Eric Briys’ Neighborhood

The Market of M&As is boosting these days with two mega new ones: the MAN hostile takeover bid and the news about Euronext merging with more stock exchange, even the NYSE!

MAN and Scania are today showing a typical scenario of M&A process:

1. First hostile bid
2. Mediation and reinforcement through a common shareholder, Volkswagen (34% stake in Scania and 15% stake in MAN)
3. Annoucement by Scania that this bid was too low
4. MAN raising its bid. Quote from Financial Times (FT): "MAN confirmed it was buying shares at SKr475 apiece, well above its earlier offer price of SKr442. In early Stockholm trading the stock was 10 per cent higher at SKr473."
   At the same time, MAN continued to buy Scania shares accounting by October 12, at least for 14.27% of the votes.
5. Volkswagen annoucing that it would prefer to view this operation as a merger of both truckmakers instead of a takeover, thereby ruling out the rumour of a counter-bid by Scania.
   But Scania is still assisted by Investor, the investment vehicle of the Wallenberg family, to repeal the offer.
6. The CEO of Scania, Leif Östling, blames Hakan Samuelsson, CEO of MAN, for the way he made its bid, arguing that Scania is in a much better shape than MAN, better managed and more cost-effective.
   Close to retirement, M. Östling has gained full respect for his management. Bad rumours would say he refuse a friendly talk because of entrenchment. On the positive side, he does not want MAN share the strong assets that Scania was able to build in the past. Would the merger allows some real synergies or allow MAN to better camouflage their problems and ensure a better survival.
   Well, let's talk about assets...
7. M. Östling continues spreading thoughts on the corporate governance problems of MAN. f you want a good comparison between 2 forms of corporate governance, read his speech.
   
8. M. Östling backs its talk on the inefficiency of MAN with a special dividend of 7bn SEK (almost 1bn USD).
   Burning the assets to decrease the appetite of MAN? Well, if MAN is buying back shares in the backyard, based on Scania's assets they are targetting, why not give this premium away readily through an extra dividend? Taxes remaining apart, this is a nice way to share whatever MAN is already sharing ex-ante. And it may prevent MAN from reaching the 56% of voting rights (besides Volkswagen's ones) that Volkswagen is requiring.

For all those wishing to read nice stories on the topic, this is certainly something you should be following during the next weeks.

So, my question is: "By looking at the websites of Scania and MAN for their financial reports as well as on Yahoo Finance for stock data, how much would you afford paying for a Scania and a MAN share for in an exchange of shares?" I offer a bottle of wine to the first student of the Advanced Finance class providing me with the closest  price to the final deal!!

[source: BBC news]
Today I used the news stemming from BBC Business news again to illustrate some jargon used in the M&A industry. It happens that the Industrial and Commercial Bank of China (ICBC), the country's biggest lender, plans to launch an IPOs at the end of October. In emerging countries where banks are state-owned, those institutions pass through a two-step procedure for the listing of their shares:

1. First, they have to go through an "equitization" process in order to create shares representing the ownership, left to the State until there.
2. Second, the privatization may continue with an IPO where some part of the shares begin to be listed (the free float) and are made available to the public. From time to time, the government may continue selling part of its stake further on. The IPO way is one way for the state to leave progressively the ownership to private investors while making some cash that they may reinvest elsewhere.

Now, these banks are more and more facing the competition of international banks. As soon as the local market starts opening its doors to international competition, it is important to make sure we've got the right services for our clients and that we will be able to keep them. Unfortunately, we are talking about clients discovering new services and features they were unable to dream of before. So, talking about fidelity in highly growing economies where people aims at being the first in using new services seems to be too optimistic.

To this we have to add that one of the reasons of the privatization is that these banks require a strong effort of investment in IT. These banks have a big mass under management to offer (huge in the case of China). But, in terms of services (in an area where services rimes with IT capacity) and acumulated "inefficiencies", they have some effort to make. Overall, it is quite important that the move operates before facing too open competition, while they still have at least part of their "oligopolistic" advantage compared to foreign banks.

This is a good example of using markets to bring a "second breath" to these banks. The huge amount of customers (150 million customers) has some appeal. But, investing in them must definitely be accompanied by a full due diligence, one that can determine fundamental value and real costs to bear in the immediate future. WallSt.net reports (on May 15, 2006) that: "Ernst & Young said on Monday it was investigating how it had wrongly estimated Chinese bad loans at more than $900 billion in a report it had had to withdraw amid great embarrassment".

The growth rate these countries are evidencing make numbers to skyrocket. But our race for growth in Europe should not prevent us from

In many regulatory schemes today, "risk awareness" is a master keyword. Pension fund managers, asset managers, corporate treasurers, they all have to be able to assess their risk exposures.
In such a world, principle- and rule-based regulations compete with the autoregulation theory to define a minimum set of guidelines. In that world, you can even deny risk exposure by transferring it to other individuals. An important evolution is still that today, you can not only be sanctioned for fraudulent behavior but also for lack of awareness. Where is the limit between what you should have known and the mass of information plummeting on your desk today? And even if you know, do you have the responsibility/possibility to do something about it?

In risk management, the borderline may not be so obvious in many cases. Given the complexity of contracts being issued today, the required "awareness depth" level is not easily perceptible. Sanctioning people in an uncertain regulatory world may have great consequences. Even if the referenced case of Vietnam is a limit-case, it makes us interrogate ourselves about the dangers of enforcing regulations and encouraging free-trade while some frameworks still exist in the background...

Let's take the case of structured products being sold to individual investors today. Some big players have an impressive creativity and know-how in this domain. But, how many "customer relationship-bankers" do really know the exposure they are implicitly selling? And do their clients know? How long before a big scandal arises in this market? The biggest structurers of the planet are feeding retail and private bankers with products where the price has more or less to be taken for granted without any real expertise on the price published from the latters. How long before a customer with a special "range-accrual autocall note" listed under the "bond" category of his report sues the bank? Well, glad that some bankers are not operating in Vietnam, we should say...

[Read the entire underlying story from BBC news]