LINGERING IN ANTITRUST LIMBO

Original Story: morningstar.com

Mergers and acquisitions have accelerated sharply since the financial crisis faded, but the government's pace for reviewing proposed deals is slowing.

The Justice Department and the Federal Trade Commission are taking more time to investigate their most intensely scrutinized mergers, according to data compiled by antitrust lawyer Paul Denis of Dechert LLP. A Kansas City antitrust lawyer is following this story closely.

In such deal reviews concluded this year, more than 10 months elapsed, on average, between the transaction's announcement and a yes-or-no decision by the government. That's an increase from an average of seven months in recent years.

As time passes, merging firms can become increasingly worried about completing a deal. They have to ensure financing remains in place, and that can cost money. They can begin to lose employees nervous about the future, as well as customers. A Richmond mergers and acquisitions lawyer is knowledgeable in all areas of M&A and general acquisitions law, including but not limited to leveraged buyouts and company reorganizations.

"When you go from seven months of that to 10 months, it's different," Mr. Denis said. "No one wants their deals to hang out there very long. You're taking market risk. All kinds of things can happen."

Companies in a number of recent mergers have been waiting upward of a year -- or longer -- for a final verdict, and some deals have fallen apart because of government concerns.

Comcast Corp.'s bid for Time Warner Cable Inc. was pending for 14 months before it was dropped in April in the face of opposition from the Justice Department and the Federal Communications Commission.

Days later, Applied Materials Inc. walked away from its deal to acquire Tokyo Electron Ltd. 19 months after it was announced, citing Justice Department objections. The FTC spent more than a year examining Sysco Corp.'s planned acquisition of rival food distributor US Foods Inc. before bringing a lawsuit in February challenging the deal.

Other reviews still pending after more than a year include the merger of medical-device makers Zimmer Holdings Inc. and Biomet Inc., and AT&T Inc.'s deal to acquire DirecTV.

Government officials say companies play a significant role in determining the duration of antitrust reviews. A Boston M&A lawyer represents clients in business divestitures, leveraged buyouts, and company reorganizations.

"There are ways the parties can help themselves in the process," said Deborah Feinstein, head of the FTC's Bureau of Competition. It matters how long companies take to provide data and documents, to offer divestitures when appropriate, and to find buyers for assets that need to be sold off to get approval.

Ms. Feinstein also said companies can choose to come to the agency early after a deal is announced to walk through the transaction and highlight areas of business overlap between the merger partners. "Sometimes that can significantly speed things up," she said.

Bill Baer, the Justice Department's antitrust chief, said the average review is taking longer this year due to a couple of particularly lengthy ones. "In those cases, the parties weren't pushing for a decision, either because they wanted more time to convince us or because they wanted to align the process with a sister agency," he said.

Mr. Denis's statistics focus on merger deals that resulted in a government lawsuit, a settlement, abandonment by the firms, or a closing statement from antitrust officials explaining why the transaction should be allowed.

Not all significant recent merger reviews have taken so long. The FTC cleared the merger of medical-supply companies Medtronic Inc. and Covidien PLC, with conditions, about five months after the deal was announced in June 2014.

External factors explain the length of some antitrust probes. Telecom mergers, such as the Comcast and AT&T deals, require an added layer of FCC review. And deals with a strong international component can take longer as firms coordinate with antitrust agencies overseas.

But antitrust lawyers say the U.S. agencies have gotten more demanding in asking firms for long periods to conduct exams.

By law, merging parties can put the agencies on a 30-day decision clock once they have complied with requests for detailed data about a merger, a process that can take months. In reality, firms almost always agree to give more time, with officials sometimes asking for 90 days or more, antitrust lawyers say.

The antitrust agencies are operating from a position of strength. Companies need the government's cooperation, particularly on narrowing the scope of agency information requests, because producing large volumes of documents is costly.

More important, firms prefer not to get sued, so they are usually willing to give the government more time if it might make a difference between a suit and a settlement. "If parties are unwilling to litigate, the agencies will sense it, and it can give the agencies greater leverage to lengthen investigations," said lawyer Joshua Soven of Gibson, Dunn & Crutcher LLP, who has worked at Justice and the FTC.

