March 28, 2024

DealBook: Dalian Wanda of China to Spend $1.6 Billion on Yacht Maker and London Hotel

Dancers performing at a Dalian Wanda Group event in Beijing on Wednesday.Ng Han Guan/Associated PressDancers performing at a Dalian Wanda Group event in Beijing on Wednesday.

7:55 a.m. | Updated

HONG KONG – When it was launched on the Huangpu River in Shanghai in July 2010 with its mirrored windows, Jacuzzi-fitted deck and a price tag of more than $10 million, the Wanda 2 — a customized version of the Predator 108 featured in the 2006 James Bond film “Casino Royale” — was described by its British builder as the “biggest, most expensive and most luxurious private yacht in the history of yachting in China.”

Now, the owner of the Wanda 2, Wang Jianlin, the billionaire chairman of the privately held Dalian Wanda Group, is betting there are others out there who are ready to one-up him.

On Wednesday, Mr. Wang’s company, which last year bought the American cinema chain AMC Entertainment for $2.6 billion, said it would invest £1 billion ($1.6 billion) to acquire Sunseeker International, the British yacht maker that built the Wanda 2, and to build a luxury hotel in London.

Dalian Wanda said it would pay £320 million for a 91.8 percent stake in Sunseeker, based in Dorset, England, with the remaining stake to be acquired by Sunseeker management.

“Sunseeker is well-placed to take full advantage of opportunities in China, one of the world’s fastest-growing luxury yacht markets,” Mr. Wang said in a news release. “Acquiring Sunseeker deepens Wanda’s international influence, further enhances our position in the global luxury, entertainment and tourism markets, and represents an important step forward for the overall development of our business.”

Before 2006, total overseas acquisitions by Chinese companies never topped $10 billion a year. But in the past five years, companies from China have gone on a shopping spree, spending $40 billion to $70 billion annually on foreign targets, according to Thomson Reuters data.

More often than not, these deals have focused on securing resources like oil, natural gas and minerals to fuel economic growth back home, or gaining control of advanced technologies and know-how to help Chinese companies move up the global value chain.

Those remain important drivers, but more recently, China’s overseas purchases have focused on domestic demand — companies are seeking the cachet of a foreign brand to help increase their market share and pricing power in the race to woo the increasingly powerful Chinese consumer.

André Loesekrug-Pietri, chairman and managing partner of A Capital China Outbound Fund, a Brussels-based private equity fund, saw this come into play last month. Club Med, the French resort operator, received a $700 million buyout offer led by its two largest shareholders, an investment unit of the French insurer AXA and a Chinese conglomerate called Fosun International. Mr. Loesekrug-Pietri said he had helped bring Fosun in as a minority investor in Club Med in 2010, and the buyout bid brought things full circle.

In a separate deal last year, his fund made a strategic investment alongside a Chinese company in Bang Olufsen, a Danish brand of high-end audiovisual equipment.

“It’s not only happening in luxury, but the easiest part of the consumer play is to go for brands that are already extremely well known in China by those who can afford to buy them,” Mr. Loesekrug-Pietri said.

In that sense, he likens Dalian Wanda’s deal for Sunseeker to the $4.7 billion bid for Smithfield Foods, America’s biggest pork producer, that Shuanghui International began last month. Mr. Loesekrug-Pietri said the Chinese company’s profit margins should benefit from being newly able to price its product at a premium in China, appealing to foreign branding and perceived higher quality of imports. Zhejiang Geely Holding Group’s $1.5 billion acquisition of Volvo from Ford Motor in 2010 followed a similar basic logic, he added.

But compared with pork or cars, luxury yachts are considerably more novel in China.

Dalian Wanda’s purchase of Sunseeker comes after the investment last year by the Shandong Heavy Industry Group, also known as the Weichai Group, of a total of 374 million euros ($500 million) – including an equity investment of 178 million euros and debt financing of 196 million euros – to acquire a 75 percent stake in the Italian yacht maker Ferretti Group.

