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• Can auto dealers fight back?
  July 2nd, 2009, 11:34 AM (PDT)
  Can auto dealers do anything to fight back against the mass closings ordered by General Motors Corp. and Chrysler Group LLC, and the changes being required of those dealers who are retaining their franchises?
  
  Not a whole lot, according to National Automobile Dealer's Association chairman John McEleney, speaking on CNBC on June 3 before testifying to Congress later that day. While he said he was going to push for transparency and resist what he thinks is overreach by GM with its continuing dealers, he also acknowledged the primacy of bankruptcy law in the restructurings.
  
  So what to make of H.R. 2743, the Automobile Dealer Economic Rights Restoration Act, and its Senate counterpart, S 1304? Or of the fact that NADA president Phil Brady backs the legislation? Or of the Committee to Restore Dealer Rights, launched on June 19? If nothing else, it seems to require a fair amount of time and money on someone's part.
  
  There's no question the dealers are suffering. Attorney Steven Levitt, who works with dealers as co-chair of the auto group at Fox Rothschild LLP in Princeton N.J., provided a couple of examples (albeit without naming his clients) in a recent interview.
  
  Levitt describes a continuing Chrysler dealer who's unhappy with what he is being asked to do to bring all three of the company's brands under one roof. The client owns a Chrysler-Jeep dealership in one town and a Dodge dealership in another. His preferred solution would be to merge the two, but according to Levitt, Chrysler wants him to sell his own Dodge dealership and merge with a different one that's across the street from his Chrysler-Jeep showroom.
  
  And since many dealerships are family businesses, Levitt says, the turmoil is also upending estate plans that were laid in better times. A dealer closing may well result in real estate getting dumped on the market, which can be bad news for the younger generation. "Real estate was viewed as an appreciating asset, so it's often owned by the kids," he says.
  
  Multiply these complications by the hundreds -- and throw in some little league teams without sponsors -- and you understand the stream of newspaper articles about dealer hardships and the eagerness of politicians to at least appear to be doing something.
  
  What it will all amount to is another matter. The guess here is, not much. - Kenneth Klee
  
  

• Astellas Pharma throws lifeline to Maxygen
  July 2nd, 2009, 11:34 AM (PDT)
  Biotechnology firm Maxygen Inc. (NASDAQ:MAXY) has gotten a life-
  saving assist from Astellas Pharma Inc. of Japan. The companies are forming a joint venture that will keep Maxygen operating in a brutal market for developmental stage biotechs with no marketable products and sky-high R&D costs.  
  
  

  As this Deal Pipeline timeline shows (subscription required), Maxygen retained Lazard to explore strategic alternatives, including a possible sale, in October and has since slashed staff and delayed late-stage development of one of its most promising drugs. The deal with Astella will keep the research -- and Maxygen -- alive.  

  
  

  Maxygen, which develops proteins using its proprietary DNA shuffling technology, will contribute nearly all of its R&D and assets to the venture, taking an 83% stake. Astellas will be granted an option to acquire Maxygen's stake at specified exercise prices over three years. Each company is contributing an initial $10 million, but Astellas has agreed to fund nearly all operating costs, estimated at about $30 million for the first three years. Maxygen will continue as an independent company, but with limited operations.  

  
  

  The venture expands Astellas' pipeline and comes three months after its $1.1 billion hostile offer to acquire CV Therapeutics Inc. was trumped by Gilead Sciences Inc. (NASDAQ:GILD). - Suzanne Stevens
  
  
  
  

• As new GM takes shape, another call for gas tax
  July 2nd, 2009, 11:34 AM (PDT)
  The deadline is July 10. The Feds won't fund bankrupt General Motors Corp. past then, we learned Wednesday, so unless the court approves a 363 sale and the creation of the new GM by, let's see, a week from Friday, we're looking at liquidation. This and much more about what happened in court Wednesday you can learn in our report in The Deal Pipeline (subscription required).
  
  Including the fact that Treasury hopes to IPO some GM shares as early as next year.
  
  Putting a market price on the company could bring the central paradox of government ownership into sharp focus in a hurry. This, of course, is the clash between the desire to see GM succeed and the attempt to make the U.S. more fuel efficient through the clumsy mechanism of Corporate Average Fuel Economy Standards.
  