The Justice Department's Mr. Baer said it is mutually beneficial to have an endgame to talk through potential antitrust concerns. "If there's a way to get to a meeting of the minds before we have to litigate, most companies want to do that," he said.

Even when the risk of a lawsuit fades, the process of completing divestitures and other settlement conditions can push back a closing date. Some lawyers say the time it takes the government to sign on the dotted line has increased, particularly at the FTC.

"The agencies want to make sure they get it right. The last thing they want to do is a lengthy investigation and then not fully replicate the competition being lost," said Matt Reilly, a former FTC lawyer now at Simpson Thacher & Bartlett LLP. "It's going to take a long time. And it is going to be a little bit of a roller coaster."

M&A With Cheap Takeover Candidate

First appeared in Bloomberg News

 For all the acquisitions being struck in the mining industry, no company in North America is a cheaper takeover candidate than Cliffs Natural Resources Inc.

The biggest North American iron-ore producer sells for 6.4 times cash from operations, after deducting capital expenses, according to data compiled by Bloomberg. That’s less than every other metals or mining company in the U.S. or Canada exceeding $5 billion in market value, and a 70 percent discount to the median. Cleveland-based Cliffs, which analysts say will generate record sales in 2012, is also the least expensive relative to its estimated net income this year and next, the data show.  An Sacramento M&ALawyer  finds this curious.

Mining takeovers accelerated to a four-year high in 2011 as companies sought to replace deposits and industrial growth in China and the developing world fueled demand for raw materials. With Glencore International Plc and Xstrata Plc agreeing to merge to create a $90 billion global mining company, Cliffs may attract interest from BHP Billiton Ltd. or Rio Tinto Group, Lutetia Capital said. An acquirer could pay a 30 percent premium and still get Cliffs for less than any comparable publicly traded mining company versus its free cash flow, the data show.

“There could be more vertical integration” after Glencore and Xstrata, says an executive at Confluence Investment Management in St. Louis, which manages $1 billion including shares of Cliffs. Several first-rate mid-sized companies like Cliffs Could potentially become takeover targets and are predicted to turn in the M&A arena. A Buenos Aires M&A Lawyer is interested in the outcome.

Cliffs, declines to confirm whether the company has been approached about a merger, an acquisition or is considering putting itself up for sale.

Cars, Skyscrapers

A spokesman for Melbourne-based BHP, declined to comment on whether the company is considering buying Cliffs.

Meanwhile a spokesman for London-based Rio Tinto, didn’t respond to a telephone message seeking comment.

Founded in 1847, when investors from Ohio pooled resources to explore for minerals in Michigan, Cleveland-Cliffs Inc. renamed itself Cliffs Natural Resources after it agreed to buy Alpha Natural Resources Inc. in July 2008. While the deal was scrapped four months later in the midst of the biggest financial crisis since the Great Depression, Cliffs kept its current name.

The company now produces the most iron-ore pellets in North America. It also exports the raw material, used to make steel found in everything from automobiles to skyscrapers, to China and other Asian markets from its mines in eastern Canada and Australia, according to its regulatory filings.

Relative Value

Since reaching an almost three-year high on July 19, shares of Cliffs have retreated 26 percent, the largest drop after Alcoa Inc. among 30 companies in the Standard & Poor’s 500 Materials Index, data compiled by Bloomberg show. An Atlanta M&ALawyer  watches these changes.

In September of 2011, Cliffs posted its biggest two-day slump in more than two years amid concern the U.S. economy would fall back into a recession, curbing iron-ore demand. The company said last month that 2011 sales volume for eastern Canada would reach 7.4 million tons, short of its forecast of 8 million as Cliffs suffered crusher, dryer and other equipment outages.  This is interesting to a Paris M&A Lawyer.

Shares of Cliffs ended at $74.99 yesterday, leaving the company valued at $10.7 billion. That’s 6.4 times its free cash flow in the past year, data compiled by Bloomberg show. In North America, the median multiple for the 20 metals and mining companies with more than $5 billion in value was 23.5 times.

