Deal completion fails to match M&A appetite

BY Mark Williams

The world’s largest companies are expected to maintain a healthy appetite for M&A over the next six months, according to KPMG’s M&A Predictor, released in August 2014.

Price-to-earnings ratios have climbed 16 percent during the last year. At the same time, corporates are continuing to pay down debt and have an increasing amount of cash with which to fund deals. Although these factors create a fertile environment for dealmaking, appetite and increasing capacity are yet to result in the expected level of deal completions, says KPMG.

Despite the increase in announced deals through Q1 2014, which signals the return of a strong appetite for M&A, deal completions remains static, and the value of these deals continues to fall. Part of this is due to political interference in the deal market, evidenced by the proposed Pfizer deal in the UK and the GE deal in France.

That said, KPMG believes the overall the picture is a positive one. “Appetite remains strong, capacity is going up and we are starting to see an increasing number of deals being announced,” says Tom Franks, KPMG’s Global Head of Corporate Finance. “There is a danger, though, that domestic protectionism, certainly in markets like the UK, France and Canada, could damage the recovery. Furthermore, whilst increasing political instability in North America, the Middle East and Ukraine has not yet appeared to impact sentiment it remains a very real threat,” he added.

Report: KPMG M&A Predictor August 2014

Entertainment firms eye growth in improved economy

BY Matt Atkins

The media and entertainment (M&E) industry is ready to take the spotlight, according to a new EY report, as executives shake off their fears for the economy and shift from cost cutting to growth.

EY surveyed 50 large global M&E companies for the 'It's Showtime! Digital drives the agenda, data delivers the insights' report, which showed that only 26 percent of senior executives surveyed were concerned that economic uncertainty would impact growth, compared to 62 percent in 2012. The survey spanned industry sectors including filmed entertainment; broadcast and cable networks; music and radio; advertising; internet and interactive media; and publishing and information services.

The report showed that firms are well positioned to grow their companies through capitalising on digital opportunities and investments in technology, digital talent and infrastructure, as well as acquisitions and other deals. The average deal value during the first half of 2014 was US$939m, compared with US$220m in 2013 and US$157m in 2012, with cable operators driving the rise.

"The CFOs told us in no uncertain terms that the economy is no longer an obstacle and now is the time for media and entertainment companies to invest in growth and focus on building their businesses," said John Nendick, Global Media & Entertainment Leader at EY. "The industry is now poised to deliver on the promises it has been making the past several years but has been unable to achieve because of the economy. The CFOs recognise the recession is over and it's showtime."

Though the outlook has improved, the M&E industry still faces challenges. According to EY, the greatest tests for M&E firms going forward are technology and platform disintermediation, an inability to persuade consumers to pay a fair price for content and regulatory uncertainty.

Report: It's Showtime! Digital drives the agenda, data delivers the insights

Standard Chartered probes fresh allegations

BY Matt Atkins

In response to fresh US allegations over money laundering, the UK bank Standard Chartered will soon begin trawling its extensive data banks for signs of questionable activity, in an effort to avoid additional penalties. Standard Chartered clears approximately two million US dollar transactions each month. The process of sifting through the data will therefore prove a mammoth task.

The UK bank came under scrutiny in 2012, when flaws in its anti-money laundering program were uncovered by a monitor imposed by the New York Department of Financial Services (DFS). The DFS and federal authorities took separate actions against Standard Chartered at the time fining the bank a total of $667m for violating US sanctions by hiding transactions linked to Iran.

Standard Chartered is again under scrutiny from the DFS, the bank disclosed in an earnings announcement last week. A penalty of more than $100m and an extension of the monitorship is possible.

The bank's issues stem from a  problematic transaction-monitoring software system installed in the 2000s. The system is intended to flag suspect transactions, however the so-called 'detection scenarios' that tell the system what activity to flag for human review have not been properly calibrated, according to a Reuters source. Most of the scenarios have now been corrected, said the source, and efforts are underway to fix the others before the bank moves to a new system early in 2015.