  Alan Reynolds of the Cato Institute has a good op-ed piece in Thursday's Wall Street Journal arguing that CAFE standards are particularly harmful to GM. Whereas Toyota Motor Corp. and other competitors can sell enough small cars to offset sales of pickups and SUVs that use more fuel, GM's strengths (at least for now) are in bigger vehicles.
  
  But if hearing someone from Cato slam CAFE standards isn't surprising, what Reynolds would do instead is. Like Alan Greenspan and auto industry execs including Mike Jackson, CEO of AutoNation Inc. (NYSE:AN), and John Krafcik, CEO of Hyundai Motor America, he favors an increase in the gasoline tax as a better way to encourage greener cars, while also getting GM back to profitability as quickly as possible.
  
  These folks all have their own particular tax proposals. Reynolds would extend the federal gas guzzler tax to pickups and SUVs, and extend the 24 cents-a-gallon tax currently levied on (more efficient) diesel to gas and ethanol.
  
  What it would take to get the Obama administration and Congress to move in this politically difficult but economically sensible direction I'm not qualified to say. But with public-private boundaries being rapidly redrawn in response to an economic emergency, it sure is nice to see some serious counterproposals. - Kenneth Klee
  
   
  

• I-banks, law firms hire in response to oil M&A
  July 2nd, 2009, 11:34 AM (PDT)
  Strategics in the oil sector feeling an economic upturn is in sight have been running to the deal table as valuations are still a bit depressed. In turn, investment banks and law firms alike have responded by hiring as they look to reign in M&A advisory fees.
  
  Some big deals have included:
  
  • Monday's announcement of Encore Acquisition Co. (NYSE:EAC) agreeing to acquire Texas oil and natural gas properties in the Midwest from Exco Resources Inc.; (NYSE:XCO) for $375 million,
  • China's Sinopec Group agreeing to buy Addax Petroleum Corp. for about C$9.7 billion ($8.4 billion);
  • Heritage Oil Ltd., a British exploration and production company, merging with privately held Genel Enerji AS of Turkey in exchange for shares worth £1.52 billion ($2.4 billion); and
  • Asia's largest oil and gas company PetroChina Co. Ltd. (NYSE:PTR) acquiring a 45.5% stake in Singapore Petroleum from Keppel Corp. for 1.47 billion Singapore dollars ($1.02 billion).
    
  The PetroChina deal happened in May, a month where energy sector deals in general showed heft. And on Wednesday, it was announced that a BP plc (NYSE:BP) consortium, which includes China National Petroleum Co. as the minority partner, won a fee-based contract to boost production at Iraq's Rumaila oil field.
  
  On Thursday, The Deal Pipeline (subscription required) noted that oil company Repsol YPF-SA says it's received offers for its stake in Argentine YPF after the South China Morning Post said China National Petroleum Corp. was preparing a $17 billion offer for a 75% holding.
  
  I-banks and law firms are well aware of this uptick in oil dealmaking. For instance, Bank of America Merrill Lynch just said it hired Alan Murray for its global corporate and investment banking business as managing director of energy corporate and investment banking, effective late September. Murray was formerly global head of energy M&A at Citigroup Inc. (NYSE:C) and earlier headed Schroders plc's European oil and gas team in London.
  
  Barclays Capital made several appointments to its Latin American equity research team. I've also noticed a significant increase in hires for equities research in the past few months, but that's another post. Among others, BarCap tapped Citigroup's Felipe Mattar and Sergio Conti for utilities and oil coverage.
  
  A big move came early in the month with oil and gas dealmaker Jack Lentz joining Lazard as chairman, international oil and gas. Lentz was head of Lehman Brothers Holdings Inc.'s worldwide energy practice. Also from early June:
  
  • RBC Capital Markets Corp. appointed Kurt Hallead and Greg Pardy as co-heads of global energy research to expand that platform to include the integrated oil and international energy services sectors and increase its focus on commodities. Hallead works in Austin,  Texas, Pardy in Toronto;
  • Société Générale SA brought in Evgeny Solovyov as a senior analyst covering the oil and gas sector. Solovyov previously worked at Merrill Lynch & Co.; and
  • Evercore Partners Inc. (NYSE:EVR) hired Robert Pacha for its advisory practice as a senior managing director in charge of its "midstream" practice, which would include oil and gas transportation, processing and storage. Pacha is also setting up an office in Houston for the firm.
  Pacha, 40, has been working in investment banking for 17 years, most recently as managing director at Bank of America Merrill Lynch, where he led the firm's midstream energy and master limited partnership practice. Evercore chairman Roger Altman said in a statement that Pacha's hiring was a "milestone" for the firm.
  