Cliffs also traded at 7.3 times analysts’ per-share estimates for 2012 profit and 6.3 times their projections for 2013. That’s at least 40 percent less than the industry’s median ratio in each of those years, the data show.

Chinese Demand

BHP and Rio Tinto, which both get more than a quarter of their revenue from China, may now want Cliffs’ iron-ore business to increase exports to the world’s fastest-growing major economy, according to Confluence’s Keller and Paris-based Lutetia.

China, which used more iron ore than all other countries combined last year, relied on imports to meet almost 70 percent of its demand, data compiled by Bloomberg show. It imported 687 million metric tons of iron ore in 2011, more than double the amount it bought from overseas suppliers five years ago.

Buying Cliffs, which produced about 40 million metric tons of iron ore in the past 12 months, could boost BHP’s total output by almost 30 percent and Rio Tinto’s by about 20 percent, the data show. BHP and Rio Tinto, the world’s largest and third- largest mining companies by market value, compete with Rio de Janeiro-based Vale SA in the global iron-ore market.

Iron ore is where most of the shortage in China according to Lutetia, a firm that oversees a $100 million event-driven, merger and acquisition fund. Cliffs is believed to be undervalued and extremely well positioned to be an acquisition target.

Glencore-Xstrata

Anglo American Plc, less than half the size of BHP and Rio Tinto, may look to acquire Cliffs as the Glencore-Xstrata merger increases pressure on smaller mining companies to combine or risk being taken over.

Baar, Switzerland-based Glencore, the world’s biggest commodities trader, and Xstrata of Zug, Switzerland, together will become the world’s biggest producer of zinc, lead and thermal coal and one of the five largest suppliers of copper and nickel, according to UBS AG.

Cliffs may also entice ArcelorMittal, the world’s biggest steelmaker, with the possibility of securing more supplies of the material it needs to make the alloy report analysts at  Davenport & Co.

ArcelorMittal earned less than 5 cents operating income for every dollar of revenue in 2010, about three-quarters less than in 2005, data compiled by Bloomberg show.

Slipping Away

Cliffs is a very attractive stock in the long term and from the M&A side, according to analysts at Dahlman Rose & Co. in New York. If a mining company makes an M&A offer for Cliffs, it could spur multiple merger or buyout offers from many steel companies seeking an opportunity to acquire Cliff's assets.

Multiple entities are interested in conducting an M&A transaction with Cliff's.

London-based Anglo, and Luxembourg-based ArcelorMittal, declined to comment on whether their companies are considering buying Cliffs.

A slowdown in China, the world’s largest user of industrial metals, may reduce earnings for raw materials suppliers and deter the pace of dealmaking in 2012.

The International Monetary Fund cut its 2012 growth forecast for China to 8.2 percent from 9 percent last month, after the nation expanded in the last three months of the year at the slowest rate in 10 quarters.

Takeover Deterrent

China’s growth would be cut almost in half if Europe’s debt crisis worsens. If Chinese demand falls short, demand and prices for iron ore are likely to decline. Potential bidders have cited demand concerns as possible deterrents that could prohibit an M&A offer. This is interesting to a Charlotte M&A Lawyer.

Economists estimate that China will grow 8.5 percent this year. Even at the 8.2 percent rate that they are projecting for 2013, Chinese demand for iron ore will probably keep prices from falling because the country uses more than 40 percent of the world’s steel.

Cliffs could command a takeover premium of at least 30 percent, or about $97.50 a share.

Bullish Options

At $110 a share, the price Cliffs could get in an acquisition, would still be cheaper than any other mining company in North America relative to free cash flow. An Istanbul M&A Lawyer is interested in the outcome.

Options traders are betting that the value of Cliffs will also increase. The ratio of calls to buy Cliffs shares versus puts to sell reached 1.28-to-1 on Jan. 25, the highest level since January 2010.

Many companies are working with corporate counsel in packaging potential M&A bids for Cliff's Natural Resources.

Fast Retailing Co Looking to Purchase Rival

Story first appeared in Bloomberg New.

