M&A Deals/News

Murdoch is a crazy Mother @#$%^&...I must say this game is more
dangerous for Microsoft than New Corp. If News Corp. does not have
success they can always change their strategy. Every corporate type in
the states looks at the WSJ not to mention middle Americans love Fox
news. Microsoft risks alienating a segment of the market. Once they
lock in a deal they are stuck, similar to AT&T with the iPhone.




For Search, Murdoch Looks to a Deal With Microsoft


By ASHLEE VANCE AND TIM ARANGO



News Corporation, the media conglomerate controlled by Rupert Murdoch, has engaged in early stage discussions with Microsoft about a pact to get paid by Microsoft to remove its news content from Google’s
search engine and be available on Bing, according to a person briefed
on the matter who spoke anonymously to discuss confidential
negotiations.Reuters Rupert Murdoch

Mr. Murdoch has been vocal
of late about getting paid for the company’s content online. News
Corporation owns many newspapers, including The Wall Street Journal,
The New York Post, The Times of London and The Sun in Britain.
The Financial Times first reported on the discussions, which involve
Microsoft possibly paying News Corporation to index its content on
Microsoft’s search engine, Bing. The development has the potential for
the newspaper industry to finally generate revenue from online news
beyond advertising.
A spokesperson for Microsoft was not immediately available for comment. A News Corporation spokeswoman declined comment.
Microsoft executives have been clear about their intentions to
pursue bold measures to disrupt Google’s dominant position in the
search market. In a recent interview, Steven A. Ballmer, the chief
executive of Microsoft, noted that Google handled about six times as
many search queries as Microsoft, while also producing more than six
times as much revenue.
Thus far, Microsoft has tried to drum up interest in its search
service Bing by presenting users with a more colorful interface and,
where it can, more detailed results. In addition, the company signed a
deal this year to take over the technology infrastructure behind Yahoo’s search service in exchange for a partnership tied to search ads.
“The most important thing is to have a point of view, try to be
unique, try to add value and try to make money,” Mr. Ballmer said.
Microsoft has also shown a willingness to tap its vast cash reserves
and pay corporations that are willing to use its search service in
favor of Google’s.
It’s unclear how a partnership with news organizations that
fragmented search results and content on the Internet would be
received. The notion of walled off communities on the Web falls into a
thorny area of debate.

AOL Time Warner.... Google Youtube (though thats arguably not so bad)... ring a bell? lol.... this will be super interesting to follow up on... But Im sure Gates will have a say in this and we all know he's no chap unless he's looking to make a boat load of cash and then running away...

More layoffs to come...Consolidation is King in this environment.


GE and Vivendi agree NBC Universal deal

By Justin Baer, Kenneth Li and Andrew Edgecliffe-Johnson in New York
Published: December 1 2009 01:03 | Last updated: December 1 2009 01:20

