Mergers & Acquisitions - a weekly recap

Fri. June 13, 2008; Posted: 06:37 PM

(RTTNews) - In a week marked with high activity deals, companies having a wide range of interests, from insurance brokers to pharmaceutical giants and medical equipment makers to beer producers, revealed important decisions of combination.

The buzz started on Sunday with insurance broker Willis Group Holdings Ltd. revealing a $1.7 billion agreement to acquire rival Hilb Rogal & Hobbs Co. The deal is expected to increase Willis Group's revenues in North America two times as well as expand its position in lucrative growth markets.

To cash in on the high growth prospects for natural gas, XTO Energy Tuesday made a $4.2 billion offer for Hunt Petroleum Corp. On the same day, eyeing the high-growth generic drugs market, Japanese pharmaceutical firm Daiichi Sankyo Co. agreed to buy a majority stake in India's biggest pharmaceutical company Ranbaxy Laboratories for $4.6 billion.

Putting an end to weeks of speculation, American business icon Anheuser-Busch, Inc. said Thursday that Belgium-based InBev NV has offered $46.3 billion to acquire the U.S. brewer.

Other companies that made acquisition-related announcements during the week include Invitrogen Corp., Applied Biosystems Group, Royal Bank Of Scotland Group Plc, Babcock & Brown, Staples Inc., Corporate Express N.V., Honeywell International Inc., B/E Aerospace Inc., Hologic Inc. and Third Wave Technologies, Inc.

Willis to buy Hilb Rogal & Hobbs for $1.7 bln

World's third-largest insurance broker Willis Group Holdings Ltd. (WSH | Quote | Chart | News | PowerRating) Sunday revealed an agreement to acquire rival Hilb Rogal & Hobbs Co. (HRH | Quote | Chart | News | PowerRating) for an equity value of about $1.7 billion. As per the agreement, Willis will acquire all outstanding shares of common stock of Hilb Rogal & Hobbs for $46 per share, 50% in cash and 50% in stock. The offer price marks a premium of 49% to Hilb Rogal & Hobbs' closing price on June 6.

Shares of Hilb Rogal & Hobbs, the No. 8 U.S. insurance broker, surged on the buyout news closing 41.9% higher at $43.82 on Monday. However, Willis shares dropped 6.2% and closed the regular trade at $33.72 on 4.05 million shares.

The deal, expected to close in the fourth quarter of 2008, is estimated to double Willis' North America revenues and improve its position in attractive growth markets. Traditionally, Marsh & McLennan Cos. and Aon Corp. dominate this market.

Willis expects the transaction to be 7% accretive to cash earnings per share in 2009, 10% in 2010 and 14% in 2011. The combined company is expected to realize $100 million in annualized savings by 2010. Once the deal is completed, the new organization in North America will be renamed Willis HRH.

Willis' acquisition of HRH is the largest deal in the insurance brokerage industry since Marsh & McLennan's acquisition of an European insurance broker for $2.05 billion in 1998.

Clifford Gallant, an analyst at KBW Inc. said Hilb makes sense from a strategic point of view, reported Bloomberg. Gallant has a ''Market Perform'' rating on Willis stock. Sometimes you have to be a little contrarian, especially when the valuations are attractive,'' Gallant added.

Hologic to buy Third Wave Technologies

Medical technology company Hologic Inc. (HOLX | Quote | Chart | News | PowerRating) Monday said it was acquiring Third Wave Technologies, Inc. (TWTI | Quote | Chart | News | PowerRating) for $11.25 per share in cash or about $580 million. Hologic will acquire 100% of Third Wave's stock in a cash tender offer and untendered shares, if any will be acquired in the merger. The offer price represents about 24% premium to Third Wave's average trading price over the last three months.

Hologic closed Monday's regular trade at $23.19, down $0.22 or 0.94%, on 11.52 million shares. The news of the acquisition sent Third Wave stock over 6% higher and the shares finished Monday's trade at $11.14 on 37.75 million shares.

The transaction, expected to close in the third calendar quarter of 2008, will help Hologic accelerate the growth of its diagnostics division, especially in cervical cancer screening. Third Wave has medical tests used in the screening of hepatitis C, cystic fibrosis and cardiovascular risk, which should add to Hologic's revenues. Hologic has digital mammography and breast biopsy systems, pap tests and surgical instruments, among its products.

The acquisition is expected to be about $0.10 dilutive to non-GAAP per share earnings in fiscal 2009 and to be accretive to non-GAAP per share earnings beginning in fiscal 2010.

Honeywell to sell fastener unit to B/E Aerospace

B/E Aerospace added $2.98 or 11% to close Monday's regular trade at $29.96. After touching an intra-day high of $55.51, Honeywell closed Monday's trade at $54.79, higher than the previous close of $54.01.

Honeywell will sell the business for $800 million in cash and the remainder in B/E Aerospace common stock. The transaction is expected to close in the third quarter. It is estimated that in 2009, the first full fiscal year after expected completion of the transaction, the aerospace distribution business segment will be the largest and most profitable segment of B/E Aerospace.

The agreement includes a 30-year contract that makes B/E Aerospace the exclusive distributor of Honeywell's fasteners, gaskets and electrical parts to the aerospace industry. Alex Hamilton, an analyst with Jesup & Lamont Securities in New York, said BE is changing the face of the company in a good way, reported Bloomberg. He has a ''Buy'' rating on the stock.

Tuesday, Standard & Poor's Ratings Services affirmed BE's ratings, including the BBB- corporate credit rating. The rating outlook is stable. However, S&P added that despite a significant increase in debt from this transaction, BE Aerospace's credit protection measures should be appropriate for the rating. S&P said the ratings also incorporate expectations that BE Aerospace will continue to pursue a moderate financial policy and balanced capital allocation to maintain an acceptable financial profile for the rating.

XTO Energy to buy Hunt Petroleum for $4.2 bln

Tuesday, oil and gas properties company XTO Energy Inc. (XTO | Quote | Chart | News | PowerRating) said it is acquiring privately-held Hunt Petroleum Corp. for $4.186 billion in cash and stock. The transaction includes $2.6 billion in cash and 23.5 million shares of XTO common stock.

XTO closed Tuesday's trade at $67.02, down $0.70 or 1.03%, on 11.89 million shares. The stock dropped 11 cents more in the extended session.

The acquisition, scheduled to close by September 3, will boost XTO's gas output by 12%, oil production by 16% and gas liquids by 14%.

Natural gas prices have increased faster than crude oil this year. Hunt Petroleum was founded by late billionaire H.L. Hunt 83 years ago, and the heirs, reportedly fighting over the trusts, were looking for a buyer. With the surge in prices and a 67% surge in gas futures, Hunt's heirs have decided to sell at less than $4 per thousand cubic feet of gas reserves.

Michael Henzi, an analyst at Sterne Agee & Leach Inc. in Boston, reported Bloomberg, said: "Over the last year, the prices paid in similar deals were $3 to $3.25 per thousand cubic feet. But natural gas has risen a lot more than that over that same time period, so $4 is a nice price to be paying for the assets." Henzi rates XTO shares "Buy''.

Staples to buy Corporate Express for $4.8 bln

Staples closed Wednesday's regular trade at $24.38, up from the previous close of $23.15. Corporate Express shares rose to close at $14.38 from $14.00.

Staples revised its offer for the Dutch office supplies distributor three times. The initial price was 7.25 euros per share, which was later raised to 8 euros per share before arriving at the final price. Corporate Express' share price more than doubled since the news first surfaced in February. The latest offer values Corporate Express at 5.3 times earnings before interest, taxes, depreciation and amortization.

The acquisition will push Staples to a leadership position in the contract segment in North America, where the company competes with Office Depot and OfficeMax along with Corporate Express. It will also help Staples offset dwindling revenues from a slowing economy. The deal is expected to close in July.

In an interview to Bloomberg, Anthony Chukumba, an analyst at FTN Midwest Securities Corp. said the deal makes a lot of sense for Staples and allows the company to quickly build scale in the contract business.

Staples is a retailer and Corporate Express, a wholesaler, which makes the pairing up a strategically sensible move. Credit Suisse analyst Gary Balter said in a research note that Staples would dwarf other office supply distributors.

Daiichi Sankyo to acquire majority stake in Ranbaxy

Marking a formidable foray into the high-growth generic drugs market, Japanese pharmaceutical firm Daiichi Sankyo Co. (DSKYF.PK) said Wednesday it was acquiring a controlling stake in India's biggest pharmaceutical company Ranbaxy Laboratories (RBXLF.PK, RBXZF.PK) for up to $4.6 billion.

In Tokyo, shares of Daiichi Sankyo closed up 4.9% at 2,975 yen prior to the announcement. At the Bombay Stock Exchange, Ranbaxy closed Wednesday's trading at Rs.560.80, up by Rs.0.05 or 0.01% from the previous close.

The consideration of Rs. 737 per share marks a premium of 53.5% to Ranbaxy's average daily closing price on the National Stock Exchange for the three months ending June 10.

The deal, expected to be completed by the end of March 2009, will help Daiichi strengthen its prescription drug business overseas, in addition to exploring new business opportunities in emerging markets. Upon completion of the transaction, Ranbaxy is expected to become a subsidiary of Japan's third-largest drug maker.

Ranbaxy sells drugs in 56 countries. With a rapidly aging society, the Japanese government wants cheaper versions of blockbuster drugs to have a greater market share so that medical costs will be reduced.

Fumiyoshi Sakai, a health-care analyst at Credit Suisse Securities Ltd., told Bloomberg that Daiichi's strategy is convincing. "The essence of the deal is Daiichi Sankyo will seriously challenge generic businesses,'' he said.

InBev offers $46.3 bln for Anheuser-Busch

U.S. brewer Anheuser-Busch, Inc. (BUD | Quote | Chart | News | PowerRating) Wednesday revealed an unsolicited offer from Belgium-based InBev NV, the world's biggest brewer by sales, to acquire the company for $65 per share in cash or about $46.3 billion.