Fast Retailing Co., Asia’s largest clothing chain, may buy a bigger rival in the U.S. or Europe after the yen’s advance to a postwar high against the dollar boosted the Japanese company’s purchasing power.

The yen strength and anemic stock markets make this a very good opportunity for M&A, Chief Executive Officer Tadashi Yanai, 62, said .  He added that it won’t be something small, but a company of equal size or bigger.”

The billionaire aims to take advantage of the yen’s climb to expand outside Japan, where an unexpectedly long summer damped demand for fall and winter clothing, contributing to a 12 percent decline in profit in the year through August. Fast Retailing opened two New York stores last month and aims to be the world’s top clothing retailer, targeting a sixfold jump in sales from last year to 5 trillion yen

($64 billion) by 2020.

If there is a chance to do M&A in the future, they are thinking of doing it. Yanai, who turned his father’s tailoring business into a company with a market value of 1.4 trillion yen, making him Japan’s second-richest person.

Fast Retailing, the second-biggest gainer on the Nikkei 225 Stock Average in the past five years, “does not need any brands” and isn’t considering companies such as Esprit Holdings Ltd., Yanai said. 

Polo Ralph Lauren Corp. probably won’t agree to an acquisition, according to Yanai.

Overseas Sales

Fast Retailing has said it intends to boost overseas sales to be greater than domestic revenue by 2015 as it expands in China, Southeast Asia and the U.S., competing with Inditex SA’s Zara, Hennes & Mauritz AB, and Gap Inc. Sales at Uniqlo stores in Japan that have been open more than a year dropped for a third straight month in October.

Making purchases was one of the ways the company was “investing for the future,” Yanai said in September. He remains Fast Retailing’s biggest shareholder with a 22 percent stake, according to data compiled by Bloomberg.

Fast Retailing has gained about 26 percent in the past five years. In dollar terms, its market value has soared 90 percent. The stock fell

0.2 percent to 13,390 yen as of the 3 p.m. close of trading in Tokyo, paring its advance this year to 2.8 percent, compared with a 14 percent drop for the Nikkei 225 and a 17 percent slide for the broader Topix index.

May List Overseas

Yanai said the company may also list overseas since the Japanese equity market lacks growth. He didn’t give a timeframe for any share sales.

The yen on Oct. 31 hit a post-World War II high of 75.35 against the dollar before the government intervened in the currency markets. The Japanese currency traded at 78.24 to the dollar on Nov. 4.

Fast Retailing had 202 billion yen in cash and short- term investments in August, the highest level since at least 2002, according to data compiled by Bloomberg.

The company bought out apparel maker Link Theory in two transactions in 2009 for $371 million after purchasing a minority stake in 2004, according to data compiled by Bloomberg. That’s Fast Retailing’s biggest acquisition to date, the data show.

Profit Outlook

Sales will probably jump 18 percent to 965 billion yen in the fiscal year ending Aug. 31, the clothing retailer said Oct. 12 in a statement. Profit is likely to rise 31 percent to 71 billion yen in the fiscal year.

Fast Retailing’s overseas sales comprised 18 percent of last year’s 820 billion yen total, compared with a share of about 16 percent in the previous year, according to its annual reports.

Fast Retailing has spent more than $875 million on 22 deals since 2003, according to data compiled by Bloomberg. It acquired a stake in Nelson Finance, owner of the French brand Comptoir des Cotonniers, in 2005, according to its 2010 annual report. Fast Retailing bought a further 64 percent in the company for $192.5 million in 2006, according to data compiled by Bloomberg.

Princesse tam.tam

The clothing retailer also took control of French fashion brand Princesse tam.tam by buying 95 percent of Petit Vehicule for $83 million in 2005, the data show.

The company paid a median of 20.6 times earnings before interest and taxes on seven of its deals, according to data compiled by Bloomberg. 

That compares with a median of 11.6 times EBIT for 78 transactions in the clothing retail sector in the same period, the data show.

Fast Retailing in August 2007 dropped out of the bidding for New York luxury chain Barneys as Dubai’s Istithmar PJSC offered $942 million, raising its offer twice to counter the Japanese retailer.

