Corporate Financing Week 2010-12-06

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Check our website www.corporatefinancingweek.com during the week for breaking news and updates

www.corporatefnancingweek.com A PUBLICATION OF BUSINESS MONITOR INTERNATIONAL LTD.

Exclusive news, views and analysis on global M&A activity, IPOs and private equity

corporate fnancingweekdecember 06 2010

VOL. XXXVI, NO. 48ISSN: 1064-1912

(continued on page 5)

Whn is a brIc not a brIc?Although it has become customary

to bracket together Brazil, Russia,

India and China under the collective

heading of BRICs, not all of these

economies display the characteristicsthat give the group its perceived

common identity.

ForCFW, the term BRIC really

applies to a set of economies that

are fast-growing, drawing in foreign

capital and, crucially, are also in the

process of decoupling themselves

from the West and becoming

inuential economic forces in their

own right.

In corporate nancing terms, this means that they should boast M&A across a

range of sectors which in turn requires a fairly advanced degree of economic

diversication and be engaged in cross-border deal-making that goes both ways.

These qualities are chiey applicable to India and China. They apply less to Brazil,

and arguably not at all to Russia.

Th Pivat equity Snow FoastWinter is here! And with winter sports enthusiasts busy packing their skis andheading off to the slopes, Denver-based private equity (PE) fund KSL Capital

Partners has skipped the lift lines and acquired a whole resort. Indeed, KSL

has hit the slopes with the acquisition of the bulk of the shares in Squaw Valley

Development Company, the owner of Californias Squaw Valley USA ski resort.

The buyout fund has committed itself to spending US$50mn over the next three to

ve years on the resort, which includes 2,850 vertical feet of skiing and the Village

at Squaw Valley. Interest in winter sports resorts appears to be snowballing: last

month Vail Resorts announced it was acquiring the Northstar-at-Tahoe ski area in

a US$63mn deal. Squaw, which played host to the Winter Olympics back in 1960,

also becomes the second former games venue to fall into the hands of PE: Fortress

Investment Group LLC-owned Intrawest ULC currently operates Whistler

Blackcomb Ski Resort, which was home to the 2010 Vancouver Olympics.

Market Leader

Deal Of The Week

Market Leader 1,5-7

Deal Of The Week 1

Global 2-4

Emerging Markets 5-7

US M&A Record 6

Asia 7-9

EMEA 10

Latin America 10-12

Global Top 10 M&A 11

Key Market Views 12

Closing Bell 12

Leveraged Loan Issuance Y-T-D

Region/Nation Value(US$bn)

Volume % Chgy-o-y

Worldwide 455.3 1,213 28

Americas 377.2 1,074 61

Africa 2.5 2 -62

Middle East 0.2 1 -98

Europe 55.5 81 -32

Asia (ex. Japan) 12.3 41 -42

Japan 7.6 15 156

BRIC 10.1 21 -36

Source: Thomson Reuters

Table of the Week

Source: BMI

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Volume (US$bn) LHSDeal Count RHS

bazil blossoingBrazilian M&A Activity In Volume (US$) And Deal Count


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Business Monitor International 2010. Reproduction requires publishers prior permission.2

Corporate Financing Week www.corporatefinancingweek.com December 06 2010

Gloal

Phaa m&A: A Way down Fo Th Patnt cliff?The headwinds facing the pharmaceutical industry could

lead to more leading drugs companies opting for M&A

as a route of expansion in 2011. Pharma companies are

facing a wave of patent expirations and challenges, dubbedthe patent cliff by industry observers. Competition from

generic medicines, which can be 20-80% cheaper than

the branded original, could severely dent revenue streams

from lucrative product lines. Patents set to expire include

Pzers US$7.5bn a year Lipitor (atorvastatin), Bristol-

Myers Squibbs US$5.6bn Plavix and GlaxoSmithKlines

US$4.7bn Advair Diskus (uticasone and salmeterol). Eli

Lillys exposure to patent expiries, which include the loss

of its top-selling anti-psychotic Zyprexa (olanzapine), is

thought to amount to 40% of its sales, while that of the

UKs GlaxoSmithKline could be 32%. Pharma companies

ability to develop new drugs, a hit-and-miss process at the

best of times, is likely to be constrained by the slashing of

health and university spending across developed markets.

Switzerlands Roche has announced that it is to cut costs by

CHF2.7bn, including a 6% staff reduction, while Pzer will

be shedding 19,000 jobs.

Acquiring new products through takeovers has been a

popular stop-gap for many of the major pharmaceuticals

since the late-1990s. This is the thinking that drove last

years blockbuster pharma deals, including Merck&Cos US$41bn takeover ofSchering Plough and Pzers

US$68bn purchase ofWyeth. This summer, French

pharma giant Sano Aventis launched a US$18.5bn hostile

takeover bid for US biotech rm Genzyme, after cutting

its 2010 earnings forecast in July because US regulators

approved a generic version of its Lovenox (enoxaparin)

blood thinner. European biotech company Actelion has

said that it has been in regular dialogue with industry

participants, triggering market speculation that it could

be acquired by US-based Amgen. Meanwhile Japanese

drugmakerTakeda has asked its US subsidiary to exploreM&A possibilities as part of its development strategy.

The chief caveat of a strategy that involves blockbusters

buying other blockbusters is that these deals often do little

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Financing Week is a general circulation newsweekly. No statement in this issue is to be construed as a recommendation

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to diversify or innovate the group other than expand the

balance sheet. Roche acquired Genetench for US$47bn

last year, only for it now to be the main target of the parent

companys cost-cutting and job-shedding drive. Anyacquisition of Actelion would be a leap of faith given that

its top-selling Tracleer (bosentan) hypertension drug falls

out of patent protection in ve years. The buyer would have

to keep their ngers crossed that its late-stage compounds

full their promise.