General Electric has agreed to pay Vivendi$5.8bn for the French group’s 20 per cent stake in NBC Universal,
according to a person familiar with the negotiations, paving the way
for the conglomerate’s planned sale of 51 per cent of the US media group to Comcast.The
valuation is at the high end of expectations and essentially equates to
one fifth of the valuation the Comcast deal puts on NBCU, once debt is
stripped out. However, it is slightly below the stake’s current
valuation in Vivendi’s books.GEand Vivendi had been haggling over the valuation since the French
group’s annual window for exercising a put option on the stake opened
on November 15. It was not immediately clear, however, whether GE would
pay Vivendi the full $5.8bn upfront, or seek to stagger the payment
over a period, given that the Comcast deal is expected to take as long
as a year to clear regulatory hurdles. Comcast’s deal to buy a
51 per cent stake in NBCU for $30bn was expected to be announced last
week, but was delayed by GE’s negotiations with Vivendi over the value
of the stake. The two sides sought to bridge a gap of close to $1bn, people familiar with the matter said. Vivendi declined to comment.Comcast’s
deal to take control of one of Hollywood’s biggest movie studio and
television networks will give Comcast unrivaled control over the
creation and distribution of news and entertainment in the US. Brian
Roberts, chief executive of Comcast, the largest US cable operator, has
long coveted content following a failed hostile bid for Disney in 2004.
Mr Roberts’ run for NBC Universal runs against current media
industry conventional wisdom as rivals have failed to generate value
out of owning the production and distribution of content. Time Warner
this year spun off its cable division and will complete a spin off of
AOL in December.Under the terms of an agreement dating back to
Vivendi’s sale of its interest in Universal Studios to GE, the French
group behind properties such as Universal Music and Activision Blizzard
could have pursued the alternative option of pushing for an initial
public offering of NBC Universal. However, such a move could have
yielded a smaller sum for its stake and complicated GE’s plan to cut
its exposure to its only media asset.The $5.8bn settlement with
GE, first reported by WSJ.com, will ease pressure on Vivendi’s balance
sheet after its $4.2bn takeover of 54 per cent of GVT, a Brazilian
broadband operator. The deals with Vivendi and Comcast will
begin GE’s gradual withdrawal from a business that brought glitz – and,
in its heyday, big profits – to a conglomerate once known to many
solely for its light bulbs and toasters. But with NBC Universal’s
struggles now a drag on GE’s growth prospects, and given the media
industry’s uncertain future, company executives had grown concerned the
business might sap resources best placed with their industrial
divisions.While the eventual disposal of NBC will sever another
link to the Jack Welch era at GE, Mr Welch himself had by the early
1990s tired of the media business’s volatile results. He sought a buyer
for the division before ultimately deciding to hold onto it, leaving
the call to his successor, Jeff Immelt. The spinoff, along with
Mr Immelt’s decision to shrink the conglomerate’s financial services
arm, will also mark a return to GE roots as an industrial powerhouse.
The group will focus on engineering know-how, government infrastructure
work and a massive installed base of customers whose service contracts
provide the company with reliable revenue stream years after they buy
their first GE gas turbine or aircraft engine.

GE is such a giant elephant the only way they can ever get growth is via mergers and this is arguably ineffective growth.

Major implications for XOM here, they are making a huge bet on Nat Gas (I like).

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Exxon to Buy XTO for $31 Billion in Bet on U.S. Gas (Update5)