  On the law firm side:
  
  • Morgan, Lewis & Bockius LLP added David Asmus, once head of oil and gas at Baker Botts LLP, to lead the firm's energy transactions practice;
  • Jeffrey Nichols joined Haynes and Boone LLP as a partner in the energy and power practice group in Houston, focusing on structured energy transactions for oil and gas, and electric power companies as well as financial institutions. He was with Greenberg Traurig LLP and previously senior counsel with Dynegy Inc. (NYSE:DYN); and
    
  • Thompson & Knight LLP grabbed seven oil and gas attorneys from Baker & McKenzie LLP in Houston: partners Michael Byrd, Louis Davis and Ben Welmaker; of counsel Glen White; and associates David Wildes, Cody Carper and James Sonnier.
  There will be more hires and more M&A, and we'll be tracking it. In the near future, it may be worth keeping an eye on Russian oil giant OAO Gazprom's oil arm, which may issue up to $1 billion in bonds to support its quest for acquisitions. - Baz Hiralal
  
  
  
  
  
  

• NewsMarket rescues Medialink
  July 2nd, 2009, 11:34 AM (PDT)
  In a deal marrying traditional and new media marketing companies, the NewsMarket announced Wednesday it intends to acquire Medialink Worldwide Inc. (NASDAQ:MDLK). The NewsMarket provides digital media services to help corporate and government clients communicate with clients through video, while Medialink provides television, radio and Internet news and market media strategies to clients. 
  
  
  The transaction comes in the nick of time for Medialink, which in April said it may have needed to cease operations if it couldn't secure an investor or buyer. As CEO Laurence Moskowitz said in the merger announcement, the company has been struggling "in the face of headwinds from the worldwide economy, the media communications industry in general and Medialink's own ongoing financial challenges." 

  
  

  The company also announced that it had signed separation agreements with Moskowitz and its COO and CFO that modified the executives' original employment contracts. The agreements, which would be null and void if the merger falls through, will "substantially reduce the change-in-control payments to be paid to each executive officer upon consummation of the merger." A sign perhaps of just how precarious Medialink's financial situation had become. 

  
  

  Medialink shareholders will vote on the merger at a special meeting to be held in August. Should the deal move forward, one integration challenge, as PRWeek noted, will be blending client bases. NewsMarket derives revenue from long-term subscriptions, while Medialink works directly with public relations agencies. - Suzanne Stevens 
  
  

• More Rio Tinto divestitures likely
  July 2nd, 2009, 11:34 AM (PDT)
  The Deal Pipeline (subscription required) shows investors signed up to buy 96.97% of new Rio Tinto Group stock, worth about £7.1 billion ($11.7 billion). Though this helps quite a bit with its massive debt burden -- mostly incurred from its $38 billion acquisition of aluminum company Alcan in 2007 -- the Aussie mining company still needs to divest noncore assets.
  
  An equities director at Aberdeen Asset Management told Reuters that Rio's relatively high exposure to aluminum was a drag and that it's now about getting the most out of their assets -- "if somebody would like to buy those assets, and offer a reasonable price, then they'd be happy to divest."
  
  Along with its 50-50 joint venture with BHP Billiton Ltd. (NYSE:BHP) and a $15.2 billion rights issue, Rio's debt will stand at about $23.2 billion. - Baz Hiralal
  

• Working capital sloppiness has got to stop
  July 1st, 2009, 11:34 AM (PDT)
  Nobody needs to be told that we're in the midst of an epic financial crunch. So why do so many companies have to be reminded to pull their socks up and manage their working capital more efficiently? How can these major organizations, world class in so many respects, continue to let scarce capital languish in inventories, receivables and the like when they could be using it to fund growth, or at least to pay for corporate golf outings?
  
  OK, maybe it's just human (and corporate) nature at work, and constant reminders are necessary. So for those of you who ignored the last post on the topic (and you know who you are), here's another bulletin: The consultants at Booz & Co. reckon that U.S. publicly held companies are leaving as much as $950 billion in working capital untapped on their corporate balance sheets, according to a new report.
  
