Charter to acquire Bright House in $10bn deal

BY Richard Summerfield

The consolidation of the pay television sector shows no signs of abating after Charter Communications Inc announced that it had agreed to acquire privately held cable operator Bright House Networks LLC in a deal worth around $10.4bn.

“Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Charter’s chief executive Tom Rutledge, in a statement announcing the transaction. Once the deal has been completed the acquisition of Bright House will make Charter the second largest cable television provider in the US.

However, deal closure is contingent on a number of factors outside the control of the merging companies. In order for the deal to proceed, Comcast’s proposed $45bn acquisition of Time Warner Cable must win regulatory approval. Under the terms of that deal, Charter has agreed to pay approximately $7.3bn in cash for 1.4 million Time Warner Cable customers and to swap another 1.6 million customers with Comcast. However, if regulators block the Comcast/Time Warner deal, the agreement to sell subscribers to Charter would be in jeopardy, as would the planned Charter takeover of Bright House.

Should Charter’s acquisition of Bright House win regulatory approval, Charter will retain around 73.7 percent of the newly merged company, while Bright House’s owner, Advance Newhouse,  will hold the remaining stock. Advance Newhouse will receive around $2bn in cash and the rest in common and convertible preferred units of the new company.

The deal would revitalise Charter, which has suffered of late from consumers ‘cutting the cord’ and turning away from traditional cable television services and embracing streaming services provided by Netflix and Amazon Prime. Indeed, in 2014 pay television subscriptions in the US declined by around by 129,000.

News: Charter beefs up cable muscle with Bright House deal

Shell agrees to buy BG Group in $70bn deal

BY Fraser Tennant

In a major deal likely to be one of the largest undertaken in 2015, Royal Dutch Shell and the BG Group, the UK’s third-largest energy company, have reached an agreement which will see Shell buy the oil and gas exploration giant in a $70bn deal.

Once complete, the deal, a cash and shares offer which will see investors gain a 50 percent premium on BG’s share price, has the potential to create a company worth almost $300bn.

According to Shell’s summary terms and metrics, the deal: (i) represents a value per BG ordinary share of 1350p, a premium of 52 percent; (ii) values BG equity at $70bn; (iii) will see BG shareholders own 19 percent of Shell; (iv) is a transaction underpinned by intrinsic asset value of BG; (v) is mildly accretive to earnings per share in 2017 and strongly accretive from 2018; and (vi) is accretive to cash flow from operations per share from 2016.

“This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders," said Jorma Ollila, chairman of Shell. “The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world. We believe that the combination is in the interests of both our companies and their shareholders.”

Commenting on the deal, BG chief executive Helge Lund said: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. The consolidated business will be strongly placed to develop the growth projects in BG’s portfolio. The transaction will take time to complete, during which my team and I will remain committed to BG and our shareholders, and to safely delivering our 2015 business plan.”

Despite Mr Lund’s commitment, the BG chief, who joined the firm as recently as February 2015 amidst controversy over his $35m-plus pay package, will “probably move along” from his position if the deal goes ahead according to Shell’s chief executive, Ben van Beurden. 

The Shell/BG Group deal is expected to be concluded in early 2016 following regulatory and shareholder approvals, to be followed by a $25bn share buyback program commencing in 2017.

News: Shell offers 50 percent premium to buy BG for 47 billion

M&A booms in Q1 2015

BY Richard Summerfield

2014 was a notable year for global mergers and acquisitions (M&A) activity, with deal volumes and valuations reaching pre-crisis highs in some regions. This  boom continued into the first quarter of the year, according to data released by Dealogic.

In the first three months of 2015, $902.2bn worth of M&A activity was announced - the highest first quarter total since the $1.08 trillion worth of deals announced eight years ago.

The 14 megadeals – each valued in excess of $10bn – accounted for a significant amount of  announced transactions in Q1, worth a combined $267.4bn. It was the busiest Q1 for megadeals since  15 deals were announced in the first quarter of 2006.

Cross-border M&A also performed well, reaching $315.2bn - the highest first quarter volume since 2007 when activity reached $357.9bn.

The healthcare sector was the most targeted industry, with deal value of $126.5bn. The real estate space was the second most targeted industry last year with $113bn worth of announced deals  across 462 transactions, a leap of 38 percent from Q1 last year.

US targeted M&A climbed 28 percent, with a total of $415bn, up from $324.6bn. This was the highest first quarter total since 2007 when $430.7bn worth of deals were announced.