By Jim Polson and Jessica Resnick-Ault



Dec. 14 (Bloomberg) -- Exxon Mobil Corp., the biggest U.S.
oil company, agreed to buy XTO Energy Inc. for $31 billion in a
bet that U.S. emissions restrictions will spur increased demand
for natural gas.
Owners of Fort Worth, Texas-based XTO will get 0.7098 share
of Exxon for each of their shares, the companies said today in a
statement. The transaction, the largest energy acquisition since
2006 and Irving, Texas-based Exxon’s biggest takeover since the
purchase of Mobil Corp. in 1999, values XTO at $51.69 a share,
25 percent higher than its last closing price.
“This says that corporate M&A is alive and well in the
exploration and production sector,” said Curtis Trimble, an
analyst at Natixis Bleichroeder Inc. in Houston. “It also says
that Exxon isn’t shy about stepping up their exposure to the
natural-gas market. Almost certainly, we will see some more
follow-the-leader type transactions.”
Exxon, which also will assume $10 billion in debt, will get
the largest producer of U.S. natural gas. Demand for the fuel
will grow as U.S. carbon legislation prompts power producers to
switch from coal, Kenneth Cohen, Exxon’s vice president for
government affairs, said in a Dec. 7 interview.
XTO rose $6.37, or 15 percent, to $47.86 in New York Stock
Exchange composite trading. The stock had climbed 18 percent
this year before today. Exxon fell $3.14, or 4.3 percent, to
$69.69.
Acquisition Outlook
The purchase is scheduled to close in the second quarter,
the companies said. JPMorgan Chase & Co. and Davis Polk &
Wardwell are advising Exxon. Barclays Plc, Jefferies & Co. and
Skadden Arps Slate Meagher & Flom LLP are advising XTO.
“In terms of which deal gets triggered next, it’s kind of
a race to the altar,” said Ted Harper, who helps manage $6.1
billion, including 137,550 XTO shares and 932,268 Exxon shares,
at Frost Investment Advisors in Houston.
Acquirers will probably be major oil companies that are
having a tough time increasing production, such as Europe’s
Royal Dutch Shell Plc and Total SA, Harper said. Potential
takeover targets would include independent exploration and
production companies like Ultra Petroleum Corp., EnCana Corp.,
and Range Resources Corp., he said.
Other potential targets could be Anadarko Petroleum Corp.,
EOG Resources Inc. and Devon Energy Corp., said Philip Weiss, an
analyst at Argus Research Corp. in New York.
Reserves Needed
An index of independent oil and gas producers in the
Standard & Poor’s 500 climbed 6.4 percent, the biggest gain
since May 6. Other than XTO, the biggest advancers were Fort
Worth-based Range Resources and Southwestern Energy Co.
XTO’s output jumped 23 percent to the equivalent of 2.95
billion cubic feet of gas a day after a $4.2 billion acquisition
spree last year that included Hunt Petroleum Corp. The company
reported proved reserves equivalent to almost 13.9 trillion
cubic feet of gas at the end of last year. Including reserves
not yet proved, XTO has an estimated 45 trillion cubic feet of
gas equivalent, according to today’s statement.
“There’s very little in the way of really good reserves
out there,” said Stephen Leeb, who manages $175 million as
president of Leeb Capital Management in New York. “If you want
reserves you can count on, you really have to buy domestic
reserves, or reserves in countries that are, you know,
trustworthy, and XTO has a lot of wonderful domestic reserves,
especially, I think, in the gas area.”
Including all reserves, not just proved, Exxon is paying
$5.47 per barrel of oil equivalent, Chief Executive Officer Rex
Tillerson told reporters today on a conference call.
‘Elevated’ Price
Exxon is paying $13.42 per barrel of oil equivalent in
proved reserves. When Oklahoma City-based SandRidge Energy Inc.
agreed last month to buy $800 million in assets from Forest Oil
Corp., the price was about $10 per barrel.
XTO’s price may be “elevated” by the quality of the
company’s assets, according to a research note by analysts Ben
Dell and Neil McMahon of Sanford C. Bernstein & Co. in New York.
XTO extracts gas from the Barnett Shale region of Texas,
the largest so-called unconventional gas field in the U.S., and
has started output in the Bakken Shale in North Dakota, where
oil is trapped between shale beds in rock resembling concrete.
The company is doubling its drilling in the Marcellus
Shale, a gas-bearing formation that stretches through parts of
Pennsylvania, New York and West Virginia. Shale developments,
where rock formations are fractured and injected with water,
sand and chemicals to release trapped gas, drove a jump in U.S.
gas production last year.
Environmental Issue
Concerns that shale-gas projects may contaminate
groundwater led to an effort in Congress to restrict drilling.
Bills filed in June in the U.S. Senate and House would require
producers to get a permit from the Environmental Protection
Agency for each well drilled.
XTO’s headquarters will be the center of Exxon’s
unconventional oil and gas unit, which will be based in Fort
Worth, Tillerson, 57, said on the conference call. The company
will exploit shale formations globally, he said.
Additional scale is needed to develop shale formations, XTO
Chairman Bob Simpson, 61, said on the call.
Exxon amassed more than $31 billion in cash as of the end
of last year and almost $200 billion of its own shares purchased
through buybacks. Prior to today’s announcement, the company had
used its cash stockpile on its own capital projects and asset
purchases. The Mobil deal was the company’s last major takeover.
Exxon’s War Chest
“They’ve been sitting on a huge amount of cash for the
last several years, with speculation mounting as to what they
will do,” said Gianna Bern, president of Brookshire Advisory &
Research Inc. in Flossmoor, Illinois. “Acquisitions that
increase their production capabilities will be viewed fairly
positively.”
The Exxon-XTO deal is the largest U.S. energy takeover
since Houston-based ConocoPhillips acquired Burlington Resources
Inc., also primarily a gas producer, for $36 billion in 2006.
ConocoPhillips recorded $34 billion in fourth-quarter 2008 costs
to reflect a drop in the value of acquired assets, including the
Burlington gas properties.
U.S. gas futures tumbled to a seven-year low in September
as the recession eroded demand for the heating and power-plant
fuel.
Global energy demand will rise 30 percent by 2030, led by
gains in use of gas, Exxon Senior Vice President Andrew P.
Swiger said last month in a presentation in New York. Gas use
will increase twice as fast as demand for crude oil and will
surpass coal as the second-largest energy source, he said.

