March 29, 2024

DealBook: SoftBank Raises Bid for Sprint to $21.6 Billion

A SoftBank branch in Tokyo.Toru Hanai/ReutersA SoftBank branch in Tokyo.

9:58 p.m. | Updated

SoftBank of Japan agreed late on Monday to sweeten its takeover bid for Sprint Nextel to $21.6 billion, seeking to block a rival bid by Dish Network.

Under the revised terms of the complex transaction, SoftBank agreed to shift over about $1.5 billion earmarked for Sprint itself to the company’s shareholders instead. Existing investors can now sell their shares at $7.65 apiece, up nearly 5 percent from the first offer.

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All told, the new offer is valued at about $7.48 a share, up almost 19 percent from the original bid. SoftBank would own about 78 percent of Sprint if the deal is approved.

Sprint added that it had ended sales talks with Dish, which surprised many in April by offering $25.5 billion for all of the cellphone service provider, or about $7 a share. In a statement, Sprint said that its newer suitor has failed to put forward an acceptable formal bid despite weeks of conducting due diligence.

The new proposal by SoftBank, cobbled together largely over the weekend, is aimed at preserving SoftBank’s biggest gamble: buying control of Sprint to challenge the existing titans of the American cellphone market, ATT and Verizon Wireless. Its plans included infusing Sprint with billions of dollars to build out a nascent high-speed data network.

SoftBank reiterated that it intended to invest $1.9 billion in Sprint if its deal closed, in addition to the $3.1 billion it already invested into the company.

The Japanese company has been frustrated by the emergence of Dish as a bidder, which has sought to stymie that plan on a number of fronts. Led by Charles W. Ergen, Dish network’s chairman, has contended that its deal would create a new behemoth that could offer a variety of wireless services, like cellphone coverage and satellite TV.

Shares in Sprint have traded above SoftBank’s previous offer, the result of investor dissatisfaction. The company’s stock closed on Monday at $7.18, before the new proposal was revealed.

SoftBank is betting that its improved offer will knock out its rival. Among its advantages is the speed with which the deal can be closed: SoftBank expects to close the transaction early next month, while Dish would most likely need months to complete its bid.

“The amended agreement announced today delivers more upfront cash to Sprint stockholders, while still achieving our goal of creating a well-capitalized Sprint that is better positioned to bring meaningful competition to the U.S. market,” Masayoshi Son, SoftBank’s chief executive, said in a statement.

The deal has been approved by a special committee of Sprint’s board. A vote on the proposed sale has been rescheduled from Wednesday to June 25.

The offer may be enough to win over Sprint investors who were skeptical of the previous bid. Paulson Company, the hedge fund that is the company’s second-biggest shareholder, said in a statement that it would support the new SoftBank offer.

Still, Dish has until June 18 to propose an acceptable “best and final” bid. The amended agreement with SoftBank puts in place a number of additional restrictions, including forcing Dish to present fully committed financing and the adoption of defenses that would limit a hostile bid.

Article source: http://dealbook.nytimes.com/2013/06/10/softbank-raises-bid-for-sprint-to-21-6-billion/?partner=rss&emc=rss

DealBook: Exchange Sale Reflects New Realities of Trading

The floor of the New York Stock Exchange on Thursday.Spencer Platt/Getty ImagesThe floor of the New York Stock Exchange on Thursday.

On a warm day in Boca Raton, Fla., the host of a reception for an annual financial conference was not a big bank or a powerful exchange as in years past, but a young firm based in Atlanta.

Guests who gathered at the oceanfront resort were surprised. They were greeted with bottled ice water that carried the company’s logo, and as they left, were invited to grab iPod Shuffles.

That event, some four years ago, was the Wall Street equivalent of a coming-out party for the firm, IntercontinentalExchange, or ICE, an electronic operator of markets for derivatives and commodities. Now, the markets upstart is announcing itself to a much larger world with an $8.2 billion deal to buy the symbolic cradle of American capitalism, the New York Stock Exchange.

