Lockheed to buy Sikorsky for $9bn

BY Richard Summerfield

Lockheed Martin Corp announced this week that it had agreed to acquire military and commercial rotary-wing aircraft manufacturer Sikorsky Aircraft from United Technologies Corporation in a deal worth $9bn. The price of the deal will effectively be reduced to around $7.1bn once the tax benefit resulting from the transaction is taken into account.

The transaction, which is subject to the customary closing conditions including regulatory approval, is expected to be completed in Q4 2015 or Q1 2016. “Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defence products and technologies,” said Marillyn Hewson, Lockheed Martin’s chairman, president and chief executive in a statement announcing the deal. “I’m confident this acquisition will help us extend our core business into the growing areas of helicopter production and sustainment. Together, we’ll offer a strong portfolio of helicopter solutions to our global customers and accelerate the pace of innovation and new technology development.”

By completing a deal for Sikorsky, Lockheed - the Pentagon’s largest arms supplier - has secured its position as the world’s largest defence company, overshadowing rivals including the defence business of Boeing Co and Northrop Grumman Corp.

Sikorsky manufactures a range of military helicopters, including the Black Hawk, which is utilised by 25 nations for multi-mission support, and the Seahawk, used in marine operations. The company also makes commercial helicopters and fixed-wing aircraft for surveillance and transport missions.

“Exiting the helicopter business will allow UTC to better focus on providing high-technology systems and services to the aerospace and building industries, and to deliver improved and sustained value to our customers and shareowners,” United Technologies president and chief executive Gregory Hayes said in a separate statement.

In addition to the Sikorsky deal, Lockheed also announced a better than expected 4.5 percent rise in quarterly profit this week. The company also said it could spin off or sell its government IT and technical services businesses going forward.

News: Lockheed to buy Black Hawk maker Sikorsky for $9 billion

Celgene and Receptos agree $7.2bn merger

BY Richard Summerfield

On 14 July, Celgene Corp announced that it had agreed to acquire Receptos Inc in a deal worth approximately $7.2bn. The deal continues the trend of major M&A deals in the healthcare sector which has seen more than $250bn worth of M&A since January.

According to the terms of the deal, Celgene will pay $232 per share to acquire Receptos. The agreed price represents a 12 percent premium to the company’s closing price on the day the deal was announced. The transaction was made public after the markets had closed.

By acquiring Receptos, Celgene has gained access to the company’s valuable pipeline of products, most notably its treatment for multiple sclerosis and ulcerative colitis, ozanimod. The drug is currently in late-stage clinical trials with approval possible in 2018 for multiple sclerosis and the following year for ulcerative colitis. According to data from Celgene, ozanimod could generate peak sales of around $6bn annually.

“The Receptos acquisition provides a transformational opportunity for Celgene to impact multiple therapeutic areas,” said Robert J. Hugin, chief executive of Celgene, in a statement announcing the deal.

Celgene too has an impressive portfolio of products, the most prominent of which is the company’s blockbuster cancer treatment Revlimid.

As a result of deal speculation, Receptos has seen its market value nearly double since the turn of the year. AstraZeneca, Gilead Sciences and Teva were all rumoured to be interested in acquiring the company, although none were able to agree a deal.

For Celgene, the acquisition represents business as usual. The company has developed a reputation for M&A transactions to buy up smaller companies or licence their product lines. In 2014, the firm paid $710m to Irish firm Nogra Pharma to gain access to GED-03010, a treatment for Crohn’s disease. In June, the company invested $1bn in Juno Therapeutics, an organisation which manufactures experimental cancer medication.

According to Celgene’s statement, the deal for Receptos will impact the company’s earnings per share up to and including 2017. It will be neutral to earnings per share the following year and add to earnings from 2019 onwards. Celgene intends to finance the deal via a combination of existing cash on hand and new debt. The company intends to raise around $5bn in a bond offering in August.

The deal is expected to close in the second half of 2015.

News: Celgene to buy Receptos for $7.2bn; gains promising drug

$18bn merger sees Willis Group and Towers Watson become one

BY Fraser Tennant

Willis Group Holdings and Tower Watson have announced that they are to merge in an $18bn transaction that will create a major integrated global advisory, broking and solutions provider.

The signing of a definitive merger agreement between the pair - two highly complementary businesses combining in an all-stock merger of equals transaction – will, they say, "create an integrated global platform to drive long-term growth and market share gain in traditional and new businesses".

Upon completion of the merger, Willis shareholders will own approximately 50.1 percent and Towers Watson shareholders will own approximately 49.9 percent of the combined company on a fully diluted basis. The combined company will be named Willis Towers Watson.

The combination is also expected to result in a $100-125m cost saving within three years of closing – due mainly to increased efficiencies and the elimination of duplicate corporate costs and economies.

“These are two companies with world-class brands and shared values," said Dominic Casserley, CEO of Willis. “The rationale for the merger is powerful – at one stroke, the combination fast-tracks each company’s growth strategy and offers a truly compelling value proposition to our clients. Together we will help our clients achieve superior performance through effective risk, people and financial management. We will advise over 80 percent of the world’s top-1000 companies, as well as having a significant presence with mid-market and smaller employers around the world.”