Yanai at the time said Fast Retailing would spend as much as 400 billion yen, or about $3.5 billion, on acquisitions to double annual sales to 1 trillion yen by 2010. The company announced deals worth more than $400 million in the period from August 2007 through the end of 2010 and reported sales of 815 trillion yen in its 2010 fiscal year, according to data compiled by Bloomberg.

Focusing on Uniqlo

“We no longer think there is a reason to buy Barneys,” Yanai said. 

“Currently, we are mainly driving our Uniqlo business, so in that sense, there is no meaning to buy Barneys.”

Fast Retailing aims to build a global production system capable of manufacturing 5 billion articles of clothes yearly by 2020, it said in September.

Yanai, with an estimated wealth of $7.6 billion according to Forbes, quit his job selling kitchen items and men’s clothing at a Jusco supermarket in Japan to join his father’s tailoring business, Ogori Shoji, in 1972. He became president in 1984, when he opened the first Uniqlo store, known at the time as Unique Clothing Warehouse.

Fifth Avenue Store

In Japan, Yanai is second in wealth only to Softbank Corp. Chief Executive Officer Masayoshi Son, according to Forbes.

Fast Retailing aims to make 1 trillion yen of pretax profit, excluding ordinary items by 2020, more than 10 times this fiscal year’s. It plans to open as many as 300 stores annually within a year or two, Yanai said last month.

Yanai opened two of Uniqlo’s biggest stores to date in New York last month, with one on Fifth Avenue and another on 34th street. The Fifth Avenue store has a floor space of 89,000 square feet. The company plans to open stores in Los Angeles, Chicago and San Francisco in the next three years, he said.

Megadeals Go Missing From M&A Rebound

Bloomberg

This year’s rebound in mergers and acquisitions has one conspicuously large absence: the megadeal.

Announced takeovers of more than $25 billion are set to make up the smallest percentage of total deal volume in any year since 2002, according to data compiled by Bloomberg. BHP Billiton Ltd.’s offer for Potash Corp. of Saskatchewan Inc. is the only bid this year valued at more than $30 billion, and there have been only two others valued at more than $25 billion, including net debt.

Companies are spending stockpiled cash on smaller competitors that complement their business rather than pursuing transformational takeovers. While 73 percent of transactions this year have been less than $5 billion, the purchases have put dealmaking on pace to surpass last year’s $1.78 trillion in volume and may portend the return of more sizeable acquisitions.

“The drop-off in the very large transactions is masking a significant pickup in $1 billion to $5 billion deals,” said Gary Posternack, head of M&A for the Americas at Barclays Plc, in an interview. “Companies are looking at transactions that are lower risk, closer to the core business of the acquirer, and perceived as being synergistic.”

The biggest deals so far this year account for just 5.8 percent of total volume, while acquisitions from $1 billion to $5 billion have risen to 34 percent, the highest in at least a decade, according to Bloomberg data. Transactions less than $1 billion account for 39 percent of the total, a six-year high, the data show.

Cash Available

Many conditions for a comeback in bigger deals are in place. The 1,000 largest non-financial companies have almost $3 trillion on their balance sheets, and financing rates are near record lows. The Federal Reserve’s October Beige Book, released Oct. 20, noted that M&A lending picked up in some areas.

There is pent-up demand for smaller deals even if banks are unwilling to commit tens of billions of dollars in financing, according to Hiter Harris, managing director and co-founder of Harris Williams Co. in Richmond, Virginia, whose firm specializes in advising on transactions valued at less than $1 billion.

“The middle-market deal flow is a six- to nine-month leading indicator for the rest of the market and the economy,” said Harris, who expects more deals will top $25 billion in 2011.

Banks are willing to lend to creditworthy buyers, as evidenced by the $45 billion of loans Melbourne-based BHP Billiton obtained for its Potash bid. Potash rejected the $40 billion offer, excluding debt, as too low.

‘Story of Ego’

Other potential targets may also be balking at offers because they anticipate their valuations will rise, according to Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York.

“This is a story of ego,” said Shah. “Boards are saying, ’I’m a $25 billion company, I’m not the prey, I’m a survivor, I’m the predator.’”