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The takeover illustrates starkly how trading in commodities and derivatives has become much more lucrative than trading in the shares of companies. Warren E. Buffett warned in 2003 that the “derivatives genie is now well out of the bottle,” and that the genie, even after a global financial crisis, was not going back. Currently, derivatives — financial bets tied to underlying assets like oil prices or interest rates, among other things — are a $600 trillion market. Even the parent of the N.Y.S.E. attracted its suitor largely because of its ownership of Liffe, a major derivatives exchange in London.

For many, the Beaux-Arts New York Stock Exchange, and images of traders looking despondent or exuberant on its floor, represent what making money is all about. Yet Wall Street itself has found it more profitable to bet on fluctuations in natural gas or corn or on interest rates. The financial industry often does so electronically and through platforms in cities as scattered as London, Chicago and Atlanta. The biggest bonuses each year are typically for traders who reaped rich gains on these often complex financial products.

That change, decades in the making, has left the New York exchange, with roots going back 220 years, in an increasing difficult position as trading volumes slump and profit margins stay razor thin. While its acquirer has pledged to keep a dual headquarters in the exchange building in Lower Manhattan, as well as in Atlanta, the center of power in finance long ago migrated elsewhere.

The success of the newly combined companies hinges on the derivatives business. ICE is hoping that a greater share of derivatives trading will go through its clearinghouse operations, which act as backstops in case one party defaults. It is being aided by the Dodd-Frank financial regulatory overhaul, which is forcing Wall Street banks to push their derivatives trades into clearinghouses and regulated exchanges.

“For the past decade, our solutions made our markets increasingly electronic and increasingly clear,” Jeffrey C. Sprecher, chief executive of ICE, said this month. “Today, financial reform is imposing that vision on many markets through a rule-making process.”

While Dodd-Frank compliance is still in its early days, and the volume of derivatives trading remains depressed amid broader economic uncertainty, the law is ultimately expected to cement ICE’s business model into the regulatory code.

“Despite the complaints, there’s no question that at the end of the day, Dodd-Frank will be a financial boon to exchanges,” said Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, which regulates derivatives.

Still, such a development will not do much for the traditional business of the New York Stock Exchange. Mr. Sprecher said on Thursday that he was committed to keeping the floor of the exchange open. But according to people briefed on his plans, he intends to use the stock trading operation and its steady cash-generating abilities to finance future deals and expansion efforts.

Nowhere have the changing fortunes of ICE and the parent of the New York exchange, NYSE Euronext, been more apparent than in their value on the stock market. In April 2011, when ICE first tried to acquire NYSE Euronext in league with Nasdaq OMX, it was worth about $1.5 billion less than the New York company. Just over a year later, ICE was worth nearly $4 billion more than NYSE Euronext, even with less than a third of its revenue.

ICE was founded in 2000 by Mr. Sprecher, who began his career developing power plants. In the 1990s, he saw that many power companies and financial firms wanted to hedge their investments in energy with financial contracts, but the market for these contracts was disorganized and opaque.

Mr. Sprecher bought an obscure exchange for buying and selling electricity in Atlanta and turned it into ICE with financing from BP and Wall Street firms, including Goldman Sachs and Morgan Stanley.

Banks were drawn to the idea of a standardized place to buy and sell derivatives tied to the value of oil and other commodities. But they also hoped to create a competitor to the virtual monopoly position being built up by the Chicago Mercantile Exchange in futures trading.

“You talk to people in Chicago, they basically think that ICE is just a front for the banks,” said Craig Pirrong, an expert in futures trading and director of the Global Energy Management Institute at the University of Houston.

As the company grew through a quick series of acquisitions, Mr. Sprecher won a reputation for being the “enfant terrible” of the energy industry, with a “sharp eye for identifying opportunities and seizing on them in a very aggressive way,” Dr. Pirrong said.

