Big Deals Are Back

THE RETURN OF BIG DEALS  |  Wall Street deal makers and chief executives are getting their groove back. After a fallow few years following the financial crisis, merger activity has roared back to life in the opening weeks of 2013, DealBook’s Peter Lattman writes. On Thursday, Warren E. Buffett’s Berkshire Hathaway teamed up with the Brazilian firm 3G Capital Management to buy H. J. Heinz for $23 billion, as American Airlines and US Airways agreed to merge in an $11 billion deal. Those transactions came on the heels of the $24 billion agreement to take Dell private and the $16 billion deal by Liberty Global to buy Virgin Media.

“Since the crisis, one by one, the stars came into alignment, and it was only a matter of time before you had a week like we just had,” said Jame B. Lee Jr., the vice chairman of JPMorgan Chase. Higher stock prices have helped fuel the activity, and signs of economic improvement have bolstered confidence. In addition, banks, which provide both financing and advice, are becoming healthier, more willing to help companies spend the cash that has accumulated on their balance sheets. There also may be a psychological component. “In the same way that success breeds success, deals breed more deals,” said John A. Bick, a partner at the law firm Davis Polk & Wardwell, who advised Heinz on its acquisition. Still, Mr. Lattman notes, “bankers and lawyers remain circumspect, warning that it is still too early to declare a mergers-and-acquisitions boom.”

The Heinz deal signals the rise of investors from once-emerging markets like Brazil, Michael J. de la Merced and Andrew Ross Sorkin write. 3G, which bought control o! f Burger King two years ago, made the first move in the Heinz transaction, when its principal backer, Jorge Paulo Lemann, approached Mr. Buffett with the idea. “Heinz will be 3G’s baby,” Mr. Buffett said on CNBC. Berkshire and 3G are splitting ownership 50-50.

Trading surrounding the deal is already drawing regulatory scrutiny. The Securities and Exchange Commission opened an insider trading inquiry on Thursday after noticing that trading in Heinz call options soared earlier this week, Ben Protess reports. “As recently as Tuesday, there was scant activity in Heinz options. But by Wednesday, as the companies were putting the finishing touches on the deal, options trading jumped, data from Bloomberg shows.”

The transaction will turn Heinz into a riskier company, loading it up with debt,Peter Eavis writes. “And there is an element to the deal that shows Mr. Buffett is well aware of its risks.” Berkshire is getting preferred shares that will pay a 9 percent return, according to a person familiar with the deal’s terms. For comparison, the preferred shares in Goldman Sachs that Berkshire purchased in the financial crisis paid a return of 10 percent.

For Pittsburgh, where Heinz has its headquarters, the deal underscores the city’s transition “from one of the great hubs of corporate and industrial America to a new economy based on small technology and medical companies with unfamiliar names,” Nathaniel Popper writes. Still, “like other historic names of the city â€" like Carnegie, Mellon and Frick â€" the Heinz brand still courses through the civic blood of Pittsburgh’s heart.”

BLACKSTONE KEEPS MOST OF ITS MONEY WITH SAC  |  Despite an investigation into suspicious trading, SAC Capital Advisors is holding on to its largest outside investor, the Blackstone Group, which said on Thursday that it would keep most of its $550 million with the hedge fund for three more months. Thursday was the regularly scheduled deadline for clients of SAC to decide whether to ask for their money back, and the hedge fund, run by Steven A. Cohen, had warned its employees it could face at least $1 billion of withdrawals.

“Blackstone negotiated a way to buy itself time without delaying its ability to withdraw its investment from the fund,” Mr. Lattman writes. “SAC agreed to a new redemption policy that it will extend to other clients, allowing them to keep their money with SAC for another quarter. After that, if clients decide t end their relationship with SAC, the fund will return their money in three installments. Under the new policy, SAC is letting clients take a wait-and-see approach, monitoring the investigation for developments that could damage the fund. If they withdraw, they will still have all of their money returned by year-end.”

ICAHN REVEALS HERBALIFE STAKE  |  Carl C. Icahn officially has a dog in the Herbalife fight. Mr. Icahn, the billionaire investor, has built up a 12.98 percent stake, or 14 million shares, in Herbalife, a nutritional supplements company that has been at the center of a public spat involving prominent Wall Street investors. Mr. Icahn paid about $214.1 million for shares and call options in the company, according to a filing on Thursday. Mr. Icahn amassed his position recently, ramping up his purchases in la! te Januar! y and February after a heated debate on live television with another investor, William A. Ackman, who is betting against Herbalife. Herbalife’s shares jumped as much as 20 percent in after-hours trading on Thursday. The stock rose 5 percent during the day to close at $38.27 a share.

ON THE AGENDA  |  Please note that the DealBook newsletter is taking a break on Monday as the stock market closes in observance of Washington’s Birthday, but the site will continue to be updated with news. Mr. Icahn will be on CNBC at noon today to discuss Herbalife. Alan Greenspan is on CNBC at 4:20 p.m. Kraft Foods, Burger King and J.M. Smucker report earnings before the market opens. Data on industrial production in January is out at 9:15 a.m. The Thomson Reuters/University of Michigan onsumer sentiment index for February is out at 9:55 a.m.