CEOs Paying 56% M&A Premium Shows Stocks May Be Cheap (Update2)

By Rita Nazareth

Dec. 21 (Bloomberg) -- American companies are paying the
biggest premiums on record in takeovers, a sign executives are
growing more bullish about profits and stocks even after the
biggest rally for the Standard & Poor’s 500 Index in 73 years.
When Dell Inc. agreed to buy Perot Systems Corp. for $3.9
billion in September, it offered 77 percent more than company’s
stock price during the 20 days before the deal was announced.
Xerox Corp. paid 38 percent more than market value when it
purchased Affiliated Computer Services Inc. for $5.8 billion.
The average premium in mergers and acquisitions in which U.S.
companies were the buyer and seller rose to 56 percent this year
from 47 percent last year, data compiled by Bloomberg show.
Chief executive officers are so sure the economy will keep
recovering they’re agreeing to prices that are 37 percent higher
than the average since 2001, when Bloomberg started compiling
data. While stocks in the S&P 500 are trading at the most
expensive valuations in seven years compared with profits in the
last 12 months, buyers are looking out to 2011, when analysts
say earnings will have risen 52 percent.
“M&A activity is a sign of confidence in the future of the
country,” said Bill Gerber, chief financial officer at Omaha,
Nebraska-based online brokerage TD Ameritrade Holding Corp.
“Companies have to look two, three, four, five years ahead.”
Adding to Earnings
TD Ameritrade acquired Thinkorswim Group Inc., a New York
options brokerage, in January for $606 million, paying a 48
percent premium. The company will add 3 percent to 7 percent to
profits during the fiscal year ending in September, Gerber said.
The price-earnings ratio on U.S. equities climbed as the
S&P 500 surged 63 percent from a 12-year low on March 9, pushing
its annual return in 2009 to 22 percent, the biggest since 2003.
The index slipped 0.4 percent last week after New York-based
bank Citigroup Inc. sold shares at a discount and investors
speculated Federal Reserve Chairman Ben S. Bernanke is preparing
to raise interest rates in 2010. The measure added 0.9 percent
at 9:33 a.m. in New York today.
Higher takeover premiums may help drive gains in the stock
market. A Deutsche Bank AG index of potential U.S. targets has
advanced almost seven times more than the S&P 500 since Dubai’s
debt crisis roiled global markets last month.
Driving the Rally
The total value of deals involving U.S. buyers and sellers
has plunged 57 percent from its all-time high three years ago to
$306.9 billion in 2009, data compiled by Bloomberg show. Record
M&A in 2006 helped drive the S&P 500 up 17 percent between mid-
June and mid-December, part of a five-year rally in which the
index doubled to a record 1,565.15 in October 2007. The measure
finished last week at 1,102.47, rebounding from 676.53 in March.
Takeovers picked up this year after the price of corporate
assets fell to the lowest level since at least 1994 in March and
the financial crisis eased.
S&P 500 companies traded for 1.52 times book value, or
assets minus liabilities, on March 9 and now cost 2.22 times,
still cheaper than the day before New York-based Lehman Brothers
Holdings Inc. collapsed in September 2008, according to data
compiled by Bloomberg.
Executives say they’re finding bargains based on projected
earnings. Analysts predict per-share income for companies in the
S&P 500 will jump to $94.98 a share in 2011 from $62.52 this
year, according to the average estimates in a Bloomberg survey.
Once Since 1990
While the S&P 500 trades for 22.2 times its companies’
profits over the last 12 months, the price-earnings ratio falls
to 11.6 when measured against analysts’ 2011 forecast, according
to data compiled by Bloomberg. The multiple using reported
profit has fallen to that level once since 1990, in March 2009
on concern $1.7 trillion in bank losses and writedowns would
spur a global depression, data compiled by Bloomberg show.
Dell acquired Perot to expand in the market for health-care
information technology. The takeover gave Round Rock, Texas-
based Dell a partner to boost sales of computer services as
companies reduce PC purchases.
The second-largest personal-computer maker agreed to pay
$30 a share in cash for Plano, Texas-based Perot, whose stock
had already jumped 31 percent in 2009. It valued the company at
29 times the average analyst projection for 2010 profit.
Dell, whose shares have dropped 18 percent since the deal
was announced, paid twice as much relative to sales as Hewlett-
Packard Co., the biggest personal-computer maker, gave
shareholders of Electronic Data Systems Corp. in its takeover