Early on, ICE sought to move all trading onto computers, allowing firms to buy and sell contracts 24 hours a day. Soon after buying the International Petroleum Exchange in London, ICE shut down its trading floor.

“They were a technology company from Day 1,” said Brad Hintz, an analyst with Sanford C. Bernstein.

ICE also decided to fashion its own clearinghouse, rather than tap an outsize firm. It expanded through acquisitions, planting the seeds for growth in 2008, when it took over the Clearing Corporation, home to a popular derivative known as a credit-default swap.

The Dodd-Frank overhaul may provide additional benefits for ICE. Under the law, exchanges must turn over public and private information to outside data warehouses, which will, in turn, share the information with regulators. Sensing an opportunity, ICE created its own warehouse, named ICE Trade Vault.

ICE and its Chicago rival, CME Group, have also moved in recent months to convert swaps trades, which are facing more scrutiny under Dodd-Frank, into old-fashioned futures contracts. Futures trading is lucrative territory for the exchanges in part because they can shut out competitors.

“The reality is that there are incentives to convert swaps into futures, where there’s less competition,” said Richard M. McVey, chief executive of MarketAxess, an independent trading platform that is expanding into the swaps business. “There’s no requirement for CME and ICE to open their futures clearinghouses to other exchanges.”

Despite its growing prominence, ICE has a small footprint in Washington. With only two full-time lobbyists, the company relies on Mr. Sprecher to communicate with regulators.

“Jeff is the company,” one official said, though others said he had loosened his grip over the last year or so.

He is well received, officials say, in part because he has embraced some reforms. Unlike executives of other exchanges and financial firms, Mr. Sprecher did not resist an effort in 2009 by the Commodity Futures Trading Commission to close certain loopholes.

Officials recall him saying, “Tell me what the rules are, and I’ll make money with them.”

Michael J. de la Merced contributed reporting.
Traders on the floor of the New York Stock Exchange.Spencer Platt/Getty ImagesTraders on the floor of the New York Stock Exchange.

Article source: http://dealbook.nytimes.com/2012/12/20/exchange-sale-reflects-new-realities-of-trading/?partner=rss&emc=rss

DealBook: Brand Value Could Entice a Corporate Buyer for Twinkies

Scott Olson/Getty Images

Few would consider Twinkies fine dining. But the threat of their demise is evoking nostalgia, even from foodies who hadn’t deigned to eat them in years.

As Hostess Brands shut down production on Friday, customers scoured stores to buy a few. By the evening, more than 24,000 people had signed an online petition calling for the White House to “nationalize the Twinkie industry.”

Now, the value of that brand power is about to be tested.

While Hostess Brands, the bankrupt maker of Twinkies, Ho Hos and Funny Bones, is planning to close up shop, the confections could find a second home. As part of its liquidation process, the company will most likely sell off its assets, including its portfolio of junk food.

One company’s castoffs can be another company’s golden goose — or in this case, cream-filled confection. It is a common trade in bankruptcy court. Sellers are hoping to drum up cash for their creditors, and buyers are betting they can revive the brands.

Tasty Baking, the maker of Tastykakes, was bought by Flower Foods last year.Jessica Kourkounis for The New York TimesTasty Baking, the maker of Tastykakes, was bought by Flower Foods last year.

In 2009, the Gordon Brothers Group and Hilco Consumer Capital bought the assets of Polaroid, which pioneered instant photography. Last year, Polaroid struck a partnership with Lady Gaga. Hilco also owns Linens ’N’ Things, the home goods retailer that has been reinvented online.

“It’s sometimes easier just to take an old brand that exists because it’s easier than creating a new brand,” said Robert Passikoff, the president of Brand Keys, a consulting firm.