Unanimously approved by both the board of directors of both companies, the combined entity will have approximately 39,000 employees in over 120 countries. 

“Our organisations share a client-first mentality and a focus on providing services and solutions that consistently exceed clients’ expectations," said John Haley, chairman and chief executive of Towers Watson. “As we bring these two companies together, we are confident associates across both organisations will enjoy increased development opportunities as part of a stronger and more global growth company.”

In terms of the leadership structure of Willis Towers Watson, James McCann (previously non-executive chairman of the Willis board) will become chairman; John Haley will be chief executive and Dominic Casserley will be president and deputy CEO. The board will consist of 12 directors in total: six nominated by Willis and six by Towers Watson.

Mr Casserley said: “We look forward to bringing Towers Watson’s innovative solutions to our clients alongside our broking and advisory services. The opportunity to deliver significant savings to our growing middle market client base with Towers Watson’s market-leading private exchange platform is particularly attractive.”

News: Willis Group and Towers Watson merge in $18bn deal

CPPIB to acquire Antares from GE Capital in $12bn deal

BY Fraser Tennant

In a major transaction within the US lending sector, the Canada Pension Plan Investment Board (CPPIB) has agreed to acquire 100 percent of Antares Capital - the sponsor lending portfolio of GE Capital - in a deal worth in the region of $12bn.

The move to acquire Chicago-based Antares Capital, the leading lender to middle market private equity sponsors in the US (provider of more than $123bn in financing over the last five years), is being seen as a highly strategic, long-term platform investment for CPPIB Principal Credit Investments (PCI) group.

With a focus on providing financing solutions both globally and across the capital structure, CPPIB’s PCI group makes direct primary and secondary investments in leveraged loans, high yield bonds, mezzanine, intellectual property and other solutions.

“This acquisition exemplifies our strategy to achieve scale in key sectors through platform investments," explained Mark Wiseman, president & CEO of CPPIB. “It secures a market-leading business that is exceptionally well positioned to deliver value-building investment flows. In doing so, we are advancing the prudent diversification of our investment portfolio, strengthening the Fund even further.”

Upon the closure of the transaction, Antares Capital will operate as a standalone, independent business governed by its own board of directors, effectively retaining the brand that has built up a long and impressive track record in the US middle market lending sector.

“We are excited to partner with CPPIB," said delighted David Brackett, a managing partner at Antares Capital. “We couldn't imagine a better outcome to the sale process for our team or our customers. CPPIB brings deep understanding and knowledge of our market and permanent capital, which will allow us to serve our customers in both good and challenging times.”

The acquisition of Antares Capital, along with the retention of its managing partners, David Brackett and John Martin, will expand and complement CPPIB’s existing Principal Credit Investments portfolio, according to Mark Jenkins, senior managing director & global head of private investments at CPPIB. He said: “With this single transaction, we immediately acquire turn-key scale and a long-term partnership with the best, most experienced management team in the market.”

The Antares Capital transaction, subject to the customary regulatory approvals and closing conditions, is expected to complete during the third quarter of 2015.

News: General Electric to exit banking sector with $12bn sale of finance business

Divestments key to capital strategy, growth

BY Richard Summerfield

In 2014 divestments became one of the most important weapons in the arsenal of corporates. By getting smaller, many firms gave themselves the room, and the financial muscle, to grow.

Increasingly, leading companies are utilising divestments to further their capital strategy and facilitate growth. According to EY’s latest Global Corporate Divestment Study, many more companies are waking up to the benefits of divestitures, with more than half of those firms surveyed - some 71 percent - expected to join the swelling ranks of strategic sellers over the next 12 months.

Much of the renewed interest in divestments as a corporate strategy has been predicated on the return of M&A to the corporate agenda. 2014 saw the level of M&A activity across the global economy achieve pre-financial crisis levels as firms adapt to the shifting sands of modern corporate life, with its complex compliance obligations and rising costs.

Activist investors are also having a significant impact on corporates and their willingness to divest assets. Forty-five percent of executives noted that shareholder activism influenced their decision to divest some of their assets. A unit’s weak performance, position in the market can also trigger a divestment, as can a unit no longer being part of a company’s core business or a need to generate cash.

For those companies that have decided to take the plunge and divest a unit, the process represents an excellent opportunity for growth. Seventy-four percent of respondents said they are using divestitures to fund corporate growth, while 66 percent said they saw an increased valuation multiple in the remaining business after their last divestment.

When undertaking a divestiture, organisation and planning can play a pivotal role in increasing shareholder value. Fifty percent of respondents noted that by starting the preparatory work behind the deal at an early stage, they were able to complete their transaction on time. Taking shortcuts in deal preparation only elongates diligence work, and delays closure times. For divesting firms, speed is the key.

Report: Global Corporate Divestment Study 2015