Deal premia for the sector can get a bit on the high

side, too. Johnson & Johnson paid a premium of 58%

in its acquisition ofCrucell earlier this year, while in

May, Japans Astellas Pharma bought cancer drug

manufacturerOSI Pharmaceutical for 68% more than

the targets average share price during the 30 days since

the announcement of the deal. For the moment, Sano

Aventis is refusing to budge from its US$69 per share

offer for Genzyme, despite the objections of the target

companys board. The impasse could be broken if

Genzymes management is willing to explore settling for

a lower price provided additional rewards can be made to

the shareholders based on the performance of its leukaemia

drug Campath (alemtuzumab).

If big pharma is to go down the acquisition route, it may

make more sense to target the fastest growth areas, such asgenerics and emerging markets. Indeed, some companies

have started doing this. In 2009, Pzer bought 40% of

Brazils off-patent medicine makerTeuto, while last month

Sano Aventis acquired Chinese over-the-counter medicine

makerBMP Sunstone. The best way to secure growth for

the long-term is of course through the development of new

ground-breaking drugs, but for as long as these remain thin

on the ground CFW expects pharmaceuticals to settle for

acquisitions as the next best thing. Some of these will be in

EM, but the penchant for blockbuster-on-blockbuster M&A

is also likely to continue, if the past ten years are anythingto go by. That said, the pool of eligible large independent

biotechs is shrinking. Apart from Actelion and Genzyme,

there is basically only Amgen, Gilead and Biogen left.


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www.corporatefinancingweek.com 3


blakston & Gngy eg bi Fo UK downsta AsstsPrivate equity giant Blackstone Group and privately-held

fuels distributorGreenergy have emerged as potential

buyers for British downstream assets being divested by

Total, ExxonMobil and Murphy Oil, theFinancial Times

reported on November 25 2010, citing sources close to the

matter. The FT said that both companies submitted rst-round bids in the auction of these assets.

French major Total said in September 2010 that it had

appointed JPMorgan to oversee the sale of 780 retail sites

in the UK, in addition to tankers and terminals. CFW has

previously suggested Lukoil as a potentially interested

party. Additionally, Murphy has appointed Goldman Sachsto oversee its divestment of 430 British service stations

(which trade under the Murco brand), some of its storage

terminals as well as its Milford Haven renery. Meanwhile,

Exxon conrmed on November 21 that it intends to sell its

100 Scottish lling stations, while continuing to supply its

Esso-branded fuel to those sites.

Eurozone WeaknessThe decision by these companies to downgrade their

presence in the British downstream segment ts into

the larger trend of divestment by majors of European

rening and fuels retailing assets, in response to poor

rening margins, and reecting a preference to invest in

high-growth areas such as unconventional and deepwater

exploration and production. Whereas PE investment in

the US upstream segment is an old story, there has been

little interest by the sector in downstream European assetsto date. Given its signicant real estate investments,

Blackstones interest in the British downstream assets on

offer could be driven by their real estate potential. The

rms failure to acquire Dynergy in November 2010 makes

it easier for it to allocate acquisition cash.

Greenergys interest in boosting its portfolio of Britishdownstream assets comes as no surprise. By its own

measure, the companys share of the UK fuels market

has grown from less than 5% in 2005 to 20% in 2010 to

date. Impressively, Greenergys monthly sales grow 70%

between June 2007 and December 2009, through the worst

of the UK economic downturn. Currently, Greenergy

sources, blends and sells about 8bn litres of rened products

annually, but does not operate any retail stations. It remains

to be seen whether Greenergy will choose to become a

retail site operator or merely improve its efciency through

the acquisition of tankage and terminals.

Source: Total

0

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2007 2008 2009

France Rest of Europe US

Total rallTotals Global Refned Products Sales (000 b/d)

LbOs an rfinaning Wos: mix Fotuns Fo buyout FunsBuyout funds are nding their focus being stretched in

two different directions at present. CFW identies that

while buyout funds will be revelling in 1) the renaissance

of leveraged buyouts (LBOs) : November recorded the

strongest month for LBO deals since the onset of the

nancial crisis; they will also be acutely concerned that 2)

funds are facing a wall of renancing: in Europe aloneEUR500bn of debt is set to mature between now and 2017,

according to Standard and Poors.

In line with CFW s long-held view that private equity

(PE) will return to its LBO origins, buyout shops are

nding it easier to ink deals once again. According to

Thomson Reuters data, last month saw LBO deal volume

total US$21.3bn from 76 deals, including the two largest

such deals of the year: the US45.21bn management buyout

of oil and gas producerExco Resources and the US$5.15bn

acquisition ofDel Monte Foods

by an investment group

lead by PE giant Kohlberg Kravis Roberts (KKR). The

result was that the month of November recorded the largest

monthly volume for leveraged buyouts since July 2007,

Source: Murphy Oil

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GasolineKeroseneDiesel and Heating Oil

down With downstaMurphy Oils UK Refned Product Sales (b/d)


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when LBO deal value reached US$63.6bn.

When borrowing was rife during the boom years, PE

rms were able to make cash-heavy acquisitions, safe in

the knowledge that debt investors would help them nance

the rest. That leverage-buyout model soon unraveled during

the credit crunch, with PE forced to adapt, focusing on

mid-market deals and growth capital investments, which

they saw as offering a more mature and safer investment.

However, on the back of high-yield bonds soaring again

this year, nancing of deals is gathering steam once more.