Both Chinese companies are banking on growth in a new market that is highly sensitive to economic volatility.

Yacht industry executives say that today there are close to 30 high-quality marinas in China, and the country is on pace to roughly double that number over the next three to five years.

Gordon Hui, managing director of the regional distributor Sunseeker Asia, based in Hong Kong, said that of the estimated 200 yachts they have sold in the last 10 years, about 25 have gone to buyers in mainland China. Foreign-branded yachts must compete for buyers against two dozen or so local Chinese yacht brands, and rely on quality and brand to command a price premium.

“I think boating culture is really taking off in China,” Mr. Hui said. “But it’s like cars — you get what you pay for.”

In addition to the Sunseeker deal, Dalian Wanda announced a separate agreement to invest £700 million in building a luxury Wanda Hotel on the South Bank in London, the company’s first hotel outside China. The site, covering 105,000 square meters, or 1.1 million square feet, and with views of the Thames, Westminster Palace and Battersea Power Station, will include a 20,000-square-meter, 160-room hotel as well as 63,000 square meters of upscale apartments.

Puji Capital served as financial adviser to Dalian Wanda on the Sunseeker acquisition. Ernst Young was also an adviser, and Freshfields Bruckhaus Deringer acted as legal counsel.

Article source: http://dealbook.nytimes.com/2013/06/19/dalian-wanda-of-china-to-spend-1-6-billion-on-yacht-maker-and-london-hotel/?partner=rss&emc=rss

DealBook: Indian Tire Maker’s Shares Tumble Over Deal for Cooper

An Apollo Tyres workshop in Mumbai, India.Vivek Prakash/ReutersAn Apollo Tyres workshop in Mumbai, India.

The proposed $2.5 billion acquisition of Cooper Tire and Rubber by Apollo Tyres speaks to the ambitions of an Indian company seeking to become the seventh-biggest tire maker in the world.

It would be the biggest takeover of a United States company by one based in India since the global financial crisis, according to Thomson Reuters data. And it is a deal intended to help the 41-year-old company compete better in a global automotive supply chain dominated by giants.

At home, however, the deal has run into something of a large road bump.

Shares of Apollo plummeted 25.45 percent in trading in Mumbai on Thursday, their first day of trading after the transaction was announced in the United States on Wednesday. The plunge came amid investor concerns about the amount of debt the company was taking on to finance the deal.

The all-cash acquisition is being financed entirely by new debt. Apollo has committed debt financing for $450 million from Standard Chartered, and nearly $2.4 billion in committed debt financing from Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered.

Apollo Tyres

Analysts in India were scathing about the leveraged deal.

Noting that Apollo’s ratio of net debt to equity would go from negative 0.5 times equity to 4.8 times, analysts at IIFL Capital gave the stock a “sell” recommendation. “We highlight that a weakening balance sheet is a key concern,” they wrote.

Analysts at Emkay wrote: “We see this as a risky acquisition as the management would have little room for error given the high leverage, very little synergy benefits and the poor demand environment.”

Analysts at Ambit said they found the proposed acquisition of Cooper “aggressive” even while commending Apollo as “one of the best-managed tire companies in India.”

Still, they hastened to add that “over 80 percent of great companies in India self-destruct through a combination of overconfidence and unbridled expansion.”

Article source: http://dealbook.nytimes.com/2013/06/13/shares-of-indian-buyer-tumble-over-cooper-deal/?partner=rss&emc=rss

Wall Street Tumbles on Central Bank Fears

Stocks were lower on Tuesday after the Bank of Japan failed to take stimulus measures, a move that increased investors’ worries about the eventual decline in central bank support that has bolstered an equities rally.

The Standard Poor’s 500-stock index fell 0.8 percent in afternoon trading, the Dow Jones industrial average lost 0.7 percent and the Nasdaq composite was 0.9 percent lower.

