The worst of the credit crunch seems to be over in the stockmarkets with the privately-owned Mars company taking over the Wrigley confectionery company for $US23 billion, with some help from Warren Buffett, and reclusive American billionaire, Kirk Kerkorian, back chasing yet another American car giant.
Buffett’s involvement with Mars is fascinating. Mars is one of the largest private companies in the US and rather than give up that privacy by raising capital from more public sources, it has turned to Buffett and his Berkshire Hathaway company to finance much of the Wrigley deal. In fact the takeover has the structure of a private equity buyout, with exception of the listed Berkshire.
The deal will be financed with $US11 billion from Mars, $US4.4 billion from Berkshire and $US5.7 billion from Goldman Sachs. Berkshire will also buy a 10% stake in the Wrigley division for $US2.1 billion when the takeover is completed. The merged group will be the largest candy group in the world with more than 14% of the global market in chewing gum, chocolate bars and other sweets.
In the case of Kerkorian, you could say he’s never met an American car company he didn’t like. He has dabbled in Chrysler, played in General Motors in 2006 before quitting in a fit of pique when the company ignored his entreaties and has now parked himself on the Ford Motor Company share register.
Kerkorian has bought a 4.7% stake in Ford Motor Co. and plans to buy more. He doesn’t want a takeover; he’s looking for someone else to take him out for a fat profit, as sure a sign as any that the market is almost back to normal.
Kerkorian’s Tracinda Corp currently owns 100 million shares in Ford and announced overnight that it intends to make a cash tender offer for up to 20 million more shares of common stock at a price of $US8.50 per share. The offer price represents a 13.3% premium over Ford’s closing stock price of $US7.50 last Friday. Kerkorian’s company bought the initial 100 million shares at an average price of $US6.91 per share.
The Ford family controls around 4% of the ordinary shares but 40% of the voting rights and the automaker reported a $100 million first-quarter profit last week. US brokers reckon Kerkorian is just playing in the shares to remind the market he’s still a force and will stir the pot, get a capital gain and sell out.
Tio – Don’t get too excited about the Fed paying US banks interest on their reserves. Legislation prevents them from doing this until 2011 at the present moment, and you can imagine how united and proactive the President and the Legislature are in pushing this initiative through. Fat chance! Bernanke is starting to run out of tools to use (as well as running out of Fed funds – it’s not like our Reserve at all), and new methods all require legal changes – just on a changing of the guard in Washington. Buffett is right – it’s going to be deep and long.
One takeover and the worst of the credit crunch seems to be over? Who do you think you are kidding! Take a look at the consumer confidence and housing stats, and we await no doubt worse stats on the US economy this week. Glib comments like this deserve a place in the Sun-Herald’s Investor pages, not in crikey.com. One swallow does not make a summer – get real.
Why does this supposedly signal that “the worst of the credit crunch seems to be over”??? With inflation rates around the globe screaming, food shortages, and the US dollar sinking into a mire of self-destruction, I am wondering if we are not going to a nice little currency crisis soon. And now I note that the Fed has decided that it will start paying US banks interest on the reserves they keep on deposit!!! Note: 1) the banks at the moment have NO deposits. Old hat though it is, it is always hilarious to take a look at the Fed’s H3 data, in patricular their “non-borrowed reserves” : http://www.federalreserve.gov/releases/h3/Current/ . 2) The Fed is currently mandated to pay interest to the US governement aka the US TAXPAYER in exchange for its right to play hanky panky with US monetary policy. Now it seems the US taxpayer is going to pay interest to the banks! When this kind of stealth bank bailout is in the wings, you just know that this crisis is not over.