We need look no further than the buyout of US fashion

retailerJ Crew Group by TPG Group and Leonard

Green & Partners to support this view. The deal for

J Crew is set to be nanced with US$1.85bn in debtnancing, according to an SEC ling.

Despite the positive sentiment surrounding current deals,

buyout funds need not be reminded that trouble is only

just around the corner, with a wall of debt set to mature

over the coming seven years. The eye of the storm looks

to be 2014, when EUR100bn of leveraged loans will reach

maturity according to Nomura . It appears that the slew of

buyouts agreed in the run-up to the nancial crisis, when

debt was cheap and growth seemed assured, may face

some turbulence. Although the banks have already pushed

back the renancing wall, partly by re-setting a number of

covenants, there is further work to be done. Indeed within

this, a number of rms which have completed a rst round

of renancing and did not take enough off their balance

sheets will be returning to do so for a second time.

Source: Thomson Reuters

20

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Deal Value (US$mn) LHSDeal Volume RHS

Th ral dalGlobal LBO Deals

euopan Sovign Wos Ipat On copoatsAlthough the European corporate bond markets have been

very resilient throughout much of the past years eurozone

sovereign debt crisis, there have recently been signs ofcontagion. The Markit iTraxx Europe index, which follows

the default risk premia of 125 investment grade European

companies, has risen to 117.0 on 1 December from 95.38 on

the 4 November. The Markit iTraxx Crossover index, which

tracks mostly high-yield corporate bonds, has climbed to

421.4 from 431.10 on November 8. The uncertainty over

whether further sovereign bailouts are in store has also led

to European companies holding back from issuing bonds.

Data providerDealogic is aware of only one European

corporate or bank deal for the week starting November 29

and that will be coming out of Switzerland. Meanwhile,according to data fromBloomberg, corporate issuance has

slumped 29% year-on-year since November 15.

Unsurprisingly, it is the banks that are suffering the

most. In Portugal, which is widely believed to be the next

country to need a bailout, banks have effectively been

frozen out of the credit markets. This, in turn, becomes a

problem for foreign banks with exposure to Portuguese

sovereign bonds and banks. As of June, Spanish banks had

US$78bn of exposure to Portugal, according to theBank

of International Settlements. Compounding matters furtherfor Spanish banks is the fact that there are doubts swirling

around Spains solvency too: Spanish banks have grown

increasingly reliant on using sovereign paper as collateral

in the repo markets to obtain short-term funding. If the

sovereign deteriorates, this may no longer be possible.

The price ofBanco Santanders ve-year credit defaultswap (CDS) in other words, the cost of insuring Banco

Santander paper against default surged during November

to over 240.0, from 156.9 at the start of that month. CDS

on core Eurozone countries have also been pulled higher.

This suggests that either investors are concerned about

French banks estimated US$41bn exposure to Portuguese

banks or that they are distinguishing less and less between

different types of European debt. On 1 December, Frances

Societe Generales ve-year CDS was trading at 174.91

compared to EUR116.0 at the start of November. Over

the same period of time, similarly dated CDS for anotherFrench bank, BNP Paribas, rose to 127.89 from 93.3.

Risk premia for non-nancials risen as well. Spanish

energy rm Iberdrola s ve-year CDS was up at 212.6 on

1 December, compared to 140.4 a month ago, while phone

operator Telefonica had risen to 197.6 from 136.4 over the

same period. Despite these spikes, the debts of Spains blue

chip utilities appear to be cheaper to insure than that of

similarly dated sovereign issuance, for which the ve-year

CDS was trading at 364.2 on 1 December.Barclays Capital

estimates that in Spanish and Italian high-grade corporate

debt have, on average, a lower yield than their respective

sovereignsm another indication that they are perceived to

be less of a credit risk.


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Brazil: The Benet Of The DoubtBrazil is undoubtedly a magnet for foreign investment. In

October, foreign direct investment (FDI) in Brazil leapt26% year-on-year (y-o-y) to US$6.7bn, while year-to-date

inbound M&A activity has increased an astonishing 301%

to hit US$56bn. However, for an economy to achieve more

than common-or-garden emerging market status, deal-

making activity should involve a healthy mix of domestic

and foreign companies across a diverse range of industries.

In other words, a BRIC country should offer more more

than just a quarry or a gas eld for Western companies.

In India, the largest M&A sector so far this year may

have been oil and gas, but the leading deal involved

Indian company Vedanta buying 60% ofCairn India

from its Edinburgh-based parent. After oil and gas,

the busiest sectors have been telecoms, pharma and

electrical goods. In China, the banking sector has led

the way in M&A with US$13bn of deals. China also has

a growing armada of corporate powerhouses venturing

into overseas acquisitions, from Cnoocs acquisition of

Angolan oil blocks to Shanghai-based conglomerate Fosun

Internationals purchase of a 7.1% stake in Club Med this

summer.

Brazil is certainly making strides towards this kind ofposition. We are seeing the emergence of multinationals

that can make large strategic acquisitions overseas,

such as minerVale, which acquired Canadas Inco and

Ambev, which teamed up with Europes Interbrew to

buy Anheuser-Busch. However, raw materials remain the

main driver of the economy. Oil and gas is by some way

the biggest sector for deal-making so far this year, with

US$53.42bn of transactions compared with US$11.07bn for

telecoms, which was largely the result of one blockbuster

deal: Spanish telecom Telefonicas US$9.6bn acquisition

of Brazilian mobile operatorBrasilcel.The third and fth largest sectors for M&A in Brazil were

food, which in Brazils case essentially means sugar and

coffee, and mining. The tell-tale sign that Brazils economy

has not diversied to the same extent as Indias or Chinas

is that it displays a far greater vulnerability to downturns in

the Western markets for its raw materials. Although it has

bounced back this year, Brazils economy contracted 0.2%

y-o-y in 2009, whereas Indias expanded 7.2% and China

grew by 8.7%.