The Bank of Japan kept monetary policy steady at the end of its two-day meeting, holding off on taking fresh steps to calm bond market volatility. Unhappy traders sent the Nikkei down 1.5 percent.

The lack of additional action rattled investors, underscoring worries about what would happen when the stimulus programs eventually go away. At the same time, nervousness remains over when the Federal Reserve may slow its measures, which have been a significant driver of this year’s stock market rally.

“This market has been fed by extremely supportive government policies around the world,” said Richard Meckler, president of the investment firm LibertyView Capital Management in Jersey City. “You’re getting to that period where investors have to recognize that these policies are beginning to wrap up.”

In Europe, the broad FTSE Eurofirst 300 index of top shares, which has shed 5 percent in the previous 12 trading sessions, ended Tuesday’s session 1.2 percent lower.

The news also sent United States Treasury yields higher, with the 30-year yield rising to a fresh 14-month high, according to Reuters data. The long bond last traded down 20/32 in price, with a yield of 3.407 percent.

Shares of Lululemon Athletica slumped more than 16.7 percent after the company’s chief executive said she would step down.

SoftBank said it would raise its offer for Sprint Nextel to $21.6 billion from $20.1 billion. Sprint was up 2.5 percent.

The S.P. 500 is up more than 15 percent since the start of the year, but markets have been bumpier since comments from the Fed chairman, Ben S. Bernanke, last month sparked uncertainty over the central bank’s timeline for slowing its $85 billion a month bond purchase program.

While the Bank of Japan left the door open to taking fresh steps to calm markets if borrowing costs spiked again, it did not appear to assuage investors. “The B.O.J. took some big steps and had some big changes but now that they’ve done that, the market is looking for even more,” Mr. Meckler said.

Seasonality was also playing a part in Tuesday’s weakness as equities tend to have less direction in the summer months, he said.

Shares in the Dole Food Company rose 21.7 percent after Dole received an unsolicited buyout offer from its chief executive.

The Catamaran Corporation climbed 10.3 percent after it signed a 10-year agreement with the Cigna Corporation.

Boeing raised its 20-year forecast for demand, saying airlines will need 35,280 new airplanes worth $4.8 trillion as the world’s fleet doubles. Boeing shares gained 0.3 percent.

Investors will also be watching a hearing by a German court on the legality of the European Central Bank’s bond-buying program.

In currencies, the dollar sank nearly 2 percent, to 96.83 yen, against the a resurgent Japanese currency by midmorning. The sell-off across the peripheral markets supported the euro, which was unchanged against the dollar at $1.3277 as investors retreated into cash.

In the debt market, investors pulled out of the riskiest assets, sending Greek 10-year bond yields up 75 basis points, to 10.22 percent. Portuguese equivalent bonds rose 34 basis points, to 6.59 percent.

The Greek government has failed to find buyers for its state-owned natural gas company, threatening the privatization goal set under the country’s bailout.

Article source: http://www.nytimes.com/2013/06/12/business/daily-stock-market-activity.html?partner=rss&emc=rss

DealBook: On Wall Street, Renewed Optimism for Deal-Making

Kinder Morgan's Rockies Express pipeline runs from Colorado to Ohio. The company's $36.2 billion deal for the El Paso Corporation was one of the largest in 2011.Jim Wilson/The New York TimesKinder Morgan’s Rockies Express pipeline runs from Colorado to Ohio. The company’s $36.2 billion deal for the El Paso Corporation was one of the largest in 2011.

Before Europe’s debt crisis flared anew last summer, rattling markets and choking off a revival in mergers and acquisitions, huge corporate cash piles and cheap debt had fostered hopes that deal-making would recover strongly last year.

In the first half of 2011, the dollar volume of announced mergers worldwide neared its highest levels since the financial crisis. But that momentum proved fragile as deal volume tumbled 19 percent, to about $1.1 trillion, in the second half of 2011, compared with the same period the year before, according to Thomson Reuters data.