  We're not sure if this is better or worse than the $1 trillion that Ernst & Young LLP said was tied up on the balance sheets of the 2,000 largest companies in the U.S. and Europe, which triggered our outburst in mid-June. But clearly there's work to be done.
  
  On that front, Booz has devised an interactive tool that will help you do better. We implore you to use it -- or to be prepared for an even sterner reminder. - Kenneth Klee
  
  
  
    

• THQ, Jakks smackdown over WWE rages on
  July 1st, 2009, 11:34 AM (PDT)
  
  Add another round to the three-way grudge match between Jakks Pacific Inc. (NASDAQ:JAKK), THQ Inc. (NASDAQ:THQI) and World Wrestling Entertainment. 
  
  
  At issue is a WWE video game license owned by a joint venture operated by toymaker Jakks and video game publisher THQ. Jakks on Wednesday said it intended to exercise an option to extend the license, set to expire on Dec. 31, for five years. THQ responded with a lawsuit claiming under terms of the JV it has the right to approve any extension. The companies have agreed to arbitration in hopes of avoiding a lengthy court fight.  
  
  
  So what's the back story? The professional wrestling Web site PWTorch.com has the details, but essentially Jakks will no longer make WWE toys after 2009, after the wrestling giant decided to go with Mattel Inc. (NYSE:MAT). To keep its hat in the WWE ring, Jakks wants to extend the video game license. THQ, meanwhile, is reportedly ready to end its relationship with WWE over "certain decisions regarding video game content."
  

  
  

  It was just over six months ago that Jakks and THQ tag-teamed to defeat WWE in a four-year-old licensing bribery dispute. WWE claimed that JV management bribed WWE executives to receive licenses. The lawsuit also charged that THQ was ultimately forced into its partnership with Jakks after its own licensing request was denied.  

  
  

  This battle has the makings of a perfect WWE setup: three angry players with a long history of disputes. It also shows just how tricky JVs can be to manage when the objectives of its parents change over time. Anyway, if arbitration fails, perhaps this match can be resolved in the ring.  - Suzanne Stevens
  
  
  
  

• Cleantech deals offer ray of economic hope
  July 1st, 2009, 11:34 AM (PDT)
  After a recent falloff, it looks like the cleantech sector is showing signs of a turnaround. The Cleantech Group, a provider of global market research, events and advisory services for the cleantech sector, along with Deloitte, released preliminary second-quarter results for clean technology venture investments in North America, Europe, China and India, which totaled $1.2 billion across 94 companies. Brian Fan, senior director of research at Cleantech Group, said:
  
  Cleantech venture investment has rebounded moderately after free-falling for two consecutive quarters. We are seeing initial signs of recovery in other cleantech asset classes, including recent activity in solar tax equity, increased M&A levels, as well as billions in government stimulus that are being allocated globally to the cleantech sector over the next several quarters.
  
  Results showed cleantech M&A totaled about 138 transactions in the second-quarter 2009, of which totals were disclosed for 40 transactions totaling $12.2 billion. That's up 291% from the first-quarter 2009, which had 123 M&A transactions, of which 28 were disclosed for a total of $3.1 billion.
  
  There's a lot of action in the sector of late, what with General Motors Corp. and Chrysler LLC retooling their manufacturing operations to offer energy-efficient vehicles and President Obama pushing for energy reform. Jeffrey McDermott, former joint global head of investment banking at UBS, is hoping to benefit from activity in the sector. He just launched Greentech Capital Advisors LLC in New York, the only alternative energy- and cleantech-focused investment bank. The firm covers the project finance, private equity, and mergers and acquisitions markets.
  
  McDermott says alternative energy and cleantech companies are going to need bankers with strong relationships with large industrial, power and utility companies who are the ultimate customers, strategic partners and consolidators for these companies.
  
  Interestingly enough, The New York Times' DealBook notes McDermott left UBS in 2007 to form a private equity firm focused on buying and turning around distressed industrial businesses. While the strategy appeared right for the times, the credit crunch made fundraising all but impossible. Now he's hoping to capitalize on dealmaking in this burgeoning sector. - Baz Hiralal
  

• Paramount could pave way in DVD joint ventures
  July 1st, 2009, 11:34 AM (PDT)
  The business is profitable but not growing, and one of these days it will start shrinking. Several rivals are in exactly the same boat.
  