Russia: A BRIC Too Far?At least Brazil is moving in the right direction, which

is more than can be said for Russia, holder of the BRIC

Whn is a brIc not a brIc?(Continued from front page)

eging makts

wooden spoon. Unlike the other BRICs, Russias FDI

situation is dire, and has been for years. Over the rst

nine months of the year Russian FDI plunged 17.8% toUS$8.2bn, according to RussiasFederal Statistics Service.

Overall foreign investment, which includes inows into the

capital markets for the rst nine months of the year, was

down 13% on the same period in 2009. Foreign investors

have even less of an appetite for Russian companies than

they do for Russian securities. Inbound cross-border M&A,

that is to say foreign companies buying Russian ones, is

down 27% y-o-y at US$5.5bn. In stark contrast, Brazilian

inbound cross-border M&A was up 301% over the same

period, reaching US$56bn.

It is not just foreign investors who lack faith in the

countrys economy. Russian companies cannot seem to get

their money out of the country fast enough. Bank Rossii

has raised its capital outow forecast for 2010 to US$22bn

from US$8.7bn. Russian companies have made US$27bn

in foreign acquisitions so far for the current quarter, triple

the amount in the previous quarter, according to datacompiled byBloomberg. This month, the TNK-BP joint

venture bought BPs Vietnamese and Venezuelan assets

for US$1.8bn. Mobile operatorVimpelcom is looking to

merge with Egyptian entrepreneurNaguib Sawiris phone

assets in a transaction thought to be worth US$6.5bn,

while Rosneft plans to buy Petrolos de Venezuelas 50%

stake in German renerRuhr Oel. The Russian domestic

M&A scene is threadbare compared with overseas activity.

Domestic deal-making has fallen to US$1.6bn from

US$6.9bn so far this quarter, and was down US$22bn inthe third. Although Russian President Dmitry Medvedev

has spoken of wanting to make Moscow a global nancial

hub, the governments actions seem to acknowledge

Source: BMI

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Volume (US$bn) LHSDeal Count RHS

russia In Th dolusRussian M&A Activity In Volume (US$) And Deal Count


7/13



For a complete Mergers and Acquisitions Record, please visit www.corporatefinancingweek.com

US mgs an Aquisitions ro (November 18November 30) Source: Capital IQ,a division of S&P

Announced

Date

Company Name Transaction Size

(US$mn)

Buyer Seller Target Advisor Buyer Advisor

11/30/2010 Gulfstream Natural Gas

System, L.L.C. (24.5%)

329.97 Spectra Energy

Partners, LP; Spectra

Energy Partners GP, LLC

Spectra Energy Southeast Pipeline

Corporation

- -

11/30/2010 " Ink & Adhesive Resins

Business

"

120.0 Harima Chemicals Inc.;

Mitsubishi Corporation

Momentive Specialty Chemicals Inc. - -

11/29/2010 Baldor Electric Co. 3,003.94 ABB Ltd. - UBS Investment Bank

(Financial Advisor)

Citigroup, Inc. (Financial

Advisor)

11/29/2010 UCI Internat ional, Inc. 1,142.02 Rank Group Investments

Limited

- - Nomura Holding

America, Inc. (Financial

Advisor)

11/29/2010 NPG Cable, Inc. 350.0 Cequel Communications,

LLC

News-Press & Gazette Company RBC Daniels L.P.

(Financial Advisor)

-

11/29/2010 Interests in Bluebonnet

project and Yellow Rose

200.0 Chesapeake Energy

Corporation

Antares Energy Ltd.; San Isidro

Development Company, L.C.

- -

11/29/2010 Substantially All Assets 57.5 Fleetwood Homes, Inc. Palm Harbor Homes Inc. - -

11/28/2010 InterGen N.V. (50%) 1,232.0 China Huaneng Group GMR Energy Limited - -

11/28/2010 Telair International Inc.,

Actuation Business

94.0 TransDigm Group

Incorporated

Telair International Incorporated - -

11/24/2010 Del Monte Foods Co. 5 ,318.33 Kohlberg Kravis Roberts

& Co.; Vestar Capital

Partners; CenterviewPartners Management

LLC

- Barclays Capital Inc.

(Financial Advisor);

Perella WeinbergPartners LP (Fairness

Opinion Provider)

BofA Merrill Lynch

(Financial Advisor);

Morgan Stanley(Financial Advisor);

J.P. Morgan Securities

Inc. (Financial Advisor);

Centerview Partners LLC

(Financial Advisor)

11/24/2010 CPI International, Inc. 523.83 Veritas Capital The Cypress Group J.P. Morgan Securities

Inc. (Financial Advisor);

Moelis & Company LLC

(Financial Advisor)

-

11/24/2010 YoCream International,

Inc. (95%)

106.33 Danone Columbia Ventures Corporation D.A. Davidson & Co.

(Financial Advisor)

-

11/24/2010 Creative Services

and Media Services

Businesses

70.0 Deluxe Entertainment

Services Group, Inc.

Ascent Media Group, Inc. - -

11/18/2010 Pangea3 LLC 95.0 Thomson ReutersCorporation

Sequoia Capital India; The GlenRockGroup, LLC

William Blair &Company, L.L.C.

(Financial Advisor)

-

that this is a distant prospect. Economy Minister Elvira

Nabiullina recently indicated that some of the IPOs in the

governments US$57.4bn privatisation programme could

take place on foreign stock exchanges.