Now, with stock and credit markets steadier, deal makers are growing confident that 2012 will be better for business. Not only do they point to cheap financing and the large amounts of cash on corporate balance sheets, but they say that companies that have already cut costs may decide that they need to make acquisitions to drive growth in the face of a tepid economy.

“The dialogue has gotten back on track,” said Steven Baronoff, chairman of global mergers and acquisitions at Bank of America Merrill Lynch. “If Europe doesn’t go off the rails, you’ll see a return to long-term positive factors.”

According to a recent study by Ernst Young, 36 percent of companies plan to pursue an acquisition this year.

“We’re optimistic that the need and desire for growth will overcome the volatility headwinds, but that’s where the battle will be waged,” said James C. Woolery, JPMorgan Chase’s co-head of North America mergers and acquisitions.

And there is pent-up demand among buyout shops. After a long stretch of tempered activity, many private equity firms are still feeling the pressure to deploy capital or engineer exits.

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Still, companies that explore potential deals will most likely tread cautiously. For one, it remains unclear whether European leaders have done enough to ensure that the financial system remains stable on the Continent. And in the United States, 2012 is a presidential election year. With the White House at stake, companies in businesses like finance and health care may not pursue transactions until the outlook for regulation in those industries is clearer.

Many bankers expect to see notable deal activity in energy, industrials, retail, health care and technology. The energy and health care industries produced some of the largest transactions of 2011, like Express Scripts’ $34.3 billion purchase of Medco Health Solutions, Duke Energy’s $25.9 billion takeover of Progress Energy and Kinder Morgan’s $36.2 billion deal for the El Paso Corporation.

The outlook for mergers and acquisitions worldwide varies sharply by region, bankers say. The Americas, where deal volume rose 14.7 percent in 2011, will remain a bright spot, according to Mr. Baronoff of Bank of America Merrill Lynch.

Opinion is more divided over Europe, however. While economic and market woes will lead to some bargains and opportunities, deal-making may still be largely stifled by the persistent sovereign debt crisis.

“Europe is still a mess,” said David A. DeNunzio, vice chairman of Credit Suisse’s mergers and acquisitions group. “People thought there would be more divestiture activity as companies try to get more liquid, but that hasn’t happened yet.”

The disparities among regional economies is expected to fuel more cross-border transactions in 2012. While it is not a new trend for United States businesses to seek growth in emerging markets, bankers are starting to see a reverse in deal flow. After a string of strong quarters, cash-rich corporations in markets like Brazil and China are now bargain-hunting for established brands in developed markets.

“We weren’t having these conversations even three years ago,” said Mr. DeNunzio, who expects an increase of 10 to 15 percent in cross-border transactions.

“Many companies in China and Brazil see this as a once-in-a-lifetime opportunity to acquire world-scale brands at pretty attractive prices,” he said.

At the same time, companies are paying more attention to potential regulatory hurdles, whether their transaction plans are cross-border or domestic. The biggest setback in mergers and acquisitions of 2011 was ATT’s aborted $39 billion purchase of T-Mobile USA from Deutsche Telekom, which met opposition from the Obama administration.

A deal announced early in 2011, the merger of NYSE Euronext and Deutsche Börse, remains in regulatory limbo as European authorities seek additional concessions.

Though signs point to a stronger mergers and acquisitions market, there is at least one class of deals not ready for a comeback: the highly leveraged buyout.

In 2011, the private equity titans pursued more modest-size transactions in the United States, compared with the go-go years of 2005 to 2007.

Blackstone’s largest American acquisition last year was the software maker Emdeon for $3 billion. Kohlberg Kravis Roberts’s biggest deal was even smaller, a $2.4 billion buyout of Capsugel. According to deal makers, buyout shops are still shopping, but banks are less willing to finance huge leveraged buyouts and boardrooms are hesitant to take on the risk. In the aftermath of the financial crisis, boardrooms are still worried that their companies will be left in the lurch if another Lehmanesque event happens.

