Proposed Merger with TMX Group

In February 2011, the London Stock Exchange Group announced they had agreed to merge with the Toronto-based TMX Group, the owners of the Toronto Stock Exchange, creating a combined entity with a market capitalization of listed companies equal to £3.7 trillion. Xavier Rolet, who currently is CEO of the LSE Group (LSEG)

, would have head the new enlarged company, while TMX Chief Executive Thomas Kloet would have become the new firm president. The LSE however announced it was terminating the merger with TMX in June 2011 citing that “LSEG and TMX Group believe that the merger is highly unlikely to achieve the required two-thirds majority approval at the TMX Group shareholder meeting”. Even though the LSE obtained the necessary support from its shareholders, it failed to obtain the required support from TMX’s shareholders.

Discussion

Answer the following questions. Use necessary expressions to present your answers.

1. What was an effort to force the LSE to negotiate?

2. Why did NASDAQ make a pause in its takeover offer?

3. Why did the LSE’s chairman call the Exchange’s strategy an exceptionally valuable brand?

4. Were NASDAQ’s offers in 2006 and 2007 a success? Why or why not?

5. What is the role of shareholders in the proposed merger of the LSE Group and the TMX Group in 2011?

Reading 2

G Is Said to Be in Talks to Buy Kraft Foods

Two of the best-known American food brands may soon unite in a deal that could reshape the industry – thanks in part to the efforts of a Brazilian investment firm with a penchant for deals.

The investment firm 3G Capital – through the ketchup maker H.J.Heinz, which it owns with the billionaire Warren E. Buffet – is in talks to buy Kraft Foods.

Kraft had a market value of about $36.5 billion, meaning that a final price could exceed $40 billion.

From its base in Brazil, 3G has become a powerhouse in the world of food brands. The firm which counts the billionaire financier Jorge Paulo Lemann among its owners, has made daring moves for companies like Burger King, which it bought in 2010.

Two years ago, 3G and Mr.Buffet – a public admirer of Mr.Lemann and his firm – teamed up to buy Heinz for $23 billion.

Last summer, 3G, through Burger King, bought the Canadian coffee-and-doughnut chain Tim Hortons for about $11.4 billion, with the aim of creating a global fast-food empire whose offerings stretch from breakfast to dinner.

In the world of mergers and acquisitions, 3G has won acclaim for its prowess both in striking deals and in improving companies once it has bought them. The firm has a reputation for solid management and relentless cost-cutting. (At Burger King, for example, the firm sold off the restaurant chain’s corporate jet and did away with an annual $1million party in Italy).

Four months after Berkshire and 3G Capital’s takeover of Heinz, 11 of the top 12 Heinz executives were replaced. This was followed by a series of layoffs.

In Kraft, Heinz and 3G would get their hands on a number of household names, including not only the namesake cheese but also Oscar Mayer deli meats, Maxwell House coffee and Planters nuts.

The Kraft of today arose from the breakup of its parent in 2012, a split that created a primarily North American grocery business, which kept the Kraft name, and a global snacks business, Mondelez International.

Since the breakup, Kraft’s sales have been relatively flat at about $18 billion. Its overall profit last year fell 62 percent, to $1 billion, weighed down by the commodity costs of coffee, cheese and meat.

The company has tried to cut costs and raise prices. But packaged-food companies as a whole have grappled with disappointing sales, owing to a drop in spending by lower-income customers and a change in tastes among more affluent buyers.

News of a possible sale of Kraft was reported earlier by The Wall Street Journal.

Discussion

Recount the situations in which the following pieces of information are used in the article under discussion:

1. The efforts of a Brazilian investment firm.

2. 3G Capital’s moves in the world of mergers and acquisitions.

3. The plans of 3G and Heinz after taking over Kraft.

4. The short history of Kraft.

5. News in the press.

Reading 3

Blood in the Water

Investors in BP are a patient bunch, and well rewarded for it. Britain’s third largest company pays generous and reliable dividends. But some investors are jittery. Although BP’s dividend yield is a juicy 5.8%, its shares have fallen by a fifth over ten years, greatly underperforming the broader market and making total shareholder returns slightly negative. This is mainly because of the Deepwater Horizon disaster in the Gulf of Mexico in April 2010, which cost 11 lives and a stonking $43 billion (and may be more) in fines, legal bills, compensation and clean-up.

BP has slimmed since then. It has sold more than $40 billion of assets, cutting its size by a third, as it continues to fight (and mainly lose) lawsuits and appeals. Now cheap oil is adding a new edge to its woes.

So the chances have grown that one of BP’s rivals will seek to capitalize on its weakness and bid for it. Although its value has fallen sharply, its market capitalization is still $107 billion, so the list of possible buyers is short. The most talked-about potential suitors are Exxon Mobil (market value $380) and Shell ($197 billion), with Chevron ($196 billion) as a possible “white knight” merger partner to fend off the other two. There are some state oil and gas firms big enough to afford BP (the Saudi, Qatari or Kuwaiti ones, say), but none seems to be in shopping mood just now.

All the firms involved decline to comment. But it is easy to see some advantages to a takeover by Exxon. The two companies fit, in that Exxon’s American business is smaller than its international operations. And BP, though nominally British, is strongest in America. Exxon has lots of cash and low borrowing costs. It did a good job of absorbing Mobil, another rival, in 1999. Moreover, the biggest blight on the BP share price is its American lawsuits. It has handled these badly. Exxon, with its unrivalled political clout, might do better.

Another attraction is BP’s nearly 20% stake in Rosneft, Russia’s biggest and best-connected oil company. Rosneft is in trouble: heavily indebted, cut off from Western capital markets by sanctions, and bailed out by the Russian state in December, 2014. But for a far-sighted outsider, Russia’s oil and gas reserves are hard to ignore. BP has made a lot of money there so far. Sanctions forced Exxon, which has deep ties with Russia, to cancel its Arctic drilling project with Rosneft. Buying BP could offer a way back in.

Perhaps the strongest reason for a takeover is not BP’s plight, but the oil industry’s general gloom. The S&P Global Oil index has performed only marginally worse than BP over the past ten years – it is up just 2.6%. Mergers offer a chance to cut costs and save money. Prices are low. BP, now fit, lean and cheap, is not best placed to go shopping itself. So it could be on someone else’s list.

BP wants to stay independent. Any buyer would have to surmount some big obstacles. Britain’s former imperial oil company has close ties to the establishment. A sale to an American buyer would mean a political row, in an election year. It is also uncertain that Exxon would be able to solve BP’s remaining American lawsuits. Nor does the idea of Shell taking over its old partner and rival quite so attractive when examined in detail. Shell is now the stronger party. It has a solid balance-sheet, and there are some attractive synergies and cost savings to be had.

The risk and costs of trying to buy BP, and the absorbing it, may be enough to make potential predators think twice about having a go right now. And there are plenty of other oil firms they could buy, that would not come with BP’s baggage. But if the oil prices stay low, or if BP’s condition worsens for other reasons, all bets are off¹. The company has changed a lot in the past decade. To guarantee its independence it will have to do even more now.

¹all the bets are off = the outcome of a situation is unpredictable

Discussion

Choose the heading for each paragraph of the text (Reading 3). Organize the titles of the paragraphs in the due order:

1. Potential buyers of BP.

2. An undesirable buyer.

3. One more power evoking interest in BP.

4. Reasons for investors to feel nervous.

5. Economic gloom for the oil industry.

6. Necessity to do much more to avoid a takeover.

7. The firm at an advantage over other buyers of BP.

8. Causes for the feeling of distress.

Section B