A combination of political and economic factors account

for this ight from Russia. One political factor, according

to Frederik Erixon of the Brussels-based European Centrefor International Political Economy, is that the Russian

government itself uses foreign acquisitions as a tool of

diplomacy, which helps skewer deal-making towards

outbound M&A: A lot of money is taken out of Russia

by energy rms that are owned by or are close to the state,

such as Gazprom, and invested in countries on the eastern

rim of Europe. A second political factor is the instability

of Russias business environment. Russian companies

and wealthy individuals are concerned about the power

of the Russian state to expropriate assets without legal

redress. There is no due process in Russia and this drives

Russians to take their money abroad where it wont get

expropriated, Erixon says, citing the example ofMikhail

Khordorkovsky, the previous owner of the former Russian

oil giant Yukos. He was imprisoned on what were widely

perceived to have been politically motivated charges offraud and tax evasion, which resulted in the asset-stripping

and dismantling of Yukos.

Concern that Russia cannot be relied on to honour treaties

and contractual obligations has also had a chilling effect

on foreign investment. Foreign companies, such as Royal

Dutch Shell and TNK-BP, have found themselves either

having to renegotiate deals or walk away altogether. As

a result, foreign investment is mainly conned to sectors

such as energy, nancial markets and property, where


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9/13



Is Qrs Listing Giving Fals Hop To Austalian IPOs?Rail road operatorQR National s US$4.9bn listing in

Sydney is a big deal, but in CFW s view it is not a game

changer for the Australian IPO pipeline. Despite QRs

IPO being Australias largest public listing since Telstra

Corporation raised US$10bn back in 1997, we expect

listings down under to continuing enduring a torrid time

going forward. After all, so far this year, seven potential

listings have been withdrawn or postponed, compared with

just 61 successful issues. Moreover, the climate for newissues is hardly appealing: the benchmark S&P/ASX 200

index is down 5.8% in the year-to-date, however we note

that the bulk of these loses were made earlier this year.

The fact that QRs mammoth listing has helped push

overall Australian IPO activity to US$5.3bn the highest

year-to-date level in ve years, according toBloomberg

data is both good and bad news for potential listing

candidates in the pipeline. On the positive side, rms

waiting in the wings to go public may well see QRs deal

as a ringing endorsement of investor sentiment for big-

ticker listings. The rms performance following its debut

also bodes well for future listings: QRs shares jumped

3.9% in the one-day aftermarket. Taking a more sceptical

view of QRs listing, however, we would argue that the

strong interest in the privatisation of the rm is a pure play

to the ongoing Chinese growth story and the need to feed

Chinas growing demand for coal. QR plays a vital role in

the supply chain: it is the worlds largest transporter of coal

from mine to port for export. This alone makes QRs listing

unique. While we may well see a string of smaller mining

industry companies successfully go public in Australia overthe coming quarters, CFWs view is that one successful

high-prole listing certainly does not signal the all clear

for an IPO market which has been frozen over for the best

US$157.4bn in the year-to-date, down 22% compared to the

US$201.6bn issued in 2009 according toDealogic data,

the growing interest of foreign corporates in this strategy

will no doubt be welcomed by Beijing.

CFW expects to see those overseas corporates issuing

yuan notes to fall into two categories: 1) those with an

existing footprint in China; or 2) those seeking to haveexposure in China. Caterpillar falls under the rst of these

two categories, with the proceeds from the issue expected to

be used to nance sales of its trademark heavy construction

machinery, and to back the local operations of multinational

mining companies active in the country. Indeed, as BMIs

infrastructure team has recently been highlighting, China

is a key market for Caterpillar, accounting for half of the

growth this year in Asia (the companys fastest-growing

market). CFW notes that the rm has been busy of late and

has adopted a more aggressive attitude towards expansion

since appointing Doug Oberhelman as CEO in July,

with the company now placing even greater emphasis on

emerging market growth. Caterpillar has since completed

its largest acquisition to-date, splashing out on mining

equipment engineering rm Bucyrus International

for US$7.6bn, representing a non-organic sector-basedexpansion. Furthermore, November also saw the company

bolster its presence in China via organic means. Caterpillar

announced plans to add to the eleven manufacturing

facilities already operating in the country with a US$300mn

plant in Tianjin that will produce its 3500 series engines

used in the oil and gas, marine and power sectors. Asia has

been a more stable market for the rm over recent years,

and we expect strong demand from the region to ensure

consistently high revenue growth over the next two years.

part of a year. After all, QRs listing is the only deal ranked

over US$1bn so far this year. The deal also ranks as the

seventh largest IPO seen globally in 2010, one place behind

Petronas Chemicals Group s US$4.2bn issue earlier

this month on Bursa Malaysia, the Kuala Lumpa stock

exchange.

It seems Australia is the exception to the rule with regards

to our key market view that Asia will continue to lead the

way with IPOs. The value of Australian new share issues

may well be up 145% year-on-year at US%.31bn, but

subtract the value of the QR listing (US$4.9bn) and just

US$0.41bn of activity remains equivalent to an 81%

drop y-o-y, according toBloomberg. Furthermore, even

following the completion of the QR listing, Australian IPO

value remains well below peaks seen in 2007 (US$6.54bn)and 2005 (US$7.53bn). The volume of listings sits

signicantly lower too: there have been just 61 rms go

public so far in 2010, compared with as 197 in 2007.

Source: BMI

0

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250

0

1

2

3

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7

8

2010

2009

2008

2007

2006

2005

Value (US$bn) LHSVolume RHS

Still Lagging rgional PsAustralian IPOs, Y-T-D


10/13



cnoo expans Lata Foothol Though bP Asst PuhasBritish oil giant BP has just come a step closer to its target

of raising US$30bn in asset sales to help cover the cost of

cleaning up after the Gulf of Mexico oil spill earlier this

year. By selling its 60% stake in Argentinian oil producer

Pan American Energy (PAE) for US$7.1bn to its partner

in the venture, Bridas, it has brought the total raised so farto US$21bn.