last year, data compiled by Bloomberg show.
‘A Little More’
The $13 billion price Palo Alto, California-based Hewlett-
Packard agreed to was about half EDS’s annual revenue, compared
with the 1.4 times sales that Dell offered, according to data
compiled by Bloomberg. Hewlett-Packard has gained 10 percent
since the takeover was announced in May 2008, compared with a
6.4 percent retreat for computer companies in the S&P 500.
“Given historical acquisitions we’ve seen in terms of H-P,
what they paid for EDS based on revenues, it just seems like
you’re paying a little more,” JPMorgan Chase & Co. analyst Mark
Moskowitz said on a conference call with Dell’s management after
the buyout was announced.
The transaction will start adding to earnings in the fiscal
year that begins in February 2011, the company projects.
“Our investors have to trust that we’ll manage those
decisions effectively,” Dell Chief Financial Officer Brian
Gladden said in a Dec. 16 interview. “There may be other cases
where we have to pay what would be considered above-market
premiums for special assets. I would put Perot in that bucket.”
Shift to Services
Xerox, in Norwalk, Connecticut, agreed to pay $63.11 a
share in cash and stock for Affiliated Computer in September to
shift to technology services as sales of printing equipment
drop. Dallas-based Affiliated Computer trades at 12.8 times
projected 2010 earnings.
Shares of Xerox, the largest maker of high-speed color
printers, have fallen 7.2 percent since the purchase
announcement. Xerox is paying 0.96 times ACS’s annual sales.
When Armonk, New York-based International Business Machines
Corp. bought PricewaterhouseCoopers LLP’s business-consulting
unit for $3.5 billion in 2002, it paid 0.7 times revenue.
IBM has advanced 78 percent since the takeover was
announced in July 2002, compared with a 61 percent gain for a
gauge of technology companies in the S&P 500.
‘We Don’t Overpay’
“We don’t overpay for any properties,” Larry Zimmerman,
chief financial officer at Xerox, said in an interview on Dec.
16. “The discussion you have with shareholders is that not only
are you more competitive, not only do you have a stronger
business model, the returns for the longer-term shareholder are
going to be better than if you didn’t do it.”
Cheap valuations aren’t enough to spur mergers and
acquisitions, according to Sanford C. Bernstein & Co.’s Brad
Hintz, a New York-based securities-industry analyst who was CFO
at Lehman Brothers a decade ago. Gross domestic product growth
and confidence in the economy are also necessary, he said.
“What’s the easiest way for a CEO to lose his job?” he
said. “He does a bad M&A deal. You see M&A activity picking up
when the markets become more attractive with the likelihood that
if I buy a company today, an improving economic environment will
help that acquisition.”
Economists say U.S. GDP will rise 2.6 percent in 2010 after
shrinking 2.5 percent this year, according to the median
forecasts in a Bloomberg survey. Confidence in the world economy
held near a record high this month as reports showed the U.S.
recovery is gaining momentum and more banks repaid government
bailout funds, according to a survey of Bloomberg users on six
continents.
Buffett’s ‘All-In Wager’
Warren Buffett is so confident about U.S. growth prospects
that the controlling shareholder of Omaha, Nebraska-based
Berkshire Hathaway Inc. agreed in November to pay $26 billion
for the 77.4 percent of Fort Worth, Texas-based Burlington
Northern Santa Fe Corp. his company didn’t already own.
Buffett, the world’s most successful investor, paid 23
percent more than the railroad’s stock price during the
preceding 20 days in an “all-in wager on the economic future of
the United States.”
Takeovers increase the value of shareholders’ stakes 30
percent to 55 percent of the time, according to a 2003 review by
Paul A. Pautler of the U.S. Federal Trade Commission’s Bureau of
Economics. Although deals may cut costs for the combined
company, they erase value when buyers pay too much, he said.
Mergers may rise 35 percent in 2010 and 23 percent in 2011,
according to Sanford C. Bernstein. The forecast is based on an
analysis using data since 1980 that incorporates growth in GDP,
corporate earnings and commercial loan volume, which it said are
about 72 percent correlated to takeovers.
“M&A is back,” said James Paulsen, who helps oversee
about $375 billion as chief investment strategist at Wells
Capital Management in Minneapolis. “It shows improving
confidence as companies are willing to pay up to get those deals
done. It also reflects the strong liquidity position in
corporate America right now, which is a positive for future
growth in equity values.”