Buyers don’t appear to be looking for transformational opportunities, according to Richard Hurowitz, chairman and chief executive officer at Octavian Advisors LP, who invests in risk arbitrage. Instead, they are actively seeking strategic deals with more “reasonable” valuations, he said.

International Business Machines Corp.’s pending takeover of Netezza Corp. for $1.67 billion and Unilever’s agreement to buy Alberto-Culver Co. for $3.7 billion are two examples of same- industry, all-cash deals announced since the beginning of September.

Biggest Deals

While deals between $5 billion and $25 billion have increased from last year, both in total number and in overall value, they are still below levels from 2005 to 2008, data show.

None of the three biggest deals this year have involved a U.S. company. The country’s unemployment rate is hovering at 9.6 percent and consumer confidence unexpectedly fell in October.

Aside from BHP, the other announced offers topping $25 billion this year are GDF Suez SA’s $25.8 billion bid for London-based International Power Plc and America Movil SAB’s $25.7 billion proposed purchase of Carso Global Telecom SAB. Both of those companies are controlled by billionaire Carlos Slim.

The compiled data include net debt and exclude terminated deals, such as this year’s $35.5 billion bid by London-based Prudential Plc to buy Hong Kong-based AIA Group Ltd.

A potential change in capital gains tax rates has also fueled smaller acquisitions, said Harris. President Barack Obama has proposed raising long-term capital-gain rates to 20 percent from 15 percent for individuals who earn more than $200,000 and couples that earn more than $250,000.

“The possible change in rates is a significant event for middle-market companies, but if you’re a $25 billion company, you’re probably not as focused on the changes,” Harris said.

Adobe Shares Surge on Report of Microsoft's Interest in Merger

Bloomberg

 

Adobe Systems Inc. shares surged as much as 17 percent, triggering exchange circuit breakers meant to curb volatility, on a report that Microsoft Corp. Chief Executive Officer Steve Ballmer discussed buying the company.

The New York Times reported that Ballmer recently visited Adobe CEO Shantanu Narayen at Adobe’s offices in San Francisco. The discussion centered on Apple Inc.’s control of the mobile- phone market and how the two companies could work together to compete, the Times said. A possible acquisition of Adobe by Microsoft was among the options discussed, according to the newspaper.

Adobe rose $2.96, or 12 percent, to $28.69 at 4 p.m. on the Nasdaq Stock Market. Earlier in the session, the shares jumped as high as $30, triggering the circuit breaker halt for five minutes. The stock has declined 22 percent this year.

Adobe has clashed with Apple CEO Steve Jobs, who banned Adobe’s flash video software from Apple’s mobile devices. Adobe won a partial victory on Sept. 9, when Apple eased restrictions on creating applications for its iPhone and iPad devices. Apple had prevented developers from using Adobe’s Flash video software.

Rival Standard

Still, the change didn’t let Flash apps run inside the browser on Apple devices, and that’s a larger concern, Jeff Gaggin, an analyst at Avian Securities Inc. in New York, said last month. Apple, which dominates the market for mobile apps, is promoting an Internet standard called HTML5 instead.

At the meeting, which included a “small entourage of deputies,” Ballmer and Adobe discussed how they might counter Apple’s position in smartphones, the New York Times said. The companies had held informal discussions about a Microsoft acquisition of Adobe several years ago, according to the report. Adobe has a market value of $15.1 billion.

Adobe spokeswomen Holly Campbell and Jodi Sorensen weren’t immediately available for comment. Frank Shaw, a spokesman at Redmond, Washington-based Microsoft, declined to comment.

Adobe forecast sales last month that fell short of analysts’ estimates, sending the shares down the most in eight years. Cash-strapped schools aren’t paying for as many copies of the product, which includes Photoshop and Illustrator, the San Jose, California-based company said. The sluggish economy in Japan, typically Adobe’s biggest Asian market, also hampered sales.

Insurance Deals Head for Biggest Year Since Peak of M&A Boom

Bloomberg

 

Insurance takeovers are headed for the biggest year since the peak of the last merger boom as financial-services firms from Bank of America Corp. to Aegon NV of the Netherlands jettison assets.

