The M&A Mix Tape

In case you missed any of these catchy tunes last week, it's not too late to boogie down. Grab your headphones, CD player, iPod, speakers, guitar, cowbell, whatever you need -- it's time for the M&A Mix Tape.

"Fight the Power" by Public Enemy featuring Barclays and ABN Amro
With the announcement of exclusive merger talks still fresh, Barclays (NYSE: BCS  ) and ABN Amro (NYSE: ABN  ) are already assuming the fighting position.

Barclays, of the U.K., and ABN, of the Netherlands, are two global banking giants with a wide range of services, including consumer banking, credit cards, business banking, asset management, and investment banking. The talks come at a time when activist shareholders, principally The Children's Investment Fund (TCI), have been looking for some action out of ABN. TCI, a primarily value-oriented hedge fund, got some prime-time headlines a few years back, when it had a hand in blocking the London Stock Exchange takeover of the Deutsche Boerse. Now TCI has its sights set on ABN and has been pushing for the bank to either break up or sell itself to a competitor.

The Barclays bid is a problem solved, then, right? Not quite. In a sale situation, TCI obviously wants to see the highest price for its position in ABN, and is pushing for the bank to put a two-month "go shop" clause in place. A "go shop" clause, typical in M&A deals, allows the target company's board of directors time to seek out other, higher bidders for the company. In a massive deal such as this, two months would give new bidders a chance to do due diligence.

With plenty of large banks focused on global growth, ABN's operations in the U.S. and Brazil, as well as its home country of the Netherlands, could be of interest to a number of players. Prior to the Barclays bid, France's BNP Paribas and Societe Generale both expressed an interest in ABN. HSBC and ING could also stick their noses in here, and Citigroup (NYSE: C  ) has purportedly been mulling over joining the fray. Finding a price that makes sense for the acquirer and pleases hard-nosed TCI will be an interesting proposition, particularly for Citi, which is currently dealing with a shareholder backlash against its recent bid for Japan's Nikko Cordial.

"The Thin Ice" by Pink Floyd featuring KKR
Last month, buyout shops Kohlberg Kravis Roberts and Texas Pacific Group made sure private equity stayed prominent by proposing a $45 billion buyout of Texas power company TXU (NYSE: TXU  ) . If completed, the massive deal would break the record for largest take-private transaction (again). Recent reports, though, suggest the deal could be skating on thin ice.

It's not as if the deal was open and shut from the outset -- far from it. This wasn't the first time buyout firms have targeted a utility, and past attempts have met squarely with failure. This time looked to be different; strong political alliances, as well as a set of concessions from the outset (including a 10% rate cut for the company's customers), seemed to put the bidders in a good position.

With Texas TVs already blaring ads touting the "new TXU," the state's politicians are thinking that maybe turning over some stones might be a good idea. Currently under debate is whether the Public Utilities Commission should undertake a full review of the deal, an action that would likely put the takeover in limbo for a good chunk of time. KKR and TPG are obviously not happy with the turn of events, and KKR's Henry Kravis has made some noise suggesting that KKR may walk away from the deal if it does go to full review.

"This Is Why I'm Hot" by Mims and Google
Maybe in the past it was enough for Google (Nasdaq: GOOG  ) to say "I'm hot cuz I'm fly and you ain't cuz you not," but more recently there have been a lot of questions over where Google is looking for its future growth. Specifically, since financial details of the YouTube acquisition were released in Google's 10-K filing, it's been debated whether Google put on a bubblicious year-2000 cap to make the buy. There's certainly little question that YouTube is the ubiquitous online video platform, but some are scratching their heads over the potential revenue opportunities. And that's to say nothing about the copyright-infringement lawsuits the site faces.

More recently, it looks as though Google has returned to its tried-and-true strategy of gobbling up small acquisitions and snapping them into its massive platform. This has worked well for the company; it turned up aces on acquisitions like Pyra Labs (owner of Blogger), Urchin Software (now known as Google Analytics), and Upstartle, which provided the technology for what is now Google Docs & Spreadsheets.

The most recent pickup was video-game advertiser Adscape. Adscape specializes in integrating advertising into video games so the ads act like a seamless part of the flow of the game. Video game giants like Electronic Arts have begun targeting this area, which could develop into a very lucrative aspect of the already gigantic video game industry. Google didn't release financial terms of the deal, but it's rumored to have been in the $23 million range.

I think YouTube could definitely end up being a cash engine for Google as it continues to develop the platform, but with the success the company has had through small, targeted acquisitions and internal development, I wonder why it would want the risks and headaches that come with the big-ticket acquisitions.

Liner Notes
Claire's Stores
agreed to be bought out by Apollo Management for $3.1 billion, or 9.5 times trailing EBITDA. The company has been on the market looking for a suitor since December. Though the terms represent a pretty fair price, it's less than the $35 per share traders had been speculating on in mid-February.

In a big week for private equity, Affiliated Computer Services (NYSE: ACS  ) said it received an $8.2 billion offer from its chairman and founder Darwin Deason, with backing from Cerberus Capital Management. The offer price was $59.25 per share, a 16% premium over the prior day's closing price. Shares traded yesterday at just more than the offer price as ACS announced that it had hired Lazard to advise it on the offer.

And in a little more PE action, logistics specialist EGL (Nasdaq: EAGL  ) agreed to a $1.7 billion buyout from its CEO, James Crane. Though Crane's initial backer on the transaction, General Atlantic, pulled out in early February, Centerbridge Partners and Woodbridge stepped in to take its place and allow the $38-per-share purchase.

That's it for this album, but be sure to keep tuned in to The Motley Fool for more tunes from the M&A front.

TXU is an Income Investor pick. Electronic Arts is a Stock Advisor selection. You can check out any of the Fool's newsletters with a 30-day free trial.

Fool contributor Matt Koppenheffer is currently ranked 2,370 out of 25,056 Fools participating in The Motley Fool's CAPS service, and he encourages everyone to get heard. He does not own shares of any of the companies mentioned. The Fool's disclosure policy says "this is why, this is why, this is why I'm hot."


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 524599, ~/Articles/ArticleHandler.aspx, 8/23/2014 9:32:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement