Bankers were busy during the end of December putting together mergers and acquisitions that are likely to set the tone for 2012 — there are deals to be made, particularly if it helps solidify industry position.
“There was a significant number of high-quality M&A transactions announced in mid-to-late December 2011 so this augurs well for 2012. I remain bullish for the coming year,” said Colin Banfield, head of M&A for Asia-Pacific at Citi.
“I worry about the eurozone and, although it presents opportunities for Asian investors to acquire assets at relatively attractive valuation levels (and in some cases to even make once-in-a generation type acquisitions), the overhanging structural and macroeconomic issues will weigh heavily on decision-making. In contrast, I am more confident about prospects closer to home, where I expect a strong level of intra-Asian M&A and greater cross-border deal activity between the various emerging market regions.”
And that’s what we saw at the end of the year. On December 19, Li & Fung (Retailing), a member of the privately held Li & Fung Group, and Hang Ten jointly announced a voluntary general offer by Li & Fung for all of Hang Ten’s issued shares. At the offer price of HK$2.70 per share, the total purchase consideration for 100% of Hang Ten will be about $340 million.
This is Li & Fung’s first significant non-connected public takeover in Hong Kong. And it’s a sensible pair-up. Li & Fung is well established as a retailer in the region — it operates more than 400 Circle K convenience stores in Hong Kong and China — while Hang Ten is a popular sportswear brand for consumers looking for clean-cut clothing at a reasonable price without going to a market to haggle. Both are marketers of basics that tend to be recession-proof.
Citi is acting as the exclusive financial adviser to Li & Fung Group and is providing a committed loan on a sole basis to help finance the acquisition. The deal is expected to close in the first quarter and is subject to shareholder approval as well as a tender offer acceptance level at 69.06%.
A few days later, on December 22, Yanzhou Coal Mining and its wholly owned subsidiary, Yancoal Australia, agreed to buy Gloucester Coal for about A$700 million ($709 million) and a 23% stake in its Australian unit, creating one of the biggest listed Australian coal producers.
Under the plan, Sydney-based Gloucester, which is controlled by Noble Group, will merge with Yancoal Australia. Yanzhou will own 77% of the new company and the chairman and CEO roles will both be nominees of Yanzhou. This adds four coal projects and access to ports in Australia, where Yanzhou operates six mines.
Gloucester shareholders will own the remaining 23% and will also receive a A$700 million cash payment by way of a special dividend and an equal capital reduction, which is equivalent to about A$3.20 per share. Noble Group, the controlling shareholder of Gloucester that currently holds 64.5%, will hold about 14% on closing.
Yanzhou also offered a payment of as much as A$3 a share should the stock fall below A$6.96 in the 18 months after the deal closes. This value protection clause and the dividend payment imply a value of A$2.2 billion for Gloucester.
Yancoal Australia will replace Gloucester on the country’s stock exchange, allowing Yanzhou to use the purchase as a means of listing its Australian assets. And indeed this deal creates Australia’s biggest listed pure-play coal company and the ninth-biggest globally (based on reserves).
The proposed merger is subject to a number of conditions, though Yanzhou’s board has already approved the transaction. Yanzhou is advised by Citi, UBS and Goldman Sachs, as well as by law firms Freehills, Baker & McKenzie and King & Wood. Gloucester is advised by Lazard and Noble by Blackstone.
The very next day, on December 23, Khazanah Nasional, Malaysia’s state investment company, offered more than $900 million for a majority of Turkey’s biggest hospital chain, Acibadem Saglik Hizmetleri & Ticaret.
Integrated Healthcare Holdings, which is controlled by Khazanah, will buy 60% of Acibadem from private equity firm Abraaj Capital, and Khazanah will buy another 15% through a combination of a cash payment and the exchange of newly issued IHH shares.
Upon completion of the transaction, Abraaj will become a shareholder in IHH, which is one of the biggest emerging market healthcare service providers, operating more than 3,000 beds across 76 healthcare facilities in Asia. The combined group will be among the largest hospital groups operating globally and across emerging markets.
The investment in IHH follows Abraaj’s expansion into Southeast Asia through the opening of its Singapore operations earlier this year. Meanwhile, Khazanah has spent $3.7 billion on acquisitions of healthcare services providers since 2005, according to Bloomberg data. In July 2010, Khazanah offered S$3.5 billion ($2.7 billion) for the 76.1% of Singapore’s Parkway Holdings.
Bank of America Merrill Lynch and Goldman Sachs are acting as joint financial advisers to Abraaj Capital. Deutsche Bank represented Khazanah.
Global M&A volume reached $2.81 trillion in 2011, a 3% increase from the 2010 volume of $2.74 trillion, according to Dealogic. However, the fourth quarter volume of $640 billion was the lowest quarterly volume since the second quarter of 2010 ($593 billion). In Asia, M&A transactions stood at $543.1 billion, down slightly from 2010 when M&A deals totaled $543.8 billion.