Deals in the industry have jumped 60 percent to $44.8 billion so far this year, up from $28 billion in the same period of 2009, according to data compiled by Bloomberg. Bank of America, Aegon and Royal Bank of Scotland Group Plc have more than $10 billion in insurance assets currently on the block.

The financial crisis that crippled American International Group Inc. is providing a buying opportunity for competitors such as MetLife Inc. and Prudential Financial Inc., which were quicker to recover from the global recession and are seeking growth in new markets. AIG has sold more than 30 assets since its 2008 bailout, while RBS and Amsterdam-based ING Groep NV were told to sell insurance businesses as conditions of their government lifelines.

“There’s a lot of stuff on the market,” said Clark Troy, a senior analyst at researcher Aite Group LLC in Chapel Hill, North Carolina. “For deep-pocketed buyers with firm conviction, it’s a great time to be making acquisitions.”

While the year’s biggest insurance deal collapsed when Prudential Plc shareholders stymied the company’s planned $35.5 billion takeover of AIG’s biggest Asian unit in June, the total value of announced deals is still set to surpass 2008 and 2009, when there were $58 billion and $53 billion in takeovers, respectively, Bloomberg data show. That tally excludes a $40 billion U.S. government infusion into AIG in 2008.

Insurance transactions totaled $90 billion in 2007.

‘Hard Choices’

AIG, which is working to repay part of a $182.3 billion government bailout, has held talks with Newark, New Jersey-based Prudential Financial this year about selling two Japanese life insurance units, said two people with knowledge of the matter.

Prudential and AIG still have divergent views on the value of AIG’s Star Life and Edison Life units, said the people, who declined to be identified because the discussions are private. The divisions together had a book value of $4.8 billion as of June 30, AIG said in a regulatory filing.

Mark Herr, an AIG spokesman, and Robert DeFillippo, a spokesman for Prudential, declined to comment.

Insurers that were bailed out are being forced into “making hard decisions about where they want to play and where they don’t,” said Achim Bauer, an insurance partner at PricewaterhouseCoopers in London. “They are seeking to repay some of that money by selling businesses that are non-core.”

ING, RBS

ING is required to divest its insurance business by the end of 2013 as part of a restructuring plan to win European Union approval for its government rescue. While the company is preparing the business for one or two initial public offerings, ING is getting “a great deal of interest” from potential buyers, Chief Executive Officer Jan Hommen said on Aug. 11.

RBS agreed in November to unload its insurance businesses, including the Direct Line auto insurer, after receiving 25.5 billion pounds ($40 billion) of state aid. In 2008, RBS had sought as much as 5 billion pounds for the businesses.

Some asset sales are being driven by regulatory changes in the wake of the financial crisis, including the recent U.S. financial overhaul and reforms being contemplated by the Basel Committee on Banking Supervision, said David Havens, an analyst at Nomura Holdings Inc. in New York.

Bank of America, the largest U.S. lender, is being pushed by regulators to raise a net $3 billion this year. The bank’s Balboa Insurance unit, obtained as part of the Countrywide Financial Corp. acquisition in 2008, is likely to fetch roughly the amount of its policyholder surplus, which was $1.92 billion as of March 31, according to Havens.

More Capital

“The financial regulations in general are requiring firms to hold more capital, and you can achieve that concept either by raising more capital or reducing risk,” Havens said. “By selling off non-core units you can actually achieve both.

Aegon’s Transamerica Reinsurance unit, which helps life insurers pool their risks, has gotten interest from both competitors and investors, said Aegon CEO Alexander Wynaendts on an Aug. 12 conference call. It has book value, or assets minus liabilities, of 1.6 billion euros ($2 billion). Reinsurance Group of America Inc., the largest U.S. company that focuses on life reinsurance, trades at about 73 percent of book value, implying a value for Transamerica of $1.5 billion.

Some potential buyers, meanwhile, are seeking to free up their capital reserves to fund growth in faster-growing markets like Asia. Paris-based Axa SA, Europe’s second-biggest insurer, agreed in June to sell part of its U.K. life insurance unit to Clive Cowdery’s Resolution Ltd. for 2.75 billion pounds.