As a student of Accounting this deal just does not make sense. KO had virtually 0 debt on its balance sheet, which is incredibly attractive to fundamental investors However adding the debt of the botlling company could possibly affect the firm's credit rating and definately its debt/equity ratio. Pepsi Co. was just as stupid last year.

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By Justin Baer and Jonathan Birchall in New York
Published: February 25 2010 03:40 | Last updated: February 25 2010 13:07

Coca-Cola announced on Thursday that it was buying the North American operations of its largest bottler, Coca-Cola Enterprises, in a reversal of a strategy the soft-drink maker had embraced for more than 20 years. Under the deal, CCE will also acquire Coke’s company-owned bottling operations in Norway and Sweden and will have the right to buy its German bottling and distribution business.Coke’s reunion with CCE, which went public in 1986, mirrors the steps PepsiCo took last year to snap up its largest bottlers. Like PepsiCo’s deals with Pepsi Bottling Group and Pepsi Americas, the CCE acquisition would grant Coke greater flexibility and control in how it distributes sodas and non-carbonated beverages to different retail customers. Muhtar Kent, Coke’s chief executive, said the deal would “create an unparalled combination of businesses and offer compelling value to both companies”. He said Coke would reorganise its manufacturing and distribution operations,which would eventually deliver cost reductions. Coke said the deal would deliver $350m in synergies over four years.Coke’s US bottlers are handling an increasingly broad range of small brands, including tea, juices and enhanced water, as well as its established soda brands.Coke said the deal was substantially cashless, involving the acquisition of $8.8bn of CCE debt and about $5.6bn of CCE’s equity.Wal-Mart Stores’ emergence as the dominant retailer, new trends in consumer tastes and the onset of hundreds of new beverage brands have chipped away at the benefits Coke and PepsiCo enjoyed in keeping their biggest bottlers at arms’ length.

The separation gave bottlers little incentive to take risks with new products and left the two sides haggling over how to share sales. Coke holds a 35 per cent stake in Coca-Cola Enterprises, which also bottles and distributes Coke in parts of western Europe, including the UK. CCE is by far the largest of a patchwork of 74 different US bottlers that buy soda syrup from Coke and then bottle and distribute the finished drinks, usually delivering directly to stores. It handles around 75% of Coke’s North American drinks business and together with its European business has total revenues of about $21bn.The deal marks a dramatic shift in Coca-Cola’s strategy under Mr Kent, who is himself a veteran of the company’s bottling system. Mr Kent and his predecessor Neville Isdell have devoted considerable energy to improving Coke’s sometimes troubled relations with its bottling partners, and resolving tensions over product pricing, marketing coss and other issues. He had previously argued that using so called “equity” bottling entities such as CCE, Coca-Cola Femsa in Latin America and Coca-Cola Amatil in eastern Europe and Asia as well as fully independent bottlers gave it an enhanced ability to respond to local markets.

But the move to acquire CCE’s North American business follows PepsiCo’s decision to take control of its two largest North American equity bottling groups – Pepsi Bottling Group and Pepsi Americas – in a $7.8bn deal that is expected to close shortly. PepsiCo argued that direct control would enhance its ability to co-ordinate bottling and distribution of its increasingly wide range of soft drinks and snacks in the important US market. Coke’s US bottlers are also handling an increasingly broad range of small brands, including tea, juices and enhanced waters, as well as its established sparkling soda brands. The move is also likely to simplify the operations of the company’s sales to the food service business, where restaurant operators are currently serviced by a mix of wholesalers, bottlers and direct company sales.Coca-Cola shares were off by 2.56 per cent to $53.75 in pre-market trading, while CCE‘s stock price jumped by 30.45 per cent to $25.02.

