Biggest tech acquisition in history: Dell to buy EMC for $67bn

BY Fraser Tennant

In the biggest deal ever seen in tech history, Dell Inc. has announced that it is to acquire EMC Corporation in a transaction valued at approximately $67bn.

The combination of Dell and EMC will create a technology giant with leadership positions in servers, storage, virtualisation and PCs, as well as bringing together strong capabilities in the fastest growing areas of the $2 trillion information technology market.

Additionally, the transaction is expected to unite Dell’s expertise with small business and mid-market customers with the strength EMC demonstrates in dealing with large enterprises.

“Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data centre, converged infrastructure, hybrid cloud, mobile and security,” said Michael S. Dell, founder, chairman and chief executive officer of Dell. “Our investments in R&D and innovation along with our privately-controlled structure will give us unmatched scale, strength and flexibility, deepening our relationships with customers of all sizes. I am incredibly excited to partner with EMC and am personally committed to the success of our new company, our customers and partners.”

Under the terms of the definitive agreement, which has been approved by the EMC board of directors, Mr Dell and related stockholders will own approximately 70 percent of the combined company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership.

“I’m tremendously proud of everything we’ve built at EMC – from humble beginnings as a Boston-based start-up to a global, world-class technology company with an unyielding dedication to our customers,” said Joe Tucci, chairman and chief executive officer of EMC. “But the waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era. I truly believe that the combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”

Following the completion of the acquisition, Mr Dell will lead the combined entity as chairman and chief executive officer. Mr Tucci will continue as chairman and chief executive officer of EMC until the ultimate closure of the transaction.

The transaction is subject to customary conditions, including receipt of required regulatory and EMC stockholder approvals, and is expected to close in the second or third quarter of Dell’s fiscal year ending 3 February 2017.

News: Dell agrees $67bn EMC takeover

Japan Tobacco to acquire RAI’s Natural American Spirit in $5bn deal

BY Fraser Tennant

In a $5bn deal designed to further expand its brand portfolio, leading international tobacco company Japan Tobacco Inc. (JT Group) has entered into negotiations with the Reynolds American Inc. group of companies (RAI) to acquire the international rights to the Natural American Spirit brand name and associated trademarks.

An all cash transaction, the acquisition of the Natural American Spirit brand name is the latest big success for the JT Group in a highly competitive market following strong growth momentum in the US, Japan, Germany, Switzerland, Italy, Spain and the UK.

A leading international tobacco company, Japan Tobacco products - including internationally recognised brands such as Winston, Camel, Mevius and LD - are sold in over 120 countries. The JT Group’s revenue was ¥2.154 trillion (US$17,867m) in the fiscal year ended December 2014.

“Natural American Spirit, which has a strong and international presence in a premium priced category, will allow the JT Group to further extend its brand portfolio," said Mitsuomi Koizumi, president and chief executive of JT Group. “This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our Group’s business foundation.”

What the JT Group’s purchase does not include is the rights to the Natural American Spirit brand name and associated trademarks in the US market, US duty-free locations, US territories or in US military outlets – all of which is to be retained by Santa Fe Natural Tobacco Company, Inc., a wholly owned subsidiary of RAI.

“Natural American Spirit has achieved excellent international growth over the past several years,” said Susan M. Cameron, RAI’s president and CEO. “When backed by the strength of the JT Group’s international distribution, sales force and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate. We believe this sale once again demonstrates our commitment to creating value for our shareholders.”

Upon closing of the transaction, which requires the approval of regulatory authorities in a number of countries, all current international employees will become employees of the JT Group of companies.

The Japan Tobacco/RAI transaction is expected to be completed by early 2016.

News: Japan Tobacco to buy Reynolds American brand for $5 billion; shares dive

CKI to buy Power Assets in $11.6bn deal

BY Richard Summerfield

Cheung Kong Infrastructure Holdings Ltd has announced plans to merge with its power utility affiliate Power Assets Holdings Ltd in an all shares deal worth $11.6bn, creating in the process an infrastructure giant.

The deal will see the infrastructure division of Hong Kong businessman Li Ka-shing, which already owns 38.9 percent of Power Assets; acquire the remaining outstanding share in the company. Following completion of the deal, all shareholders of the newly merged company will receive a special dividend of around $0.65.

In completing the deal, CKI will gain access to Power Assets' considerable cash pile, which CKI will utilise both to shore up its balance sheet and to pursue further expansion. At the end of June, Power Assets had around $7.47bn of net cash available, far outstripping the net cash available to CKI. We will continue to carry out deals in the future and then reinvest money into the company," CKI Chairman Victor Li said at a news conference announcing the deal. "As an infrastructure company, the larger we get, the larger deals we can do."

Once the deal has been completed, the newly merged company will control a number of businesses across a variety of sectors, including energy infrastructure, transportation infrastructure, water infrastructure, waste management and other infrastructure related businesses.