It could be hard to attract a suitor willing to consume the entire operations of Hostess. The company had tried unsuccessfully to sell itself for years, finding no takers for its 33 bakeries or hundreds of distribution centers. Gregory Rayburn, the chief executive of Hostess, said in an interview that the baking industry was already brimming with capacity, which might prompt buyers to focus on the products alone.

The Hostess brands could look especially appealing, without the baggage of the company’s debt and labor costs. Even though consumers are increasingly crunching on kale, Twinkies and other sugary snacks still make loads of money. Hostess makes billions of dollars of sales each year.

Such orphan brands could attract an array of interest from Wall Street types like the Gordon Brothers and Hilco with a knack for breathing new life into tired brands. Food companies have also proved eager to snap up discarded labels.

Flowers Foods, a baking goods company based in Thomasville, Ga., has struck 18 deals since 1999. Last year, it bought Tasty Baking, the maker of Philadelphia’s beloved Tastykakes, after the company nearly collapsed.

Analysts said that Flowers would make a natural buyer for some of Hostess’s snack brands. So too could Grupo Bimbo, the Mexican baking giant that has bought Arnold bread, Entenmann’s pastries and a host of regional brands like Heiner’s and Rainbo. The Pinnacle Foods Group, a packaged foods company with a history of buying orphan food brands like Swanson frozen dinners and Duncan Hines baking mixes, may also be interested.

Representatives of Flowers, Bimbo, Gordon Brothers and Hilco declined to comment or were not available for comment.

Well-known brands cannot always be resurrected with new management. The Borders Group struck a deal to sell itself to the Najafi Companies, a private equity firm, last year. But the sale was rejected by the bookseller’s creditors, and Borders was eventually sold for parts.

With food companies, brand matters. Profit margins are slim and stores are stocking their shelves with only the top sellers. America’s tastes, too, are evolving, and consumers are losing their preference for junky, processed foods — or least limiting their intake.

In the current market, midsize food manufacturers in less popular categories are finding it tough to go it alone. In 2008, Procter Gamble sold its Folgers brand, and this year, it offloaded Pringles, leaving the food business altogether.

Even the major food manufacturers with hundreds of brands are rethinking their lineups and trimming down portfolios. Earlier this year, Kraft Foods cut itself in two, splitting faster-growing snacks like Oreos and Chips Ahoy from staples like its namesake cheese product and Maxwell House coffee.

Hostess may find it easier to sell off individual brands, instead of the entire portfolio. Burt P. Flickinger III, the managing director of the Strategic Source Group, said that Hostess and Twinkies were truly national brands that would be sold quickly. Lesser-known snacks like Ding Dongs were a “jump ball,” Mr. Flickinger said. And the shelf space for Wonder Bread, the spongy, pale white staple of baby boomers’ younger days, has shrunk so much that it may survive only as a fraction of its former self, Mr. Flickinger said.

Such brands lack the sort of emotional attachment that branding experts say keeps people drawn to Twinkies, their status as the butt of innumerable jokes notwithstanding. So popular are the snacks that reporters asked Gov. Chris Christie of New Jersey for his thoughts on the Hostess troubles at an appearance on Friday.

“It’s bad that I even said the word ‘Twinkies’ from behind this microphone,” said the governor, whose girth has been the subject of many conversations.

Until the fate of the Hostess brands is decided, some customers stocked up on their favorites snacks. “I mean, I love Twinkies,” said Joe Yi, a 24-year-old postbaccalaureate student at Columbia University. “I’m planning to buy a few.” Mr. Yi, who grew up in Queens, remembered buying packages of Twinkies some days after elementary school.

Some consumers saw an opportunity for profit. On eBay, boxes of Twinkies, listed for several thousand dollars, were selling modestly online for more than $10. But at a C-Town supermarket in Manhattan, a box of 10 Twinkies sells for $2.79.

William Alden contributed reporting.

Article source: http://dealbook.nytimes.com/2012/11/16/a-push-to-save-the-twinkies/?partner=rss&emc=rss