Deals: Give Thanks for Strategy

In our M&A Roundup for the week ended Nov. 18, software, cereal, and drug acquisitions feast, while private equity all but takes a holiday.

Three sizable strategic deals — topped by IBM Corp.’s $4.39-billion agreement to buy business software maker Cognos Inc. — led to a 41-percent rise in North American transactions last week.

Following at about half that value in our roundup of the 10 largest deals were Ralcorp Holdings Inc.’s purchase of Kraft Foods Inc.’s Post cereals business and Celgene Corp.’s agreement with hematology and oncology products maker Pharmion Corp.

In all, 53 mergers or acquisitions worth a total of $16.73 billion were signed in the seven-day period ended Nov. 18, according to data provided to by mergermarket. While the survey tallied three private equity deals, only one of them — the $1.94-billion exchange of UK specialty metals company Firth Rixson Ltd. between two PE firms — had a value that was made public.

For the year to date, the 4,072 transactions done have been worth $1.45 trillion, compared to 4,342 deals valued at $1.26 trillion through Nov. 18, 2006.

IBM to buy Cognos for $4.39 billion

Ottawa-based Cognos signed a definitive agreement to be acquired by IBM, adding a premier business intelligence and performance management software company to the Big Blue stable. Armonk, N.Y.-based IBM develops and manufactures information-technology products, including computer systems, software, storage systems, and microelectronics. Directors of both companies approved the merger for $58 a share, a 9.5-percent premium. Before accounting for Cognos’s cash position, the implied equity value of the transaction is about. $4.83 billion. After completion, IBM intends to integrate Cognos as a group within IBM’s Information Management Software division. IBM also will appoint current Cognos President and CEO, Rob Ashe, to lead the group. The transaction is expected to close in next year’s first quarter.
Seller financial advisor: Lehman Brothers
Bidder financial advisor: Citigroup; and Lazard
Seller legal advisor: Bingham McCutchen; Fenwick & West; and Torys
Bidder legal advisor: Cleary Gottlieb Steen & Hamilton, Cravath Swaine & Moore, and Osler Hoskin & Harcourt

Ralcorp Holdings to buy Kraft’s Post cereals business for $2.64 billion

St. Louis-based Ralcorp, the maker, distributor, and marketer of ready-to-eat and hot breakfast cereals, baby food, snacks and cookies, dressings, syrups, jellies, and sauces will issue 30.3 million shares for Kraft’s Post business under terms of the transaction, and provide about $960 million of equivalent cash value. Northfield, Ill.-based Kraft makes branded food and beverage products, including cheese products, cookies and crackers, coffee, salad dressings, packaged dinners, and sauces. The transaction is valued at $55.47 per share. Under the terms of the transaction, Post — consisting of cereal brands such as Honey Bunches of Oats, Pebbles, Shredded Wheat, Selects, Grape Nuts, and Honeycomb — will be transferred into a newly formed company to be immediately merged with a subsidiary of Ralcorp. Kraft will distribute the shares of the new company to its shareholders either in a spin-off or a split-off transaction, at its own discretion, before completion. A spin-off would involve a pro-rata distribution of shares to Kraft shareholders, with a split-off providing Kraft holders the option of exchanging Kraft shares for stock in the new Ralcorp company. When completed, the combined company will be 54-percent owned by former Kraft shareholders and 46-percent owned by former Ralcorp shareholders. The transaction is expected to be tax-free to shareholders of both companies, and will enable Kraft to diversify its resources as part of its growth strategy. Ralcorp is expected to benefit by combining Post brands with its private-label business and infrastructure. Completion is expected in mid-2008.
Celgene to buy Pharmion for $2.55 billion

Summit, N.J.- based biopharmaceutical company Celgene will pay $47 in stock and $25 in cash for each share of Boulder, Colo.-based Pharmion, a premium of 46.1 percent. Before accounting of its cash position of $135 million, the deal is worth $2.68 billion. The acquisition will help Celgene expand into a global market with three different medical therapies. Celgene will finance the cash portion of the transaction with cash on hand. At closing of the transaction, expected by the end of next year’s second quarter, Pharmion shareholders will own approximately 6 percent of Celgene’s outstanding common stock.
Seller financial advisor: Banc of America Securities
Bidder financial advisor: JP Morgan; and Merrill Lynch
Seller legal advisor: Willkie Farr & Gallagher
Bidder legal advisor: Proskauer Rose and Arnold & Porter


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