insto - Australian financial markets

The team of analysts at mergermarket track private equity news and moves across the Australian market. What follows is a summary of the most significant new PE moves, along with updates on deals that have already been reported.

New situations

• Rio Tinto trying to sell Alcan Engineered Products: Rio Tinto is believed to be in exclusive talks with private-equity house Apollo for the sale of its Alcan Engineered Products division. A report cited persons familiar with the matter as saying that the exclusivity agreement was signed a few weeks ago. The reports cite a labour union member confirming that Rio Tinto was in exclusive talks with a potential buyer.

IG Markets had this to say on some of the higher profile resources and metals players after the close of business on Friday 20 November:

There has been some talk recently about the iron ore joint venture with Rio Tinto and BHP Billiton. JPMorgan believes the estimate of $10 billion worth of synergies from the joint venture looks conservative, with the figure possible as high as US$13.9 billion. JPMorgan estimates the pretax synergies would be more than US$1 billion per year by the fifth year and could be as high as US$2 billion if you factor in the companies’ expansion plans.

While many companies are reluctant to admit their potential greenhouse gas costs, the number of institutional investors seeking this information has spiked, repots Bernard Kellerman.

The Carbon Disclosure Project has evolved as the pre-eminent mechanism for communication between companies and investors on climate change and carbon exposure issues. It has been run globally for 7 years, but for the fourth year has been expanded to cover the top 200 Australian and top 50 New Zealand companies.

US stock indices reached new year highs as JPMorgan got a wave of US bank earnings to the best possible start.

With US markets closed for the Labor Day holiday, focus shifted to Europe.

London was buzzing with the return of M&A activity. The FTSE gained 1.7 per cent after news emerged of a surprise £10bn bid for Cadbury by US food giant Kraft.

Cadbury’s shares traded 38 per cent higher to 783p after the company rejected the 745p share offer. Market observers feel the bid from Kraft, the world's second largest foodmaker, can be increased or rivals Nestle may launch a counter-bid. In CDS markets, Cadbury moved 2bps wider to 31 while Kraft traded flat at 40.

‘Corporate bond issuance hits new record’ ran the headlines on Wednesday. On Thursday however we were reading ‘Corporate bond defaults hit record.’ If you’re confused by news emanating from credit markets, don’t worry you’re not alone.

Earlier in the week, data firm Dealogic reported that global corporate bond issuance had hit US$1trn for the year, the first time it had done so. With banks reluctant to lend and bond funds eager to invest at bargain levels, the result was a boom in bond issuance.

US Stocks made further gains on Thursday as upbeat economic data and news that AIG would repay government funds encouraged investors.

The S&P500 index traded up 1.10 per cent to 1,007 while the Dow was up 0.76 per cent for the session.

Stocks in insurer AIG rallied over 20 per cent after its CEO said in an interview that it believes it will be able to repay the emergency government loan it received at the height of the crisis, and will ultimately provide returns for its shareholders.

Stocks staged a mild comeback on Tuesday after upbeat macro-economic data from the US and Europe boosted sentiment.

Credit quality of the metals and mining sector will remain fragile until at least the first quarter of 2010, says Moody’s Investor Services.

The agency said that price volatility, which has seen improved results and better equity valuations could have a potentially negative impact on the sector, especially for mining companies with high product concentration. It says that the current upward trend could reverse in the near time but doesn’t expect the bottoms of December/January 09 tested.

US stocks gained further ground overnight after Goldman Sachs reported strong second quarter profits.

The S&P500 stock index climbed 0.53 per cent to 905.83.