MetLife, based in New York, made the biggest purchase of an insurer this year when it agreed to buy AIG’s American Life Insurance Co. for $15.5 billion.

Deals are happening because there is “a greater level of stability in the system compared to where we were six or 12 months ago,” said Bauer at PricewaterhouseCoopers. “That provides a greater willingness on the part of both buyers and sellers to consider transactions.”

Millionaires' Kids Hunting M&A Targets at Standard Chartered Summer School‏

Bloomberg

 

Standard Chartered Plc started a trainee program for the children of private-banking clients, joining bigger rivals including Citigroup Inc. and UBS AG in reaching out to Asia’s next generation of millionaires.

Eighteen people aged 18 to 26 enrolled in the six-week program in Singapore, which ended Aug. 13. They were assigned to projects ranging from identifying potential acquisition targets for London-based Standard Chartered to developing ideas for branch design, said Jungkiu Choi, the executive responsible for the course.

UBS and Citigroup, the biggest managers of money for the rich in the Asia-Pacific region, also run programs for children of their private-banking clients as banks target the scions of millionaires. Asia’s wealth may grow at double the global pace over the next four years, according to a Boston Consulting Group report published in June.

For “rich people, the next generation is their number one concern,” Choi said in an Aug. 23 interview in Singapore. “Transferring knowledge, discipline, business acumen, capability -- that’s more important to them than transferring their wealth.”

Private banks ignore the offspring of rich clients at their peril, said Justin Ong, PricewaterhouseCoopers LLP’s private banking leader for Asia-Pacific. A survey by PwC last year showed almost 40 percent of private banks in Asia don’t know how much money they’ll keep when a clients’ wealth gets transferred, he said.

Loss of Customers

“This is really a time of investment by the banks to develop relationships with the next generation of high net worth,” Singapore-based Ong said. “They have only just come to realize the deepening issue around potential customer loss if they don’t react to this and start building relationships now.”

Standard Chartered, the U.K. lender that gets more than three-quarters of its profit from Asia, restarted wealth management operations in 2006 after a decade-long hiatus. It caters to people with more than $1 million of assets. Half of the interns’ families have at least $10 million managed by the bank, said spokeswoman Ally Lim.

Standard Chartered’s private bank increased assets under management by 27 percent in Asia in the first half, more than twice the global pace.

The bank has no plans to extend the program to other parts of Asia, since most senior executives are based in Singapore, said Choi. This year’s participants came from Singapore, China, Dubai, South Korea, India, Indonesia and Malaysia and paid for transport and accommodation themselves.

UBS, Citigroup Courses

In Asia, Zurich-based UBS runs a two-week course once a year in Singapore and Hong Kong on topics including wealth management, leadership and personal development. Citigroup’s program, which alternates between the two cities, ran for five days this year and covered financial planning, investing and “soft skills” such as public speaking, said Aamir Rahim, the New York-based bank’s Asia-Pacific chief executive officer of wealth management.

Both banks said their courses had record numbers of participants in Asia this year. Credit Suisse Group AG this year started its first Chinese-language course for young investors in Taiwan.

“Our programs for the next generation of ultra-high net worth clients are designed to provide practical advice on how to manage the wealth they will eventually acquire,” said Daniel Harel, UBS’s head of private banking in South Asia for clients with at least 50 million Swiss francs ($48 million) of assets.

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Standard Chartered’s program is the only one in Asia that takes place in a real-life business setting, Choi said. At the end of the six-week course, participants can opt for a one-week class in financial planning, he said. They get paid an intern stipend of S$1,300 ($957) a month for their work at the bank.

“I tell them: ‘You are Spiderman. You have a special power and a special responsibility, but you need to learn how to deliver pizza first’,” said Choi.

One thing the trainees may deliver for Standard Chartered is an acquisition. As part of their on-the-job training, they were asked to help identify potential takeover targets for one of the bank’s units. The participants whittled down the list of candidates to less than 10 from “a few hundred,” and Standard Chartered may start talks with those companies, Choi said.

He declined to identify the potential targets.