  It's a classic recipe for co-opetition -- in this case, combining manufacturing and back-office operations in a joint venture with one or more rivals to cut costs, and just running the customer-facing part of the business.
  
  That's what's in store for the DVD distribution channels of the major movie studios, according to a media industry investor quoted in a Reuters report on Wednesday.  And, the report says,  Viacom  Inc.'s (NYSE:VIA.B) Paramount may be leading the way. It's said to be in preliminary talks with several other studios over a possible DVD joint venture. - Kenneth Klee
  

• Earnouts: Business performance vs. retention
  July 1st, 2009, 11:34 AM (PDT)
  In the current tough climate for deals, acquirers are increasingly using earnouts as part of the purchase price, which is why I've discussed the topic in a couple of recent magazine columns. The first, Arguments postponed, warns of disputes and litigation down the road for some of these dealmakers. The second, The Entrepreneurial Acquirer, looks at the case in favor of earnouts, as made by Jim McCann, CEO of 1-800-Flowers.com Inc.
  
  Now, for the last word on the topic (for a little while, anyway), readers can visit a blog post by Tom McLain, an M&A lawyer with Chorey, Taylor & Feil in Atlanta. McLain draws a useful distinction between what he calls business performance earnouts, used to bridge valuation gaps, and retention earnouts, used to retain talent. He finds the latter a little more likely to work as intended.
  
  Tom, by the way, is a member of our Corporate Dealmaker connection on LinkedIn. You can find out more about that by clicking on the link below. - Kenneth Klee
  

• Fifth Third, Advent complete processing JV
  July 1st, 2009, 11:34 AM (PDT)
  Fifth Third Bancorp  (NASDAQ:FITB) and the private equity firm Advent International Corp. have completed their $2.35 billion processing joint venture. As The Deal Pipeline subscribers learned in March, Advent agreed to acquire 51% of the Cincinnati bank's payment processing division for $561 million in cash. Fifth Third loaned $1.25 billion to the new venture, to be called Fifth Third Processing Solutions LLC.
  
  The transaction boosts Fifth Third, which said it will recognize a pretax gain of approximately $1.7 billion. The bank is struggling to reverse a five-year slide in its stock price, and in May it announced it would sell as much as $750 million in new stock.
  
  The completion of Fifth Third's processing JV with Advent comes less than a week after Bank of America Corp. (NYSE:BAC) and First Data Corp. announced a similar transaction. In the deal announced on June 29, First Data -- a highly leveraged portfolio company of Kohlberg Kravis Roberts & Co. -- and BofA formed Banc of America Merchant Services, a 1000-employee payment processing JV based in Atlanta. - Suzanne Stevens      

• Novavax inks deal to bring flu vaccine to Spain
  July 1st, 2009, 11:34 AM (PDT)
  With big pharmaceutical companies looking to load their pipelines and biotechnology firms looking for capital to keep afloat, licensing deals between the two are a mainstay of the industry. And as such, not every deal gets a mention here. But a transaction announced Tuesday involving Novavex Inc. (NASDAQ:NVAX) and the Spanish drugmaker Laboratorios Farmaceuticos Rovi (ROVI) is worth highlighting for a couple of reason.
  
  For one, Novavax's technology is designed to make it easier and quicker to manufacture flu vaccines. And with concern about swine flu and other dangerous strains high, the company has gotten lots of attention, including from the Spanish government. Which is another reason worth noting the deal. 
  
  Under terms of the transaction, ROVI will take a $3 million equity stake in the Rockville, Md., biotech and will use its technology to develop and market pandemic and seasonal flu vaccines exclusively in Spain and Portugal, and nonexclusively in Europe, Latin America and Africa. In addition, the Spanish government will kick in about $84 million to fund late-stage approval of the vaccines and to market them in Europe.
  
