Judge Approves $110 Million El Paso Settlement

WILMINGTON, Del. - A judge approved a $110 million settlement on Monday between the El Paso Corporation and its shareholders, who sought last year to block the sale of the company's pipeline business to Kinder Morgan for $21.1 billion citing potential conflicts of interest.

In a one-hour hearing before 18 lawyers and a handful of observers, Chancellor Leo E. Strine Jr. of the Delaware Chancery Court also approved using $26 million of the $110 million settlement to pay legal expenses and costs of the shareholders' lawyers.

On Feb. 29, Chancellor Strine declined to block the sale but agreed with shareholders about the conflicts.

Shareholders questioned the involvement of Goldman Sachs, which had advised El Paso and also owned a 19 percent stake in Kinder Morgan. They contended that Goldman's position on both sides of the deal most likely suppressed the price. In addition, the chief executive of El Paso, Douglas L. Foshee, did not tell his directors that he was interested in buying the exploration and production units that Kinder Morgan planned to spin off to help pay for the El Paso sale, the court found.

“When El Paso's C.E.O. was supposed to be getting the maximum price from Kinder Morgan, he actually had an interest in not doing that,” Chancellor Strine wrote at the time.

“This undisclosed conflict of interest,” Judge Strine also noted, “compounded the reality that the board and management of El Paso relied in part on advice given by a financial advisor, Goldman Sachs & Company, which owned 19 percent of Kinder Morgan (a $4 billion investment) and controlled two Kinder Morgan board seats.”

Judge Strine acknowledged that the plaintiffs could likely prove that the merger was tainted by disloyalty, but he believed it was in the best interest of shareholders to be able to vote the deal up or down. In March, 79 percent of the shareholders voted and 95 percent of those voting approved the deal.

According to the 60-page settlement agreement, El Paso, Goldman and Kinder Morgan denied that they had committed any unlawful or wrongful act and that they had “diligently and scrupulously complied with all of their legal duties and obligations.” But the companies agreed to settle to eliminate the distraction and cost of further litigation.As part of the settlement, Goldman Sachs gave up its $20 million advisory fee.

Shareholders of record from Aug. 30, 2011, to May 25, 2012, are eligible for a share of the settlement. Four shareholder objections were filed against the settlement, and shareholders with claims of $10 or less will not be included in the dis tribution, according to one of the lead shareholder lawyers, Stuart M. Grant.

Mr. Grant said the cost of paying out such small claims would drain money better applied to larger claims.
The settlement is among the five largest in the Chancery Court, which hears many shareholder lawsuits, Mr. Grant said.

Delta\'s Talks Over Virgin Stake Raise Questions About Branson\'s Holdings

As Delta Air Lines holds talks to buy some or all of Singapore Airlines' 49 percent stake in Virgin Atlantic Airways, one question has arisen.

What will happen to the holdings of Richard Branson, the loquacious British entrepreneur who founded the airline 28 years ago?

For now, perhaps nothing. Virgin's outgoing chief executive, Steve Ridgway, told Bloomberg News on Monday that Mr. Branson would “probably remain in control” of the airline. “He is the majority shareholder,” Mr. Ridgway told the news service.

But it's unclear if that will remain the case down the road. Virgin is struggling with high oil prices and tougher competition on core routes like those in the North Atlantic. It reported a loss of £80 million, or $128 million, in the year that ended in February, swinging from a profit of £18.5 million in the previous year.

One of Virgin's issues is its status outside one of the three major alliances in the airline industry, which allow companies to share routes and cut costs. (For instance, longtime rival British Airways belongs to Oneworld, letting it share routes with American Airlines.)

Delta belongs to SkyTeam, another of the major alliances, and the airline hopes to use a newly forged partnership with Virgin to bolster the number of trans-Atlantic flights t hat it can offer. It currently has only a small fraction of overall slots at Heathrow airport in London, badly trailing both American and United Airlines, the latter of which is a member of Star Alliance.

Buying Singapore Airlines' 49 percent stake would certainly help Delta in its quest to bolster its international offerings. But Singapore has fumed that its 49 percent stake in the British airline gave it relatively little say in how the company was operated.

That's where Delta's main partner in SkyTeam, Air France-KLM, could come in. European Union regulations would cap the American airline's stake at 49 percent. But news reports have said that Air France-KLM may be willing to buy an additional 5 percent to 10 percent stake in Virgin.

Leaving aside whether E.U. regulators would allow such an ownership structure, that scenario still requires Mr. Branson to give up his 51 percent stake. The entrepreneur has never held less than that, though early on in the airline's history his original business partner, Randolph Fields, held a 25 percent stake.

Mr. Branson bought him out, and held onto the entirety of control until selling the 49 percent stake to Singapore Airlines in 1999 for £600.3 million.

A reduction in Mr. Branson's holdings appeared possible not that long ago. He had hired Deutsche Bank in 2010 to consider possible options for Virgin. And earlier this year, Mr. Ridgway told The Financial Times that his boss was “prepared to relinquish his status as controlling shareholder.”

Has Mr. Branson since changed his mind, as Mr. Ridgway appears to have said? It's unclear.

A representative for Virgin based in the United States didn't have a comment on the matter.

Recruiting Young Talent in China to Find the Next Big Idea

BEIJING - As he discusses technology, Stephen Bell, with his shaved head, glasses and dark Levi's, channels Apple's co-founder, Steven P. Jobs.

“Name some companies that have changed the world.” Mr. Bell tells the crowd at a local university, writing their replies in chalk on a blackboard. Google, Apple, Microsoft, Facebook. “And who created them? That's right, students, just like you.”

But one student meekly disagrees, noting that the companies were started by entrepreneurs in America. “They have a different culture,” he says. “Not like here in China.”