As well as being in line with our view that strongcross-border M&A activity is helping to fuel the overall

rebound in deal-making, the PAE deal also marks another

step in the overseas expansion of Chinese oil company

China National Offshore Oil Corporation (Cnooc),

which owns 50% of Bridas. Other overseas acquisitions

by Cnooc include a third ofTullow Oils assets in

Uganda as well as a 33% stake in Chesapeake Energys

Eagle Ford shale acreage in the US. So far, Cnooc has

spent US$5.8bn on overseas targets in 2010, the second

highest total for a Chinese oil company behind Sinopecs

US$13.1bn. The total gure for all Chinese oil and gas

overseas acquisitions for the year to November was

US$24.6bn, according to research by theFinancial Times.

Power NeedyUnderpinning this wave of overseas expansion has been

the burgeoning energy demand stemming from its growing

economy, the same factor that is driving the countrys

coal majors to go hunting abroad (See China Coal Quest

Heats UP Coal M&A, CFW, November 29 2010). BMIs

head of oil and gas research, Holly Pattenden, expectsChinese oil demand to rise at a 4-5% annual growth rate

from a likely 9.22mn b/d in 2010 to 11.27mn b/d by 2015.

By 2020 demand will be 13.1mn b/d. As this demand

cannot be met by domestic production alone, China is

having to rely more and more imports. In February, Saudi

Arabia reported for the rst time that it was exporting

more oil to China than to the US. Concerns about energy

security mean that China would like to have as much of

this overseas production as possible in the hands of itsown companies.

The search for energy security is, however, taking

Chinese companies to some rather insecure places,

prompting ratings agency Standard & Poors to note that

many of Cnoocs acquisitions are in places with fairly

high levels of sovereign and political risk. For example,

earlier this year, Cnooc jointly agreed with Sinopec to

develop the 2.5bn barrel Missan oil eld complex in

Iraq with fellow Chinese oil producerSinopec. The

combination of acute need for oil with state-backed

Chinese oil companies relatively easy access to nance

could also create a risk of overpayment for acquisition

targets.

That does not appear to have been the case with the

PAE deal itself, as BP relinquished the stake for less than

the US$10bn or so anticipated by analysts. Cnooc is,

however, considered to have paid above the odds for its

initial foothold in Argentina. It paid US$3.1bn for its 50%

of Bridas back in March, which energy consultants Woods

McKenzie valued at around US$2.1bn.

More buying opportunities for Chinese companies

could be in store. BP still has another US$9bn to raise,

which Pattenden says could include its Alaskan assets,

that are worth around US$12bn, and/or possibly its stake

in Russias state oil producerRosneft , worth around

US$1bn. Even though they may not have the same

pressing clean-up needs as BP, other Western majors maydecide to follow BP in shedding far-ung non-core assets

to emerging market rising stars that are willing to pay

good money for them.

Source: BMI

divstnt ShulBP Asset Sale Timeline

Date Details

Jul-10 Apache agrees to pay US$7bn for Canadian gas,Permian Basin and Egyptian exploration assets.

Aug-04 Talisman and Ecopetrol agree to pay US$1.9bnfor BPs Colombian assets.

Sep-02 Petronas acquires BPs Malaysian petrochemi-cals business for US$363mn.

Oct-18 TNK-BP agrees to buy BPs Venezuelan andVietnamese assets for US$1.8bn.

Oct-25 Marubeni agrees to buy BPs stakes in fourproducing deepwater elds in the US GoM.

Nov-15 Puma Energy acquires BPs fuel retail networkin Namibia, Botswana and Zambia and agrees tobuy a 50% stake in BP Malawi and BP Tanzania.

Nov-28 The Chinese-Argentine JV Bridas agrees to payUS$7.06bn cash for BPs 60% stake in PanA-merican Energy, bringing BPs total divestmentprogramm to over US$21bn.

Source: Bloomberg

250

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700

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

making AnsBP Share Price (GBp)


11/13



Hinkn Unit To IPO An Knyan Invstos InvitRwanda is all set for its rst initial public offering (IPO)

since the onset of the East African Community (EAC)

common market in July 2010. The government looks set

to sell a 30% stake in the dominant Heineken-owned beerand soft drinks producerBrasseries et Limonaderies du

Rwanda (Braliwra), raising about RWF22.1bn (US$37mn).

This would value the company at more than US$120mn.

Kenyan investment into the listing is actively being

encouraged as the ongoing liberalisation of East African

capital markets kicks into gear.

The IPO is being managed chiey by Kenyan investment

banks and interest from the EACs biggest economy is

expected to be quite strong. Although Braliwra is not

among the ten largest African beer companies by annual

sales, which is hardly surprising given that Rwanda has a

population of just 10mn (low by regional standards), its

growth prospects look particularly strong.

A monopolistic dominance in both beer and soft drinks

(it is a Coca-Cola franchise bottler) means its long-

term earnings prospects look bright, especially as beer

consumption in particular in both value and volume terms is

expected to grow considerably over the next few years.

Rwandas economic outlook continues to look strong

with real private consumption forecast to grow at an

average annual rate of 6.7% to 2015. This will certainlyfeed through to both the beer and soft drinks industries and

given Braliwras total dominance, should bode well for

Santos Appoval Hals copltion Of eoptols Pat-PivatisationColombias President Juan Manuel Santos has approved

state-run Ecopetrols plans to reduce the governments

stake in the company further. The move was widely

expected, as Colombias scal decit limits its nancing

options as it looks to capitalise on its oil boom.

