TheChek News Flow

MORE: Afren Lenders Agree to $50m Amortization Payment Delay
2015-03-02 07:28:42.100 GMT


By Tom Freke
(Bloomberg) -- Co. gets agreement from lenders to $300m
Ebok facility for further deferral of $50m amortization payment
due Jan. 31 to March 31, 2015.
* Co. also to use 30-day grace period under 2016 bonds on $15m
of interest due Feb. 1 while review of capital structure,
funding alternatives continues
* Co. continues discussions with ad hoc committee of
bondholders, also other stakeholders, new third party
investors on recapitalization
* NOTE: Yesterday, Sunday Times reported that Fosun backing
$500m cash deal; said bid unlikely to fail as creditors have
own plan for co.
* Feb. 26: Ashmore, Pimco Said to Seek Control of Afren in
Creditor Talks
Link to Statement

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Tom Freke in London at +44-20-3525-8153 or
tfreke@bloomberg.net
To contact the editors responsible for this story:
James Holloway at +1-212-617-4454 or
jholloway8@bloomberg.net

Gategroup Shareholders Team Up to Change Board: Sonntagszeitung
2015-03-01 10:01:22.211 GMT


By Roxana Zega
(Bloomberg) -- RBR Capital forms group with British hedge
fund Camox controlling ~12% of voting rights in Kloten-based
airline-caterer Gategroup, Sonntagszeitung reports.
* While Rudolf Bohli, manager of RBR Capital, is scheduled to
present new candidates at press conference on March 3, both
parties are now working on a joint list of candidates;
compromise still possible: Sonntagszeitung
* NOTE: Fund manager RBR Capital to advise other shareholders
to replace Gategroup Chairman Andreas Schmid and other
directors, FuW reported on Jan. 24

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Roxana Zega in Zurich at +41-44-224-4120 or
rzega@bloomberg.net
To contact the editors responsible for this story:
Cecile Vannucci at +44-20-3525-7032 or
cvannucci1@bloomberg.net
Roxana Zega

Holcim May Need Sweetener to Cement Lafarge Merger: Real M&A
2015-03-01 23:01:00.2 GMT


(For a Real M&A column news alert: SALT REALMNA <GO>.)

By Aaron Kirchfeld, Francois de Beaupuy and Jan-Henrik Förster
(Bloomberg) -- The merger of equals between cement giants
Holcim Ltd. and Lafarge SA is looking increasingly unequal to
some Holcim shareholders. It may take sweetened terms or cash to
keep them happy.
Since announcing the combination in April to create the
world’s biggest cement maker with about $40 billion in sales,
Swiss firm Holcim has outperformed its French partner Lafarge,
on average, in sales performance, profit and cash from
operations, according to data compiled by Bloomberg.
The gap between the two companies is fueling concern about
the deal’s structure among Holcim investors including Eurocement
Holding AG, the company’s second-largest shareholder, according
to people familiar with the matter. Pressure is rising for
Holcim to renegotiate the 1:1 share-exchange ratio, pay out cash
to investors or even reconsider the deal as a whole, the people
said.
“Holcim shows a better operational performance than
Lafarge since the proposed merger was announced,” said Rocchino
Contangelo, a fund manager at Zurich-based Swisscanto, which
owns shares in Holcim. “Some investors think that this better
operational performance should be reflected in the terms of the
deal.”
Contangelo said his firm hasn’t decided if it will back the
merger.

Exchange Disadvantage

The exchange ratio is a disadvantage for Holcim
shareholders, and the Swiss firm’s outlook on a stand-alone
basis would be better, according to a Swiss shareholder with
about 1 percent of Holcim, who asked not to be identified
publicly criticizing the deal.
To placate shareholders, Holcim and Lafarge are considering
paying a special dividend after agreeing to sell assets to CRH
Plc for 6.5 billion euros ($7.3 billion) to address antitrust
hurdles, according to two people familiar with the discussions.
Lafarge Chief Executive Officer Bruno Lafont said on Feb.
18 that the merged companies would aim to boost return to
shareholders rather than make new acquisitions.
Eurocement, which is owned by Georgia-born Filaret Galchev
and holds a 10.8 percent stake in Holcim, is also reviewing the
terms of the deal amid shareholder concern and plans to
communicate its stance in the coming weeks, according to two
people. Other smaller shareholders are also pushing for a change
in the exchange ratio or a special payment, they said.

No Change

Peter Stopfe, a spokesman for Jona, Switzerland-based
Holcim, said “the state of affairs remains unchanged” and that
there’s no mechanism to automatically adjust the exchange ratio.
He said the company will meet “all relevant shareholders”
during investor roadshows. Christel des Royeries, a spokeswoman
for Paris-based Lafarge, referenced comments from CEO Lafont,
who said the exchange ratio is “set by contract, and reflects
long-term prospects of the two companies.”
Representatives for Eurocement didn’t respond to requests
for comment sent by phone and e-mail.
For the merger to go through under its current terms, at
least two-thirds of Holcim shareholders still must approve a
capital increase. They’ll vote on it at an extraordinary meeting
that’s expected to be held in the first half after the company’s
annual meeting due April 13.
The agreed breakup fee of 350 million euros would be
annulled if Holcim shareholders vote down the transaction,
according to a person familiar with the matter.

Deal Logic

Holcim and Lafarge agreed to merge last year to unite
operations after the global recession eroded demand for building
materials, and as increased competition from emerging-market
rivals undermined profits. The companies expect the combination
to generate synergies of more than 1.4 billion euros.
While both Holcim and Lafarge have been experiencing
declining revenue and cash flow, Holcim’s have had less of a
slide since the deal was struck, on average. And Holcim’s Ebitda
margin -- or the earnings before interest, taxes, depreciation
and amortization it reaped on sales -- exceeded Lafarge’s in the
period, on average. That said, Lafarge led Holcim by that
measure during the six quarters before the deal was announced.
“Holcim’s fourth-quarter publication was good, Lafarge’s
less so,” Gaetan Dupont, an analyst at AlphaValue in Paris,
said in an e-mailed response to questions. Still, “the track
records of Lafarge and Holcim in the past two to four years
clearly show that Lafarge has been rather better managed than
Holcim, so it seems very unlikely that the deal is detrimental
to either of the companies.”

Valuation Gap

Even so, Holcim’s valuation has come under pressure. Before
the two agreed to combine, they had roughly the same ratio of
enterprise value to earnings before interest, taxes,
depreciation and amortization. Now, Holcim trades for just 9.7
times Ebitda, a 27 percent discount to Lafarge’s multiple, data
compiled by Bloomberg show.
Holcim’s valuation may be down in part because its
shareholders see less to gain in a deal. The stock was also
among a group of Swiss equities that took a hit this year after
the nation’s central bank allowed its currency to appreciate.
The company’s stock prices reflect some expectations that
the merger terms may be adjusted in Holcim’s favor, though only
a small probability, according to a Feb. 26 note by Patrick
Appenzeller, an analyst at Baader-Helvea in Zurich.
“We believe that the probability is much higher, based on
the changed fundamental outlook for the companies,” Appenzeller
wrote. He recommends that investors sell Lafarge shares and buy
Holcim’s. “Why should Holcim investors agree to such a bad
deal?”

For Related News and Information:
Lafarge Forecasts 2015 Profit Gains as Cement Markets Revive
CRH Buys Cement Assets From Holcim-Lafarge for $7.3 Billion
Holcim and Lafarge Managers Have Equal Billing in Merged Board
Holcim earnings graph: HOLN VX <Equity> FA ISBAR <GO>
Holcim enterprise value: HOLN VX <Equity> EV <GO>
Top Swiss stories: TOPS <GO>
Bloomberg Intelligence building-materials: BI BMATG <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>

--With assistance from Tara Lachapelle in New York.

To contact the reporters on this story:
Aaron Kirchfeld in London at +44-20-3525-8830 or
akirchfeld@bloomberg.net;
Francois de Beaupuy in Paris at +33-1-5365-5051 or
fdebeaupuy@bloomberg.net;
Jan-Henrik Förster in Zurich at +41-44-224-4116 or
jforster20@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net;
Simon Thiel at +44-20-3525-2814 or
sthiel1@bloomberg.net
Elizabeth Wollman

Buffett Critiques Breakup Ideas Even as Spinoffs Surge: Real M&A
2015-03-01 23:37:19.403 GMT


By Tara Lachapelle
(Bloomberg) -- Warren Buffett’s criticism of spinoffs is
creating a rare instance where investors may clash with the
Oracle of Omaha.
The world’s second-richest man devoted a chunk of his
annual letter to Berkshire Hathaway Inc.’s shareholders to
defending the company’s conglomerate structure. He denounced the
deal cycle in which a fee-hungry “banking fraternity” urges
acquisitions, only to later encourage their undoing for the sake
of “unlocking shareholder value.”
Spinoffs “make no sense for us,” Buffett wrote in the
letter, which was published on Saturday. Berkshire, as a
collection of businesses and investments, has reaped steady
profit and returns for investors, the letter said.
His remarks follow a record number of the transactions in
the past 12 months, according to data compiled by Bloomberg. The
rationale behind spinoffs is that a unit tucked under a diverse
company’s umbrella may be worth more if it were a separate
publicly traded entity. So far, it’s working: A Bloomberg index
that tracks spinoff stocks produced almost double the gain of
the Standard & Poor’s 500 over the past five years. From Pfizer
Inc.’s former animal-heath business Zoetis Inc. to drugmaker
AbbVie Inc.’s split from Abbott Laboratories, investors have
been cheering the moves -- and calling for more.
“Proof is in the pudding” because spinoff stocks have
“smoked the S&P 500,” said Joe Cornell, an analyst for Spin-
Off Advisors LLC in Chicago. “I expect Warren Buffett, with all
due respect, is talking his book a bit and may wish to dismiss
any dialog about him breaking up the company.”

Berkshire Returns

Buffett, 84, has used acquisitions to build Berkshire into
a $363 billion behemoth with businesses spanning from the
insurer Geico to railroad BNSF and underwear maker Fruit of the
Loom. Its stable of companies also includes See’s Candies and a
utility unit formerly known as MidAmerican Energy.
In the past 50 years, Berkshire shares have appreciated 1.8
million percent. And earnings at businesses other than insurance
and investments have grown about 20 percent a year since 1970,
his letter said.
Given the growing number of activist investors urging big,
diverse companies to narrow their focus, Buffett may be
concerned that there will be calls someday to break up his
empire when he’s no longer running it.
“Buffet is the best capital allocator of all time and his
decentralized conglomerate structure has created tremendous
shareholder value,” said Todd Lowenstein, who helps manage $16
billion at HighMark Capital Management in Los Angeles. “A cynic
might think he planted this controversy as a pre-emptive strike
to preserve his legacy.”

Better Together

Buffett says it would make no sense to break up Berkshire
because its businesses are worth more as part of the
conglomerate than as separate entities. They can enjoy certain
tax benefits, for instance, while saving on regulatory and
administrative costs. He also said that corporate breakups are
often driven by bankers seeking to generate fees.
While investors may agree with him on the first point, many
have been showing support for other companies that are pursuing
splits. A more narrowly focused business is easier for
shareholders to value, said Walter Todd, chief investment
officer at Greenwood, South Carolina-based Greenwood Capital,
which oversees about $1 billion.
“I can understand his dislike for what is perceived as
financial engineering perhaps, but allowing investors to
determine values for more pure-play companies versus
conglomerate-type companies makes some sense,” Todd said.

Cash Advantage

Unlike most conglomerates though, Todd said that at
Berkshire “there is no illusion of some type of combined
synergies between these businesses.” He simply buys companies
he finds attractive and lets managers keep doing what drew him
to them in the first place. And the cash they generate is often
sent to Berkshire headquarters for Buffett to reinvest.
The diverse nature of Berkshire’s businesses also allow
Buffett the “ongoing ability to build value” in a way that
firms that are focused on just one industry can’t, said Tom
Russo, who oversees about $10 billion including Berkshire shares
at Gardner Russo & Gardner.
“The ability to take See’s cash flows and invest in
MidAmerican means that we’ve never really run out of places to
deploy capital in Berkshire,” Russo said in a phone interview.
Since 1992, Berkshire has struck about $170 billion of
acquisitions, according to data compiled by Bloomberg. But it
continues to accumulate cash at a faster rate than Buffett can
invest it.

Breakup Risk

The rise in shareholder activism from investors such as
Carl Icahn could be both good and bad for Buffett. On the one
hand, he says it should create more takeover candidates so that
Berkshire’s $60 billion in cash can “constructively decrease.”
But a future Berkshire under different leadership could itself
become an activist target.
“The biggest risk in Buffett’s mind in terms of the
sustainability” of Berkshire is breaking the company up, said
David Rolfe, who manages about $11 billion including Berkshire
shares at Wedgewood Partners Inc. If the next CEO ever “sends
out a letter to the board saying, ‘I had an interesting
conversation with Carl Icahn,’ that’s his last day as CEO.”

For Related News and Information:
Berkshire Profit Falls 17% to $4.16 Billion on Investments
Buffett Says Next Berkshire CEO Must Fight Arrogance, Decay
Buffett Sees Son Howard as ‘Safety Valve’ If Next CEO Falters
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>

--With assistance from Noah Buhayar in Seattle.

To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Dan Kraut