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 addition, German industrial giant Siemens recently said that it could devote “several billion euros” to potential deals, even after announcing a massive €10 billion share buyback programme in early November.

And despite only recently completing a protracted mega-merger with Gaz de France, the CFO of French utility Suez, Gérard Lamarche, says he has “a couple of ideas” for further deals. “I would love to do new transactions,” he notes, although any major deal won’t take place until the two companies are sufficiently integrated and the markets are convinced that the billions of euros in synergies that were promised when the deal was completed will indeed be delivered.

Breaking Up

Of course, not everything went to plan for corporate dealmakers in 2007. Yet many of the year’s most notable botched deals broke down after private equity investors pulled out of arrangements with non-financial corporate partners. (See “So Near, and Yet So Far” at the end of this article.)

What’s more, financial investors, although stricken, have not fully retreated to the sidelines. In fact, according to Graham Randell, senior managing director at CIT Commercial Finance, there is a “good pipeline for the banks that remain open for deals,” with debt finance in the range of €70m to €200m still available.

And despite the financial sector’s torrid second half, it still produced the year’s biggest deal, with Royal Bank of Scotland’s consortium snatching ABN Amro from rival bidder Barclays in a €71 billion coup. Some predict that this landmark transaction will have long-lasting implications for the European M&A market.

When RBS teamed up with Spain’s Santander and Belgium’s Fortis to gatecrash Barclays’ planned takeover of the Dutch bank, many analysts viewed the consortium’s proposal as unworkable, largely because the sector had never seen a successful hostile, cross-border break-up bid. But by October, history was made.

The RBS-led consortium’s offer was mainly cash, making Barclays’ share-based bid look particularly wobbly when the credit crunch pummelled banks’ share prices across the board. The three consortium members also made the complex break-up proposal look easy, with Fortis making a critical breakthrough by winning approval for a €13 billion rights issue. For its part, Santander has made the best start in the break-up by selling Antonveneta, an Italian division of ABN Amro, to Italy’s Monte dei Paschi di Siena for €9 billion. This made the Spanish bank a notional profit of €2.4 billion on assets it owned for only a few weeks.

As for the ABN Amro deal’s broader implications, Tom Shropshire, a partner at law firm Linklaters, which advised RBS, sees the takeover as a “road map” for future transactions. “People talk about the M&A landscape differently having seen this deal happen,” he says. “Consortium no longer just means private equity houses getting together. It means corporate entities. And not only corporate entities, but corporate entities that have very complex businesses.”

Indeed, since RBS made its consortium bid, several other high-profile deals have involved trade players teaming up either to buy or break up targets. Akzo Nobel, a Dutch chemicals group, announced an £8 billion takeover of UK rival ICI in August. The deal includes an agreement to sell ICI’s adhesives and electronic-materials divisions to Germany’s Henkel for £2.7 billion. The Carlsberg/Heineken break-up bid for Scottish & Newcastle is another example.


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