management LP., according to Bloomberg data.
Cerberus and its peers can be viewed as financial buyers focusing on earnings and cash flows and seeking to make money by reselling companies to investors. They account for 22% of this year’s announced deals by value, Bloomberg’s data show.
Strategic buyers, by contrast, make deals primarily for business reasons. HSBC, which calls itself “the world’s local bank,” is going after Korea Exchange to further an expansion in emerging markets. The London-based bank previously tried to buy Korea First Bank, acquired by Standard Chartered Plc. in 2005.
Sometimes the strategy doesn’t pan out, as HSBC learned after taking over Household International Inc. four years ago. The company became the largest subprime mortgage lender in the US after the $15.5 billion purchase. Subprime losses prompted HSBC to increase reserves for bad debt in February. On Wednesday, the bank closed a mortgage-services office in Carmel, Indiana, and eliminated 600 jobs. Neither this setback nor the current credit crunch has kept HSBC from going after Korea Exchange.
That kind of motivation shows why strategic buyers are pursuing multi-billion dollar deals while financial buyers sit on the sidelines.
Write to us at firstname.lastname@example.org