Ravi Madhavan's A&D Blog

Chinese FDI in the US

A corrective for the perception that China is taking over everything: this Columbia FDI perspective (the underlying Princeton report has details) suggests that Chinese FDI accounted for only 0.25% of total US FDI stock in 2010. 

Eaton buys Cooper Industries

In B-school strategy classes, the Cooper Industries company has been a mainstay case study for teaching about corporate strategy. Those discussions will now need a major update, as Eaton has acquired Cooper Industries for over $11B. BusinessWeek story here. A key feature of the deal for Eaton appears to be that the combined company will be domiciled in Ireland (which has low corporate taxes), which is where Cooper Industries is registered.

Roundup

Lots of interesting stuff on the "airwaves" today, here's a selection:

NYT has summary graphics, based on Thomson Reuters data, of M&A activity in 2012 Q1: down 34% at $481B worldwide.

NYT DealBook's Deal Professor on how Google's Motorola Mobility buy is awaiting approval from China's anti-trust authorities.

WSJ conducts a scenario analysis on Greece's future in or out of the EU.

One interesting deal and another potential one

Asahi to buy Japanese milk beverage company Calpis for $1.5B, NYT report here. A key driver is described as follows (excerpt):

Like other Japanese brewers, including Kirin, Orion, Sapporo and Suntory, Asahi is dealing with the challenges of an aging and shrinking population at home, which has led to declining beer sales in Japan. 

Some background about Japan's demographic challenge here. 

This morning, there was news about another interesting deal in the works - move theater chain AMC (owner of Loews cinemas) is reportedly taking to a Chinese buyer about a sale, which may be full or partial. NYT report here.

Watson/ Actavis

Another consolidation deal in the generics pharma space yesterday, with US-based Watson Pharma buying the Swiss Actavis: summary facts, NYT DealBook story, analyst presentation. The messaging stresses the scale/ consolidation rationale, as illustrated by the following slide, as well as the management team's track record in integrating past deals. (For background on consolidation in generics, see this Goldman Sachs report - dated by now, but lays out the drivers of consolidation.)

UPS/ TNT deal reached

UPS and TNT Express have concluded an acquisition deal, here is the WSJ report. I think two immediate points are important: One, this represents a judgment on the part of UPS that Europe is rebounding; two, I wonder what the impact on FedEx would be. Excerpts from the WSJ story, first related to optimism about Europe:

But with concerns about the financial stability of Europe receding lately, UPS was emboldened to do a deal that, besides rounding out its global footprint, will generate some €400 million to €550 million a year in pretax cost savings, according to the U.S. logistics company.

Second, related to FedEx:

The deal is likely to refocus attention on Memphis, Tenn.-based FedEx, which had been monitoring the situation since TNT Express first disclosed the UPS approach last month, according to people familiar with the situation.

But FedEx has less financial firepower than UPS as it continues to modernize its aircraft fleet. Whether the deal would compel FedEx to join forces with another competitor is unclear, although analysts and investors are expected to question FedEx officials about that when the company reports its quarterly earnings Thursday.

 

Follow-ups: UPS/ TNT and Cove Energy

FT story here about ongoing UPS/ TNT talks, the latest turn being that an increased offer of €9 was rejected. Excerpt: 

UPS could bid as high as €15 without seeing higher borrowing costs, and US rival FedEx as high as €13, without requiring an issuance of equity, wrote analysts at Wolfe Trahan.

If it were successful in its bid, UPS is likely to hold talks with potential buyers, such as FedEx and PostNL, about buying assets it would need to divest to avoid the deal being blocked by the European Commission, two of the people said.

“UPS would likely have to divest some assets – to avoid European Commission antitrust issues – in countries like the UK, France, Belgium, Luxembourg and the Netherlands, assets which FedEx could acquire, but FedEx would still be boxed out from much of Europe,” said the Wolfe Trahan analysts.

Also, Shell's bid for Cove Energy is being contested by Thai oil and gas company PTT Exploration and Production, reports NYT DealBook.

Shell > Cove Energy

Shell has made an offer valued at over GBP 1B for Cove Energy, a Mozambique-based producer. The news caught my eye because one doesn't often see large deals for targets in Africa. The Guardian says this may lead to more deals in the sector. 

UPS in growth mode

Following its earlier announcement of Brussels-based delivery firm Kiala this week, UPS has made a $6B+ unsolicited bid for TNT Express, which has turned it down. Talks are reportdely continuing. Bloomberg report here. UPS, Fedex, DHL, and TNT are the four leading players, so this would be a big consolidation move. The UPS investor relations site has several presentations that suggest a renewed focus on Europe; this bid would be in line with such a thrust.

Sketch of a Chinese-acquired company in the Rust Belt

Very nice article in WSJ about Nexteer, a company in Saginaw, Michigna, now owned by Chinese investors. Excerpt:

SAGINAW, Mich.—This struggling city, staggered by a flurry of blows during the recession, is getting a lift from an unlikely place.

Nexteer Automotive, Saginaw's biggest remaining industrial employer, was on the verge of closing less than three years ago, its 3,000 or so jobs in danger of evaporating, when the Chinese showed up. "If their money helps rebuild the community, I'm cool with it," says Mayor Greg Branch.

In 2010, Pacific Century Motors, controlled by Aviation Industry Corp. of China and Beijing E-town International Investment Co., an investment arm of the city of Beijing, bought the money-losing auto-parts maker from its corporate parent, General Motors Co., for about $450 million. With that, this city went from being an exhibit of America's industrial decline to a case study in the impact of Chinese investment money on U.S. communities.

"There were a lot of concerns about the Chinese coming over and packing this place up" and moving the jobs to China, says Matt Beaver, a vice president of United Auto Workers Local 699. "People were really scared the Chinese would take the patents."

Today, few people in town are wringing their hands about the Chinese. Inside a 59-year-old factory at Nexteer's sprawling complex, contractors are ripping out antiquated machine lines and installing new equipment to produce an electronic steering system for the next generation of GM's large pickup trucks and SUVs. The company, for years known as Saginaw Steering Gear, has hired more than 100 engineers in Saginaw last year and is looking for 80 more this year.