Crisis, What Crisis?

When it comes to dealmaking, the party may be over for private equity. But cash-rich corporate buyers have reason to cheer.

In Paris, private equity boss Guy Hands, of Terra Firma, remembered fondly a “bygone era” in credit conditions at a conference for fellow financial investors. In London, Jon Moulton, head of Alchemy Partners, told a gathering of corporate finance directors to expect “an era of significantly lower returns.” Meanwhile, in Milan, Alessandro Profumo, CEO of UniCredit, told shareholders that the Italian bank was rethinking its business model given that a reduced appetite for securitisation will force it to hold more loans on its balance sheet.

As the credit crunch continues to wreak havoc throughout the financial services industry, many executives across the world’s financial capitals are spouting a steady stream of doom and gloom.

But then there was Marcus Schenck, CFO of Dusseldorf-based utility E.ON. He lauded the “brilliant reception” the company’s euro-denominated benchmark bond received in late September. Raising €3.5 billion, up from an initial target of €2.5 billion and reportedly attracting orders worth €12 billion, Schenck’s mood could hardly be in sharper contrast to the financiers in Frankfurt and beyond. As he said to reporters, “Credit crisis, what credit crisis?”

Many finance chiefs are feeling the same way as 2007 draws to a close. Although the turmoil in credit markets is undoubtedly pushing up the cost of debt and denting equity valuations at some firms, for profitable, cash-rich non-financial companies across Europe — and there are many — the doomsday warnings have not yet come to pass. As far as dealmaking is concerned, with the exception of a brief respite in the summer when the turbulence first struck, it’s been business-as-usual for a broad swathe of the European corporate world.

Buying Spree

The value of European M&As in 2007 to late November reached €1.4 trillion, up from €1.2 trillion in all of 2006, according to research firm Dealogic. (See “Volume Down, Value Up” at the end of this article.) And plenty of those deals were announced after the credit crunch quelled the private equity frenzy of the first half of the year. A case in point: the blockbuster $140 billion hostile bid from Anglo-Australian miner BHP Billiton for rival Rio Tinto in November. BHP pledged to buy back $30 billion of its shares should its all-share offer succeed, but resistance from its target looks likely to push the value of a potential tie-up even higher.

In October, Finnish mobile-phone company Nokia snapped up American navigation-services provider Navteq for $8.1 billion in cash. Shortly after, a bidding war broke out between Garmin of the US and TomTom of the Netherlands over Dutch digital-mapping firm Tele Atlas. TomTom trumped Garmin’s final bid by more than 20%, offering €2.9 billion in cash to clinch the deal.

In November, similar consolidation plays were made in the brewing industry, with Carlsberg of Denmark and Heineken of the Netherlands teaming up to offer £7.3 billion for the UK’s Scottish & Newcastle. At around the same time, Anglo-South African brewer SABMiller won over shareholders at Grolsch with a €816m proposal, a whopping 80% premium to the value of the Dutch beer group’s shares in the month before the offer.


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