“Boards used to say, ‘Yeah, go to lunch with L.B.O. firms when they call.’ Now they say, ‘No, you don’t have to do that,’ ” Mr. DeNunzio of Credit Suisse said. “Corporate directors have long memories.”

In 2011, the number of private equity deals announced was roughly flat, but the dollar volume fell 19 percent to $138.1 billion, according to a December report by Ernst Young.

“And as much as we and our brethren walk with a lot of swagger, the reality is, these institutions and their risk managers need to shed risk-weighted assets, and that makes these types of transactions more difficult,” Mr. DeNunzio said.

Nevertheless, deal makers have been encouraged by the evidence that investors look favorably on mergers and acquisitions as a growth strategy.

In the first six months of 2011, several acquirers recorded healthy gains in their stock prices on the day that deals were announced.

Notably, even Valeant Pharmaceuticals — which began a $5.7 billion hostile bid for the drug maker Cephalon in March — soared 10 percent on its announcement, a rare feat for a hostile buyer.

Over all, the global volume of mergers and acquisitions rose 7.6 percent last year, to $2.54 trillion, from 2010, according to Thomson Reuters.

“We have fragile momentum,” J. P. Morgan’s Mr. Woolery said. “We believe the market will reward prudent acquisitions; the market wants this capital deployed to achieve growth.”

Article source: http://feeds.nytimes.com/click.phdo?i=2a0392e479d4b36fe23ea9148cc5d9a0

Stocks Mostly Lower in Late Trading Amid Inflation concerns

The session was on track for the lowest volume of the year after the long Easter weekend, and margin worries kept the Dow and SP from building on the gains seen in last week’s solid earnings.

About 3.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq as of midafternoon, below average at this point in the session.

The threat of rising commodity costs was spotlighted by Kimberly-Clark’s decline of 2.9 percent to $64.15 after it cut the low end of its full-year outlook, saying the costs of pulp and other goods were rising more than twice as much as it had expected.

Kimberly, maker of Kleenex tissue, is among companies highly vulnerable to rising commodity costs because its products contain oil-based materials and paper.

“That is largely in my mind being driven by oil prices, but other commodity prices are driving it too,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

Johnson Controls fell 2.5 percent to $39.70 after the company, one of the world’s largest auto suppliers, said its fiscal third-quarter results would be hit by a drop in car production following the earthquake in Japan. Japan’s earthquake has disrupted the supply of auto parts and forced auto companies to idle plants.

Through Monday, 75 percent of the 151 companies in the SP 500 that have reported results have beaten analysts’ expectations. That is just above the average over the last four quarters but well above the average of 62 percent since 1994, according to Thomson Reuters data.

The Dow Jones industrial average fell 25.20 points, or 0.20 percent, to 12,480.79. The Standard Poor’s 500-stock index shed 1.68 points, or 0.13 percent, to 1,335.70. The Nasdaq Composite Index gained 4.37 points, or 0.15 percent, to 2,824.53.

The Nasdaq edged higher, helped by SanDisk, which was up 2.2 percent at $50.06 after raising its 2011 margin outlook late Thursday.

But energy and materials companies’ shares ranked among the worst performers, with the PHLX oil service sector index off 0.9 percent and the SP Materials Index down 0.7 percent. Oil prices fell after crude hit its highest level since September 2008, as investors took profits on a sell off in silver from near record highs.

This week is another hectic one for earnings, including Amazon.com, Coca-Cola, Microsoft and Exxon Mobil.

The week’s agenda includes a two-day meeting of the Federal Reserve’s policymaking committee on Tuesday and Wednesday. Fed Chairman Ben Bernanke will hold the first of four annual press conferences on Wednesday after the Federal Open Market Committee’s meeting ends. Investors will look for clues about the direction of monetary policy when the Fed’s bond buying program ends in June.

Article source: http://feeds.nytimes.com/click.phdo?i=8fa2d92a74d3a0aa4d47a28048642e85