WARREN COMES OUT SWINGING  |  Elizabeth Warren grilled top banking regulators in her inaugural appearance as a member of the Senate Banking Committee â€" something she had once experienced on the other side, during her tenure as a regulator. Senator Warren, a Democrat from Massachusetts who helped create the new consumer protection agency, pressed officials to justify how they police big banks. “If they can break the law and drag in billions in profits and then turn around and settle paying out of those profits, then they don’t have much incentive to follow the law,” she said. “The question I really want to ask is about h! ow tough ! you are.”

Mergers & Acquisitions Â'

Former Co-Chief of BlackBerry Sells Off His Shares  |  Jim Balsillie, the former co-chief executive and co-chairman of BlackBerry, has sold all of his shares in the struggling company, according to a regulatory filing, Ian Austen reports on the Bits blog of The New York Times.
DealBook Â'

Airline Merger May Lead to Service Cuts  |  As American Airlines and US Airways agreed to merge, “some economists and consumer advocates warn that all this consolidation comes at a price for travelers,” The New York Tmes writes.
NEW YORK TIMES

Cardinal Health Is Buying Large Medical Supplier for $2 Billion  |  Cardinal Health, a distributor of prescription drugs, plans to expand into the growing home health care market with the acquisition of AssuraMed.
DealBook Â'

INVESTMENT BANKING Â'

Europe’s Diminished Banking Sector  |  The Economist writes: “Of the more than half a dozen European bank! s that st! ood astride the world’s capital markets five years ago, only two real powerhouses remain: Deutsche Bank and Barclays. Both are fighting to retain their perch.”
ECONOMIST

For Wells Fargo, an Opportunity in Britain  |  Bloomberg News reports: “Wells Fargo & Co., the lender that’s expanding its securities unit to challenge Wall Street competitors, is broadening U.K. commercial property lending as European banks are forced to retreat.”
BLOOMBERG NEWS

Barclays Executive Expresses Confidenc in New Strategy  |  “I’m not going anywhere and I fully support what Antony is doing,” Rich Ricci, head of investment banking at Barlcays, told Financial News, in reference to the chief executive, Antony Jenkins.
FINANCIAL NEWS

JPMorgan Said to Let Some Employees Go  |  Bloomberg News reports: “JPMorgan Chase & Co.’s equities unit dismissed about two dozen U.S. traders and sales staff and cut pay 4 percent to more closely align it with revenue after the industry’s worst year for stock trading since 2008.”
BLOOMBERG NEWS

PRIVATE EQUITY Â'

A Note of Caution as Buyouts Revive  |  Reuters reports: “As buyout kings once again flirt with mega deals, they are pledging to avoid relying on cheap debt, clever financial tricks and the other excesses of the heady days that preceded the financial crisis.”
REUTERS

HEDGE FUNDS Â'

Hedge Funds Unloaded Apple Stock in 4th Quarter  |  Reuters reports: “Some of the biggest hedge funds that helped make Apple Inc a stock market darling lost faith and dumped their stakes in thefourth quarter, fueling the massive drop in the iPhone maker’s share price.”
REUTERS

Einhorn Bought More Apple Shares  |  Greenlight Capital, the firm run by David Einhorn, raised its holdings of Apple by nearly 50 percent in the fourth quarter. Mr. Einhorn is engaged in a prominent struggle to encourage Apple to return some cash to shareholders.
FINANCIAL TIMES

Third Point Discloses Stake in Morgan Stanley  |  Third Point, the firm run by Daniel S. Loeb,! built up! a $148.2 million stake in Morgan Stanley in the fourth quarter, according to a filing on Thursday.
WALL STREET JOURNAL

I.P.O./OFFERINGS Â'

Russia’s Main Stock Exchange Begins Trading  |  The Moscow Exchange, better known by its original name, Micex, garnered enough investor interest for an initial public offering.
DealBook Â'

VENTURE CAPITAL Â'

Hearst Ventures Invests in Technology ‘Studio’  |  The investment arm of the Hearst Corporation is investing in Science, which is “somewhat akin to a start-up accelerator,” AllThingsD writes. “Sources with awareness of the deal said it was close to $30 million for a stake above 20 percent.”
ALLTHINGSD

LEGAL/REGULATORY Â'

Tax Proposal Raises Alarm on Wall Street  |  A proposal by Representative Dave Camp, the Michigan Republican who heads the House Ways and Means Committee, “has set off alarm bells in some Wall Stre! et precin! cts, where it threatens to dismantle some cherished ways that Wall Street has invented to allow banks to profit by taking a cut of tax benefits they offer to customers,” the New York Times columnist Floyd Norris writes.
NEW YORK TIMES

Rule Advances to Allow Banks More Freedom in Valuing Assets  |  The New York Times reports: “The board that sets American accounting rules moved on Wednesday to substantially reduce the use of market values in financial statements. The move, if adopted, would give banks more freedom to value financial assets as they deem appropriate.”
NEW YOR TIMES

Japan’s Central Bank Defends Yen Policy  |  Japanese officials said their actions were done to lift the country’s economy out of deflation, not to manipulate currency.
NEW YORK TIMES

Ex-Stanford Executives Sentenced to Prison  |  Two defendants were each sentenced on Thursday to 20 years over their role in a $7.2 billion Ponzi scheme.
REUTERS

Lehman Brothers Looks to Question JPMorgan’s ‘Whale’!  |  Reuters reports: “Lehman Brothers Holdings Inc is seeking court permission to question the JPMorgan Chase & Co trader known as the “London Whale” in connection with its $8.6 billion lawsuit accusing the largest U.S. bank of driving it into bankruptcy.”
REUTERS