The news comes in the same week that a senior executive at Standard Chartered slammed regulators for treating banks and their employees unfairly. "Banks have been asked to play the role of policing anti-money laundering … [but when] we have a lapse we don't get treated like a policeman, we are treated like a criminal," said Jaspal Bindra, who runs Standard Chartered's business in Asia.

The bank said the remarks by Mr Bindra reflected his personal views. Standard Bank's CEO, Peter Sands, said when he was presenting the bank's results, that he respected the views of regulators.

News: Standard Chartered to scour records for money laundering, with penalty at stake

Murdoch turns back on Time Warner

BY Matt Atkins

In an uncharacteristic move, Rupert Murdoch, the 81-year old chairman and CEO of Twenty-First Century Fox (Fox) has abandoned plans to buy Time Warner Inc for $80bn. A Fox statement has blamed Time Warner for the deal's implosion, saying the media giant "refused to engage with us to explore an offer which was highly compelling".

A merger between the two would have created one of the world's largest media conglomerates, significantly altering the media landscape in the US. The acquisition offer was seen as a way for Fox to stay competitive as other industry players begin to accelerate their M&A strategies.

The deal, however, has not been popular among Fox shareholders ­– the firm's share price has declined by 11 percent since the potential deal was announced – and many suspect a desire to retain shareholder approval nixed the proposal. Investors sent shares soaring by over 7 percent after Fox authorised a $6bn share repurchase programme in the wake of the deal's failure.

On the other side of the transaction, shares in Time Warner dropped by more than 11 percent after news of the withdrawal was made known. The company's board remains defiant. "Time Warner's Board and management team are committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders," said a Time Warner statement.

Mr Murdoch's decision to walk away has shocked many. The success of the merger would have proved a career-capping masterstroke on the part of the media mogul. “We viewed a combination with Time Warner as a unique opportunity to bring together two great companies, each with celebrated content and brands," said Mr Murdoch in a statement. "Our proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly.”

However, whether the deal is firmly in the grave is up for debate. Some still suspect the decision to walk is part of an attempt to drive down Time Warner's stock, before a renewed takeover attempt at a future date.

Press Release: 21st Century Fox withdraws its proposal to acquire Time Warner Inc

Portugal fights bank collapse

BY Matt Atkins

To the relief of anxious investors, Portugal’s central bank has announced measures to prevent the collapse of one of its biggest lenders, Banco Espirito Santo (BES). On Sunday 3 August, the board of directors at Banco de Portugal laid out plans for the €5bn rescue of BES, pulling it back from the brink and easing fears of contagion across Europe’s banking sector. The announcement comes days after the Banco de Portugal offered assurances that BES could raise enough money from private investors to recover from a first-half loss of €3.58bn.

The plan will see BES split into two. Problem assets will be held by the ‘bad bank’ BES. The remaining assets will be held by a ‘good bank’ – the newly formed Novo Banco, run under the supervision of Banco de Portugal. Novo Banco will be made up of BES’s core business of taking deposits and lending to home-buyers and companies. The bank will be receive an initial €4.9bn cash injection from Portugal’s bailout fund and eventually be sold off, with the proceeds used to pay back the loan.

As yet, it is unclear what will happen to the ‘bad bank’, most of which relates to other businesses in the Espirito Santo Group, including tourism, health and agriculture. Shareholders and creditors have been warned, however, that they may stand to lose all of their money.

Banco de Portugal has said customers of BES will be able to conduct transactions normally, and employees will be transferred to the new entity, which will retain the company logo.

“For our customers and staff only one thing has changed — their bank is now stronger and safer than it was before,” said Victor Bento, who will head Novo Banco. “The key uncertainties that have been hanging over the institution for some time have now been removed.”

Press Release: The application of a resolution measure to Banco Espírito Santo, S.A.