United, Continental talks stall

After reports over the weekend that merger talks between United Airlines (UAUA) and Continental (CAL) were picking up momentum, with a deal announcement possible in the next few weeks, sources now say that talks have stalled because the two airlines can't agree on a price for the potential stock-to-stock merger. Apparently, Continental wants to use the price of the stock before merger rumors began to circulate, and United wants to use the market price from the day before the deal is signed. The disagreement could be a deal-breaker, causing negotiations between the two airlines to fall apart as they did two years ago.

By Jesse Riseborough and Jeff Kearns - Nov 1, 2010 10:15 PM PT

(Bloomberg)--Options traders are boosting wagers that BHP Billiton Ltd. and potential rivals will bid higher than the $40 billion already offered by the world’s biggest mining company for Potash Corp. of Saskatchewan Inc. Potash Corp., the largest fertilizer producer, rejected BHP’s $130-a-share takeover proposal and said it had held talks with 15 potential alternative bidders. BHP’s offer is subject to a review by the Canadian government, which can block the deal if it finds the transaction doesn’t provide “net benefits” to the country. A decision is due by tomorrow.

The total invested in January $160 calls, 23 percent above BHP’s offer price, has risen to $9 million from $5 million a month ago, while January $165 calls jumped to $6 million from $4 million, according to Capstone Global Markets LLC. Investors also are buying bearish options to protect shares, according to Trade Alert LLC, a provider of options-market analytics. “Regardless of what happens this week, people think there’s going to be a higher offer from some party, not necessarily BHP,” said Sachin Shah, a special situations and merger arbitrage strategist at Capstone in New York. “People are realizing that the full value is much higher than the $130 that BHP is offering.”

Ruban Yogarajah, a London-based spokesman for BHP, couldn’t immediately be reached for comment. Bill Johnson, a spokesman for Potash Corp., declined to comment.

$130 Won’t Happen

Potash Corp. rose 1.1 percent to $146.63 on the New York Stock Exchange yesterday. The stock has advanced 31 percent since Aug. 16, the day before the company first disclosed BHP’s approach, and has a market value of $43.6 billion. Potash Corp. said last week it held talks with 15 “strategic, financial, and state-sponsored potential bidders or investors,” according to a filing to the Saskatchewan Financial Services Commission. “They are going to raise it because at $130 a share it’s not going to happen,” Olivia Ker, an analyst at UBS AG in London, said by phone, adding that BHP may increase the offer to $160 to $165 a share. Potash Corp.’s “peers have re-rated by 30 percent, potash prices are up about 35 percent and also BHP’s stock is up,” since the bid was announced, she said.

Potash Corp., based in Saskatoon, Saskatchewan, is seeking to keep in place a so-called poison pill, a defense that’s designed to make a takeover prohibitively expensive, to allow potential bidders time to secure financing. Chief Executive Officer Bill Doyle continues to talk of a fair bid between $170 and $190 a share, UBS said yesterday in a report.

Default Protection Surges

“The evidence is clear that almost all of the alternative bidders or investors require a significant amount of time to secure the unprecedented levels of financing necessary,” Potash said in its filing. The open interest, or number of existing positions, in Potash Corp.’s January $160 calls has jumped in the past week by almost half to 30,240 contracts, or enough to buy 3 million shares. The largest concentration is in November $145 calls, which total 48,638 contracts. Calls account for 53 percent of the 1.03 million existing options tied to the company’s U.S. shares.

The largest increase in open interest among Potash Corp. options over the past week was in November $135 puts, according to data compiled by Bloomberg. The level more than doubled to 48,184 and now accounts for the second-largest total among all of the contracts. November $140 puts are third with 42,070 options.

“It looks like hedging of long stock positions,” said Henry Schwartz, president of New York-based Trade Alert. “In a deal situation like this where a lot of merger arbitrage funds are involved even the put buying can be a bullish sign because it indicates that fund managers want to stay long until the deal closes.”

Options, Volatility

Calls give the right to buy a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.

The cost of protecting BHP bonds from default rose for the second day. Credit-default swaps on BHP jumped 8 basis points to 100.5 basis points as of 4.01 p.m. in Sydney, according to Nomura Holdings Inc. prices. That’s on course for the biggest daily increase since Aug. 18 and the highest level since Oct. 5, prices from data provider CMA show. The swaps rose 6 basis points yesterday, according to CMA. BHP, which obtained $45 billion of loans to back its bid in September, dropped three cents to A$42.27 at the 4:10 p.m. close in Sydney.