In Europe, seven of the region’s top 10 sectors saw a year on year increases in volume in the first quarter. In the construction sector, activity climbed to $11.7bn - a more than threefold increase on Q1 2014, which saw just $3.2bn worth of deals.

Report: Dealogic Global M&A Review First Quarter 2015

ChemChina to acquire Pirelli in $7.7bn deal

BY Fraser Tennant

China National Chemical Corp (ChemChina) has announced a $7.7bn deal that will see the state-owned company acquire Pirelli, the world's fifth-largest tire maker.

If the proposed deal for the 143-year-old Italian company is successful, it would be the largest overseas deal seen in China for two years, and another major addition to a growing list of high-profile acquisitions which currently include Volvo cars, Club Med and Sunseeker yachts.

A complicated deal, the acquisition would involve ChemChina paying approximately $1.96bn for a 26 percent stake in Pirelli (owned by Camfin, the holding company indirectly controlled by Pirelli chairman and chief executive Marco Tronchetti Provera) and then launching a bid to buy the rest of the tire maker’s stock.

“Pirelli’s excellent technology and management, and its well-known brand and sales channel, are what we hold high expectations on,” said Ren Jianxin, chairman of China National Chemical Corp. “The strength of Pirelli will add value to our tire business.”

Mr Ren, often referred to as China’s ‘merger king’, is keen to uphold what he sees as the Italian tire maker’s autonomy and reputation for quality. “We will not try to change Pirelli. Pirelli is Pirelli,” he said. “They are of two different tastes, and they’re not the same.”

To help facilitate this, Mr Ren has pledged to keep Mr Provera at the helm of Pirelli for at least the next five years.

Pirelli declined to comment on the deal other than to say that no other companies are bidding for the firm.

On this point Mr Ren warned that any counterbid for Pirelli would “hurt the Italian firm's investors and long-term strategy". He went on to say that his company was “worried that due to cheap liquidity there might be blind competition" but confirmed that no higher offer would be forthcoming as ChemChina had reached the limits of its budget.

And when asked if the acquisition meant that redundancies are likely at Pirelli, Mr Ren responded curtly by saying the deal was about “expanding scale and increasing market share". He also pointed out that despite ChemChina employing 120,000 people across all its operations, the company needed “more people to join” and there are plans in place to invite Pirelli's union members to visit China.

News: ChemChina to buy into Italian tire maker Pirelli in $7.7 billion deal

AbbVie wins Pharmacyclics race

BY Richard Summerfield

Biotech company Pharmacyclics has agreed to be acquired by Chicago based rival AbbVie in a deal worth around $21bn.

Under the terms of the deal, Pharmacyclics shareholders will receive $261.25 per share of the company held. The offer is comprised of a mix of cash and AbbVie equity, and the transaction is expected to close by mid-2015.

AbbVie was a late entrant to the race to acquire Pharmacyclics, beating out competition from Johnson & Johnson and a third, unnamed party to secure the deal. The three way contest for Pharmacylics was driven by interest in the company’s crown jewel – Imbruvica – a cancer drug which could make an important impact on the oncology sector. The company expects US sales of Imbruvica to hit $1bn in 2015, however by 2020 worldwide sales are forecast to reach $5.8bn.

"Team Pharmacyclics is honoured and enthusiastic to join the AbbVie organisation. We share a common purpose. Together and as one, our focus remains to create a remarkable difference for patient betterment around the world," said Bob Duggan, chairman and chief executive of Pharmacyclics, in a statement announcing the deal.

"The acquisition of Pharmacyclics is a strategically compelling opportunity. The addition of Pharmacyclics' talented and innovative team will add enormous value to AbbVie," said Richard Gonzalez, chairman and chief executive of AbbVie. "Its flagship product, Imbruvica, is not only complementary to AbbVie's oncology pipeline, it has demonstrated strong clinical efficacy across a broad range of hematologic malignancies and raised the standard of care for patients."

The deal continues the trend of significant M&A transactions in the pharma and biotech sectors in 2015 to date. With announced deals including Pfizer’s purchase of Hospira for $17bn, Valeant’s acquisition of gastrointestinal drugmaker Salix for $14.5bn, and Shire's $5.2bn deal for NPS Pharma, M&A in the pharma and biotech  reached $70bn by the beginning of March - more than double the level of activity seen in the same period last year.

News: AbbVie to Pay $21 Billion for Pharmacyclics, Maker of a Promising Cancer Drug