Following the news, Anheuser-Busch stock that closed Wednesday's regular trade at $58.35, up $1.20 or 2.10%, climbed 6.96% or $4.06 in the extended trade and was at $62.41. The stock continued the rally on Thursday closing at $61.40. Thursday, InBev shares gained 8.5% in Brussels trading, the most since February.

"It looks like the market likes this deal and they're expecting this thing to happen,'' said Malcolm Polley, who helps oversee about $1 billion as chief investment officer at Stewart Capital Advisors, reported Bloomberg.

The offer price marks an immediate premium of 35% over Anheuser-Busch's 30-day average share price prior to recent market speculation, and an 18% premium over Anheuser-Busch's previous all-time high of $54.97 recorded in October 2002.

The deal will provide InBev an edge over British brewer SABMiller Plc (SAB.L | Quote | Chart | News | PowerRating), the world's biggest brewer by volume, which recently agreed to combine its U.S. division with that of Molson Coors. The combination is expected to create the global leader in the beer industry and one of the world's top five consumer products companies.

However, the offer is not being welcomed by Anheuser-Busch employees on concerns of job cuts. A lawsuit was filed against the company by a shareholder on Thursday stating the price was grossly inadequate.

Jonathan Feeney, an analyst with Wachovia Securities Inc., said in a client note, "InBev would focus its efforts on streamlining the U.S. beer giant, a possibility which might not sit well with Anheuser-Busch distributors.''

Chris Gower, an analyst at MF Global in London, said InBev might offer as much as $73 a share if Anheuser-Busch resists its advances, reported Bloomberg.

Meanwhile, Standard & Poor's said Thursday it might cut its ratings on Anheuser-Busch. "We believe that if the transaction proceeds and includes a significant amount of debt financing as indicated by InBev, credit measures will weaken well below Anheuser-Busch's current levels."

Friday, analyst at HSBC reiterated their "Neutral" rating on Anheuser Busch, while raising the target price to $65 from $52.

Invitrogen, Applied Biosystems to merge

The purchase price marks a 17% premium over Applied Biosystems' closing price on Wednesday and a premium of 12% over the company's average closing price in the last 30 days. The per share offer is expected to be divided as 45% cash and 55% Invitrogen stock.

Shares of Invitrogen plunged nearly 9% on the buyout news, while Applied Biosystems stock rose over 6%. Invitrogen shares were down $4.62 or 11% at $38.73 when the regular trading closed on the Nasdaq Thursday. ABI closed on the NYSE at $34.16, up over 5% from the previous close of $32.44.

Both the research equipment companies have expertise in molecular biology and the combination is expected to generate $3.5 billion in combined sales. The merged company will have products spread across areas like genetic analysis, cell biology, cell systems and proteomics.

The deal is anticipated to close in the fall. The combined company is expected to be neutral or slightly accretive to earnings per share in the first year, and increase earnings significantly in the second year.

Alastair Mackay, of Garp Research & Securities Co., said it was not clear how well the merged entity would fend off competition from rivals like Roche Holding AG's Roche Molecular Diagnostics and Illumina Inc., reported The Wall Street Journal.

Standard & Poor's Ratings Services said the 'A-/A-2' ratings and stable outlook on Applera would remain unchanged following the purchase agreement. Meanwhile, First Analysis Sec upgraded Invitrogen stock to "Overweight" from "Equal weight".

Royal Bank Of Scotland to sell Angel Trains unit

Royal Bank Of Scotland Group Plc (RBS, RBS.L), Britain's largest mortgage bank, Friday agreed to sell its Angel Trains unit to Australia's Babcock & Brown (BBWNF.PK)'s European infrastructure fund and partners for $7 billion.

Angel Trains, having operations in 11 continental European countries, provides about 4,100 passenger-train vehicles and 280 freight locomotives to rail companies in the U.K.

Babcock & Brown, which provides funding for real estate and infrastructure projects worldwide, plunged to a record low in Sydney trading Friday on concerns about its debt position. Investors are apprehensive about the company's underperforming funds, recent acquisition costs and high debt.

UBS AG analyst Jonathan Mott reduced his rating on the stock to ''Neutral'' from ''Buy,'' citing a ''crisis of confidence'' among investors, reported Bloomberg. Merrill Lynch reduced its rating on the stock to "Neutral" from "Buy." "We see minimal potential for outperformance given the long road ahead to restore investor confidence in the Babcock & Brown brand and the risk overhanging Babcock & Brown's debt," said Merrill Lynch analysts Kieren Chidgey and Naveen Patney in a report.

Royal Bank of Scotland Group PLC shares rose 3.17% to close on the London Stock Exchange at 236.25 pence. The stock gained over 5% and closed the regular trade on the NYSE at $4.72.

With the purchase, Babcock, Australia's second-biggest securities firm, will have its worldwide stake in rail assets increased to over $8.5 billion. The transaction is expected to be completed by the end of the year.

For full details on Anheuser-Busch Cos Inc (BUD) click here. Anheuser-Busch Cos Inc (BUD) has Short Term PowerRatings of 8. Details on Anheuser-Busch Cos Inc (BUD) Short Term PowerRatings is available at This Link.

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