CKI has undergone a period of significant renewal in 2015. In January it restructured itself, creating two listed companies. Cheung Kong Property Holdings focuses on property, while CK Hutchison Holdings focuses on telecoms, retail, aircraft leasing and port assets.

In order to finance the deal, CKI will issue 1.36 billion new shares, according to a joint securities filing announcing the acquisition. Under the terms of the deal, Power Assets will delist from the Hong Kong stock exchange once the transaction has been completed. The two companies expect the deal to close in the first quarter of 2016.

The companies already have a solid history of collaboration; CKI and Power Assets have been involved in 11 infrastructure projects together in recent years. These projects included several high profile projects in Europe and the UK.

News: Li Ka-shing's CKI to buy out Hong Kong utility in $11.6 billion deal

M&A appetite in UK outpaces US and Europe

BY Fraser Tennant

The appetite and capacity for M&A deals among the UK's largest corporates is currently exceeding that seen in the US and Europe, according to the new edition of the KPMG Global M&A Predictor published this week.

The M&A Predictor – a tool that helps member firm clients to forecast worldwide trends in mergers and acquisitions – reveals that, between June 2015 and June 2016, the forward P/E ratios (KPMG’s measure of corporate appetite or confidence) of the UK’s largest corporates are forecast to increase by 13 percent.

In comparison, the P/E ratios for corporates in the US and Europe are forecast to be 6 percent and 8 percent respectively.

 “With the debt markets more accessible than they have been for some time, our view is that the capacity for deals by UK corporates is showing little sign of diminishing," declares Andrew Nicholson, KPMG’s head of M&A in the UK. “Couple this increasing buoyancy with a more stable economy and a greater convergence between vendor and purchaser price expectations, and all the signs are there that UK deal volumes will increase steadily over the coming months.”

However, despite Mr Nicholson’s view that the outlook for M&A in the UK remains bright, the M&A Predictor data also highlights the fact that increasing confidence still does not appear to be reflected in actual transaction levels (completed deal volumes fell in the UK and globally over the six-month period from January to June 2015).

“Globally, it feels like there has been a slight slowdown in the market,” concedes Mr Nicholson. “The continuing impact of low oil prices and political instability in some regions should not be overlooked and, of course, one wonders whether this will be exacerbated by the recent volatility seen in the capital markets. However, we continue to have strong expectations for deal activity in the coming months and there are real pockets of strength to be found.”

In terms of sector expectations, the M&A Predictor confirms the ongoing challenges facing the global energy sector, as evidenced by the 19 percent fall (accompanied by a drop in profits) in market capitalisations of the largest energy companies between June 2014 and June 2015.

Further afield, the M&A Predictor notes that the defensive healthcare sector appears stable (an 18 percent increase in market capitalisation and a 7 percent rise in appetite for M&A) as does telecommunications, with an 8 percent increase in M&A appetite.

Report: M&A Predictor - September 2015

Berkshire Hathaway boosts Phillips stake

BY Richard Summerfield

Fresh on the heels of the firm’s $32bn acquisition of Precisions Castparts, Berkshire Hathaway has announced that is has a taken a $4.48bn stake in oil refiner Phillips 66, making it the company’s biggest shareholder.

According to a filing made with the US Securities and Exchange Commission on Friday evening, Berkshire has amassed a 57.98 million share, or 10.8 percent stake in the company. The move marks a return to the business after divesting two-thirds of its stake last February.

In 2014, Berkshire traded a significant portion of its stake in the Phillips 66 unit for a chemical-business investment which was subsequently absorbed by Berkshire’s Lubrizol division.

However, Berkshire is believed to have begun rebuilding its holding in Phillips 66 in the second quarter of 2015, when it bought $3.09bn worth of equities in the firm. As a result of the conglomerates announcement, Phillips shares closed Friday at $77.23.

Since Berkshire traded away the majority of its holding in Phillips, the firm has continued to blossom. Since the spinoff, Phillips stock has more than doubled in value.

Berkshire’s disclosure underlines its belief that the energy sector is likely to be a growth area. This is Berkshire’s most significant energy investment in around two years, though it only represents a mid range investment by Berkshire’s standards. The conglomerate, which has a diverse portfolio of over 80 firms, typically takes much larger holdings, including $20bn stakes in Wells Fargo & Co. and Kraft Heinz Co. The firm also has a $10bn holding in Coca Cola and IBM.

Berkshire hopes that low oil prices will continue to drive demand for gasoline, diesel and other petroleum products. This demand has been ably demonstrated in the US over the last 12 months; since prices began to tumble last year, gasoline demand in the US has climbed to an eight year high. Following the company’s outlay in Phillips 66, Berkshire will hope this demand continues to grow.

News: Buffett's Berkshire takes $4.48 billion stake in Phillips 66