In a speech on November 25 2010, Santos said that

Colombia would sell a 9.9% stake in Ecopetrol as early

as H111. Santos said that the cash raised would be used

to fund national infrastructure projects, specically

citing Colombias road network. Ecopetrols CEO, Javier

Gutirrez, has said that the stake sale could raise up to

US$8bn, based on Ecopetrols current share price.

Colombias congress authorised the divestment of up to

20% of Ecopetrols equity in 2006. The following year,Bogot earned US$2.8bn through the sale of a 10.1% stake

in the company. The shares were sold to retail investors

through Colombian supermarkets. A successful sale of the

emeA

margins, making it an attractive proposition as the Rwandan

government looks to sell off its stake. As incomes rise, so

too will absolute consumption (as per capita consumption)

and at the top of the scale, a greater proportion ofRwandans will be able to afford premium beers.

Heineken, whose majority stake in Braliwra will rise

to 75% (it is buying 5% of the 30% being sold by the

government), is actively strengthening in Africa. Over the

past two years, the African beer industry has thoroughlyoutperformed the global industry as volumes for the most

part have continued to grow strongly.

f = BMI forecast. Source: Rwanda Statistics Ofce, BMI

0

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4

6

8

10

12

14

16

2006

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2008

2009f

2010f

2011f

2012f

2013f

2014f

2015f

On Of Th rgions Fastst Gowing eonoisRwanda Real GDP & Private Consumption

remaining 9.9% stake would complete the part-privatisation

envisaged in 2006, although state control remains assured.

Investor interest has risen markedly in Colombias oil

and gas sector, spurred by an improved security situation,favourable contractual terms and a reliable legal system.

Furthermore, the 2010 Macondo oil leak in the US Gulf of

Mexico (GoM) increased the attractiveness of Colombias

relatively safe onshore assets. Policy continuity was

cemented by Juan Manuel Santos victory in the June

2010 presidential run-off election. Days later, Colombia

successfully auctioned more than 100 blocks in its 2010

licensing round.

In order to capitalise on these gains and boost Colombian

oil output, Ecopetrol has announced an ambitiousUS$80.3bn investment programme for 2011-2020, in

order to achieve its production goal of 1.3mn barrels of oil

equivalent per day (boe/d) by 2020. However, executing

Latin Aia


12/13



this investment programme requires the company to raise

US$23bn in debt. In fact, in order to execute its US$6.06bn

2011 investment programme alone, the state-run company

authorised the issuance of corporate bonds worth COP1trn

(US$530mn) to the local market on November 11.

Issuing larger amounts of debt, however, is an

undesirable option for Bogot. BMI has recently reviseddown its medium-term scal outlook for Colombia, as it

expects the governments nominal decit to come in at

4.3% of GDP in 2010, 4.1% in 2011 and 3.5% in 2012.

Santos initial target of achieving a balanced budget by

2014 is also looking unlikely, and implies that a sovereign

debt rating upgrade to investment status could be held

back until the late-2011 or early-2012. Consequently, like

Russia, Colombia is choosing to sell a stake in its state-run

oil producer to be able to raise cash without issuing further

debt.

Such cash is essential for the infrastructure required to

boost output. About 20% of Ecopetrols 2011 budget is to

be spent on pipeline infrastructure, such as the Oleoducto

Bicentenario pipeline, while independent Pacic Rubiales

Energy has announced plans to broaden its investments in

Colombias infrastructure-related sectors, such as terminals,

bunker fuels and asphalt. As oil output continues to rise

and the countrys road-building programme accelerates, we

see more investment owing into Colombias energy and

transport sectors.

Gloal Top 10 m&A ro (November 24 December 01) Source: Bloomberg

Deal

Type

Announce

Date

Target Name Acquirer Name Seller Name Announced Total

Value (US$mn)

Payment

Type

Deal

Status

DIV 28/11/2010 Pan American Energy LLC Bridas Corp BP PLC 7,060 Cash Pending

ACQ 25/11/2010 Del Monte Foods Co Multiple acquirers 5,098.61 Cash Pending

ACQ 30/11/2010 Baldor Electric Co ABB Ltd 4,146.4 Cash Pending

ACQ 24/11/2010 Korea Exchange Bank Hana Financial Group Inc 4,080 Cash Pending

DIV 25/11/2010 Trafford Centre Group/The Capital Shopping Centres Group PLC Peel Group/The 2,584.33 Stock Pending

DIV 29/11/2010 Multiple Targets Henan Shuanghui Investment & Dev. Co Ltd Rotary Vortex Ltd 2,521.31 Stock Pending

ACQ 29/11/2010 Henan Shuanghui Investment & Dev. Co Ltd Rotary Vortex Ltd 2,473.6 Cash Pending

DIV 29/11/2010 Intergen NV China Huaneng Group Corp GMR Infrastructure Ltd 1,232 Undisclosed Pending

ACQ 29/11/2010 UCI International Inc Rank Group Ltd 980 Cash Pending

DIV 29/11/2010 Oil & Natural Gas Properties/Canada Husky Energy Inc Exxon Mobil Corp 842.23 Cash Pending

f=forecast; Historical data from BP Statistical Review of World Energy; Forecasts: BMI

0

500

1,000

1,500

2,000

2,500

3,000

2008

2009

2010f

2011f

2012f

2013f

2014f

2015f

2016f

2017f

2018f

2019f

2020f

Oil Exports (000 b/d)

Oil Reserves (mn bbl)

bullish exptationsColombian Oil Export And Reserve Forecasts

SAbmill buys Agntin bw, cFW cautious On county OutlookBeer giant SABMiller has announced the purchase of

Argentinas third largest brewer, Casa Isenbeck, which is

currently owned by Germanys Warsteiner. Casa Isenbeck

controls 7% of the local market and in 2009 generatedsales volumes of around 600,000 hectolitres (hl). Financial

details of the transaction have not been released, but with

the rm reporting gross assets of US$24.7mn and operating

just one brewery, with a capacity of 1.2mn hl, CFW would

be surprised if SABMillers valuation of the business

surpassed US$50mn.