  Novavax is a developmental-stage biotech, meaning it has no marketable products. The transaction delivers a much-needed capital infusion to the company, which like other biotechs is striking deals to keep development funds flowing. It will retain exclusive licensing rights for the vaccines in North America, Asia and Australia and will receive royalty and milestone payments once the vaccines are approved.- Suzanne Stevens
  

• AB InBev divestiture plan continues
  July 1st, 2009, 11:34 AM (PDT)
  On March 5, Anheuser-Busch InBev said it would divest about $7 billion worth of assets to deal with short-term debt after the November Euro-U.S. merger of InBev SA and St. Louis-based Anheuser-Busch Cos., which created the world's No. 1 brewer. It's full debt load after the deal was $45 billion.
  
  Most recently, AB InBev sold four beverage can manufacturing plants -- not core to its business of brewing -- in the U.S. to Ball Corp. (NYSE:BLL) for $577 million. Ball is a supplier of metal and plastic packaging for beverage, food and household products customers, and of aerospace and other technologies and services, primarily for the U.S. government. It said the acquisition fits well with its strategy to grow its worldwide beverage can business.
  
  AB InBev recently took a bigger chunk off its debt load, agreeing to:
  
  • sell South Korea's Oriental Brewery Co. Ltd. to New York buyout shop Kohlberg Kravis Roberts & Co. for $1.8 billion and
    
  • selling a 20% stake in Chinese brewer Tsingtao Brewery Co. Ltd. to Japan's Asahi Breweries Ltd. for $667 million.
    
  As part of receiving DOJ approval, it also had to sell its Labatt USA unit to KPS Capital Partners LP, relieving fears it would dominate upstate New York's beer market. A sale price was not disclosed.
  
  And a Dow Jones report says AB InBev is seeking binding bids by mid-July for its Central and Eastern European operations, after CVC Capital Management sent the brewer an unsolicited approach for the businesses. The report said private equity firms such as KKR will likely win the bid as strategics such as Carlsberg A/S and Heineken Holding NV are digesting acquisitions and trying to pay down debt.
  
  Also, to cut costs by consolidating its network of independent U.S. beer distributors -- and possibly own more of them itself -- a UBS analyst said AB InBev may someday sell as much as 50% of its U.S. beer volume directly to retailers through its own distributors, up from 7% today.
  
  AB-InBev CEO Carlos Brito told shareholders earlier this year that he would sell as many as six businesses. - Baz Hiralal
  
  See Ball's announcement
  
  

• Big board for student loan startup People Capital
  June 30th, 2009, 11:34 AM (PDT)
  With advice from M&A veterans such as Merrill Lynch & Co.'s former COO of Americas investment banking, Colbert Narcisse, and Ken Kharbanda, AOL LLC's former head of corporate development, startup People Capital is looking to address a growing problem in the U.S. resulting form the economic crisis. The firm is a New York-based online student lending platform launching later this year.
  
  So, why a student loan startup now? People Capital responded to our question, saying, "Recent events in the capital markets have led to overly harsh treatment of student borrowing. Not only have lenders fled the market, but also, those that have stayed are unable to best distinguish between good and bad risks. We aim to address both issues." The firm not only matches lenders to students but applies a credit ranking to people with a short credit history.
  
  The firm says it created an advisory board because it operates in a space that encompasses student lending, consumer finance, credit ratings and new media. Besides Narcisse and Kharbanda -- who was a panelist in our conference last year -- the board includes Petrina Dawson, counsel, receivership policy at the FDIC and formerly a senior managing director and general counsel of Standard & Poor's Ratings Services; Ivar Eilertsen, CEO and founding partner of Harbor Capital Technologies; and Gregory Webster, CEO of Fund.com, who covers corporate strategy, business development and acquisitions. Prior to that, Webster was president and CEO of HSBC Brokerage (USA) Inc.
  
  The management team they'll be working with includes founder and CEO Thomas Shelton, a serial entrepreneur who has incubated businesses such as CyberStream Solutions, Strive Medical Technologies and Jeremy's Microbatch. Others include president and COO Al Alper, chief product officer and EVP of business operations Alan Samuels, chief information officer John Nerenberg and SVP of student loan operations Brendan Pryor. Earlier, Pryor worked at Sallie Mae in positions including director of loan originations and director of loan servicing/compliance.
  
  The company also took on Robert Lavet to provide advice and assistance on regulatory issues. Lavet is with Powers, Pyles, Sutter & Versille PC and is the former general counsel for Sallie Mae. People Capital is expected to launch later this year. - Baz Hiralal