Higher Bid

“The market is expecting a slightly higher bid,” Andrew Keen, an analyst at HSBC Holdings Plc, said by telephone. “From a liquidity viewpoint, BHP can bid a lot more and I think that’s pretty widely appreciated.” Analysts including those at UBS, Citigroup Inc., BMO Capital Markets and Credit Agricole SA raised their price estimates for Potash Corp. last week following the company’s third-quarter earnings, citing rising demand and higher prices for the crop nutrient. Shares of rival fertilizer producers including Agrium Inc. and Mosaic Co. have surged since Potash disclosed BHP’s offer.

Investment Canada, the agency reviewing the bid, has recommended that Prime Minister Stephen Harper’s government approve the takeover with conditions, The National Post reported yesterday, citing unidentified people within the ruling Conservative Party. The Post article is “wrong” to say that Harper will make the final decision, Andrew MacDougall, a spokesman for Harper, wrote in an e-mail message. The decision is made by Industry Minister Tony Clement, he said, adding he didn’t know what recommendation Investment Canada may have made.

Sale ‘Betrayal’

Allowing the sale of Potash Corp. to BHP would be a “betrayal of our province and its people,” the Associated Press cited a statement from the Saskatchewan provincial government as saying in a statement late yesterday.

“The question of value for BHP Billiton shareholders is essential and not negotiable,” Chairman Jac Nasser told investors in London on Oct. 21. “Any acquisition or investment must create value. If shareholder value is not demonstrated, we will not proceed with the proposed acquisition.”

BHP scrapped a hostile $66 billion takeover of rival Rio Tinto Group in 2008 after earlier raising its initial bid in an attempt to win the support of the London-based company. “They have raised bids before, they raised the Rio bid, so it’s not unusual for them to do that but in the absence of a competitor they have to be very careful,” HSBC’s Keen said. “The problem is you don’t want to end up bidding against yourself.”

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net Jeff Kearns in New York at jkearns3@bloomberg.net.

By Denny Thomas and Janeman Latul
HONG KONG/JAKARTA | Tue Nov 16, 2010 11:20pm EST

(Reuters) - Wal-Mart Stores Inc (WMT.N), Casino Guichard-Perrachon SA (CASP.PA) and South Korea's Lotte Shopping Co Ltd (023530.KS) have advanced to the next round of bidding for Indonesian retailer Matahari Putra Prima PT's (MPPA.JK) $1 billion sale of its hypermarket business, sources with direct knowledge of the matter told Reuters.

The auction comes on the heels of Carrefour SA's (CARR.PA) sale of its outlets in Thailand, which brought the French retailer a higher-than-expected $1.2 billion including debt.

Matahari's sale had drawn interest from private equity group Carlyle Group CYL.UL, but sources said the buyout group did not make it to the second round. South Korea's Shinsegae Co Ltd (004170.KS) had also expressed interest, but it was not clear whether it was still in the running.

International retailers are jockeying for position in emerging markets as they look for sources of growth outside maturing U.S. and western European markets, although the cost of competing is often too much to justify widespread expansion.

Matahari is selling Hypermart, Indonesia's second-biggest hypermarket chain after PT Carrefour Indonesia, to focus on its core healthcare and property assets.

Shortlisted parties had been asked to submit next-round bids next month, a source said. All companies mentioned in this report declined to comment. Sources were not authorized to speak to media about the auction as the sale process is confidential.

The sale is a seen as good opportunity to raise exposure in Indonesia's retail sector, as a healthy economy, forecast to grow 6.0-6.2 percent this year, and a booming stock market lift consumption in Southeast Asia's biggest economy. It also comes just a few months after Matahari agreed to sell a 90.76 percent stake in retail unit Matahari Department Store to a joint venture with private equity group CVC Partners CVC.UL for $770 million.

Carrefour had put the sale of its Malaysian and Singapore assets on hold after bids fell short of expectations, sources told Reuters.

(Reporting by Denny Thomas in Hong Kong, Saeed Azhar in Singapore and Janeman Latul in Jakarta)