The move widens the scope of SABMillers Latin

American business, launching the company into the

dynamic 40mn-strong Argentine market, and could be a

prelude to further expansion in Latin America, including

the highly competitive Brazilian market. However, the

rm will have to invest signicant extra funds in order to

gain sufcient scale to compete with the current Argentine

market leaders.Prior to the economic downturn, Argentinas beer sector

was growing healthily, but in 2009 and early 2010 it

retreated in line with a reduction in consumer sentiment.

A young population, which has fuelled a move wine to

beer, means the sector has undoubted long-term potential.

However, in the medium term we think that, as with our

other food and drink indicators, consumption could be

affected by the unwinding of the imbalances that continue

to plague the Argentine economy.

Although the economy registered an impressive recovery


13/13



C los ing B e l l

No sooner than CFW adds to its key market

views that it expects to see a wave

of banking sector restructuring

in the coming quarters, HSBC

announces that it is to sell off itsAsia PE arm. Not only that, but it

is also likely to wave goodbye to its

PE desks in the UK, Canada and the

Middle East. HSBC is following in the footsteps of Barclays,

which is spinning off its PE operations via a management buyout.

RBS is also selling its European project finance desk to Japans

Mitsubishi UFJ Financial Group and Lloyds Banking Group

is shedding its LDC PE arm. That Lloyds and RBS are being

cut down to size is not particularly surprising given that they

both required bail-outs during the crisis. HSBC and Barclays,

however, did not (although it has just emerged that Barclays did

draw heavily on emergency funding from the US Fed). These

two banks are acting now because they anticipate that tough

regulations are to come for deposit-taking banks that engage

in risky deal-making with their own money. Perhaps regulators

should cheer the fact that banks are taking the initiative.Adair

Turner, the chair of City watchdog the FSA, has in the past

suggested that the prospect of higher capital and liquidity rules

would bring about a de facto separation of retail from risky

banking far more effectively than crude legislation to break up the

banks. Yet regulators should also be mindful that by jumping thegun, banks are able to carry out the spin offs on their own terms.

In the Barclays deal, for example, the parent bank will be paid by

a share of the PE companys profits in the coming years. It will

therefore retain some exposure the groups high risk activities.

Ky makt Viws A Continued Rise In Cross-Region Acquisitions Within M&A Rebound: Fuelled by a bounty of idle corporate cash on balance

sheet, we will see a rise in M&A across emerging regions. Within this, the fallout from the ongoing Eurozone debt crisis islikely to trigger a wave of restructuring in the European banking sector via cross-border asset sales and industry consolida-

tion. Tailwinds Strengthening Behind PE Dealmakers: Buoyed by the expunged threat of protectionist regulation in Europe, we

expect to see fund managers focusing on M&A once more. Within this, 1) we expect PE to return to its LBO origins; and 2)with investment deadlines fast approaching, funds will be looking to make deals instead of returning the cash to investors.

Further Deleveraging Up Ahead, As Renancing Needs To Be Addressed: With a wall of leveraged loans set to meet matu-rity over the coming 5-7 years we expect to see a slew of the buyouts inked before the nancial crisis, when debt was cheapand growth seemed assured, facing problems renancing their debt. This is likely to feed signicant M&A opportunitiesamongst restructured companies.

Hong Kong And Asia To Lead The Way With IPOs: We expect to see China-based rms debuting in Hong Kong, Shanghaiand the US at a greater rate than US-based issuers over the coming months. More broadly speaking we see the IPO market,which is primed to see very robust activity in Q410 and 2011, being characterised by strong pipelines but mixed receptions.

Investors To Continue Flocking To Junk Bonds In Short Term: With credit markets offering an attractive alternative to equi-ties, and with high-yield gathering steam, an opportunity has presented itself for risk-hungry investors seeking a higher yieldfrom their investments.

in the second half of 2010, CFW believes necessary

reforms are just around the corner likely following the

Presidential election in October 2011 and we think that

robust private consumption will not last into 2012. We

therefore believe that until the current policy mix comes

to an end, Argentina will fail to achieve sustainable

growth, and as a result will lag behind more politically andeconomically stable regional peers.

Even with this subdued outlook for consumption, CFW

believes the Isenbeck deal, along with further expansion

into Argentina, could make sense for SABMiller over the

longer term. Isenbeck is one of the few brewers in Latin

America not controlled by a giant multinational, and

therefore represents one of the few remaining opportunities

for expansion. The acquisition puts SABMiller a distant

third place in beer sales volumes in the country, but with its

resources and existing Latin American experience it should

be able to expand its market share and eventually challenge

the current market leaders, Chile-based CCU and brewing

giant Anheuser-Busch InBev.

The deal also gives SABMiller a platform to expand into

neighbouring Brazil. SABMiller has a virtual monopoly in

four Latin American markets Colombia, Peru, Ecuador

and Panama. However, in all four SABMiller has faced a

rise in competition and has begun to lose its monopolistic

grip on prices. Having failed to land the brewing assets of

Mexico-based FEMSA, losing out to Heineken, it is likely

to want build its position in the major markets where itdoes not currently operate, and bolt on acquisitions in both

Argentina and Brazil are likely to be the rms favoured

route for building a presence in these two important Latin

American markets.

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