Mr. Bell, a venture capitalist, wants to change that perception.

Like a high-powered talent scout, Mr. Bell, the co-founder of Trilogy VC, tours China's top universities, seeking fledgling entrepreneurs. Each year, he offers millions of dollars to young students, who often have just a kernel of an idea. It's not just early-stage investments. It's early-early stage.

“I'm not looking for revenue flow, and not interested in user numbers,” he said. “I'm looking for doers.”

On a chilly day in early November, Mr. Bell was surrounded by five dozen students at Be ijing's Tsinghua University, the country's top science and technology university, often referred to as China's M.I.T. It was the last day of ChinaStars, a marathon programming competition he hosts four times a year.

At the outset, students were given 60 seconds to present an idea. Teams were formed, and they had 72 hours to create an actual program or application. “Just focus on doing one thing well,” Mr. Bell told them. Over the three days, he and other mentors circulated, suggesting new approaches and offering insights.

This was no idle exercise. Within days, the initial projects were presented, and several teams were awarded $5,000. Some eventually secured additional financing from Trilogy, up to $100,000 over 18 months.

“Nobody else is doing anything like this in China,” said Malcolm CasSelle, an American entrepreneur who worked for decades in China. “This is high risk, but you really see the value. Some of these kids have amazing ideas.”

Mr. Bell saw a cross section of products from the student teams. Applications included one to allow online beauty shops to provide advice and sell products directly to customers, one for an online shop that delivers food and basic supplies on college campuses, one for a book-sharing site that doubles as a literary matchmaking service and one for a cloud dictionary that lets users add definitions and pictures.

The odds were against all of them, said Mr. Bell, who was not bothered. With a purse of more than $2 million a year, he plans to offer financing to 15 to 30 start-ups. “I only need to hit one home run among a hundred, and I'm doing fine.”

Mr. Bell is trying to carve out an investment niche, as more money pours into Chi na. In recent years, investors have flocked to the country, in part because of diminished prospects elsewhere. While investment largely dipped in 2011, many analysts said China rebounded by mid-2012.

“Venture capital investment in China has cooled down, no question,” said Jeff Richards, partner at GGV Capital, a Silicon Valley firm that recently started a $625 million fund, largely focused on China. “But if your G.D.P. growth slows from 9 or 10 percent to 7 percent, that's still pretty attractive compared to 1.5 percent, like in America.”

Some venture capitalists fret that China is overheated. “There is tons and tons of money chasing deals here,” said Dave McClure, a veteran of PayPal, Facebook and LinkedIn, and founding partner of 500 Startups, a venture capital firm that has made six investments in China in the last two years. “There is all this drooling about China. In a lot of ways, it reminds me of the late 1990s in the U.S. China may not be overheated, but it is overhyped.”

Mr. Bell is trying a different tack from many of his peers. Rather than risk large sums on established start-ups, Mr. Bell is wagering that lots of small bets placed strategically can produce a few jackpots. “Our mission is to find the next Mark Zuckerberg, the next Larry and Sergey,” he said, referring to the founders of Facebook and Google.

“Young people are going to create all the cool stuff,” Mr. Bell said. “They a re going to start the biggest companies, and they come cheap. I don't need experience - that costs too much money and produces mainstream ideas. I want ideas nobody has thought of.”

Mr. Bell has been on both sides of the venture capital equation, as an entrepreneur and an investor.

A native of Long Island in New York, he graduated from Georgia Tech in 1985 with a degree in chemical engineering and afterward joined GE Plastics. In the 1990s, he founded CORE Products, an auto supplier based in Switzerland, and an early business-to-business firm, SupplySolution, which was eventually sold to Tradebeam.

In 2002, he moved to Trilogy, an American software firm started by Joe Liemandt, a Stanford dropout. Mr. Liemandt became known for recruiting yo ung talent through innovative outreach programs like ChinaStars.

While at Trilogy, Mr. Bell traveled to India and China to sell Trilogy software to companies in emerging markets. He left Trilogy in 2006 for another start-up, Shangby, which connected jewelry stores in Shanghai via the Internet with customers around the globe.

Mr. Bell said the experience convinced him of the opportunity in China.

“There is so much energy and innovation here,” he said. “This is definitely the place to be, and the time to be here.”

Since 2009, Mr. Bell has been based full time in China as the managing general partner of Trilogy VC, which he formed with Mr. Liemandt. So far, Trilogy VC has financed 30 start-ups, largely focusing on games, social networks, dating sites and other programs geared toward young Chinese.

According to the firm, eight of the start-ups are already profitable. Others are growing rapidly, like Droidhen, a game developer with a presence on half of all Android phones; JiaThis, which lets users share across Chinese social networks; and Takaopu, a popular dating service on RenRen.

Takaopu was developed by a student at a ChinaStars competition, Mr. Bell said. “He figured out that the problem with previous China dating sites was face.” Chinese dread risking public embarrassment. “His great idea was to make it anonymous, so you only revealed your identity slowly, later on, kind of like a game.”

Mr. Bell works closely with his young entrepreneurs. “I don't invest in products, but in people,” he said. “I'm always open, always listening.”

It was an attractive quality to Jiang Chao, who is working on his doctorate at Beijing University. Mr. Chao saw a notice on a student bulletin board about an American entrepreneur giving away money in a competition. He decided to give it a try, and his company, Takaopu, received $80,000 from Trilogy VC.

“Money isn't the most important thin g that Stephen gives us. Yes, the money helped us get servers and more help, like designers,” he said. “But more important is what I learned, that there are people like me, that have the same dream, to create something.”

For Buffett, the Long Run Still Trumps the Quick Return

“If somebody bought Berkshire Hathaway in 1965 and they held it, they made a great investment - and their broker would have starved to death.”

Warren E. Buffett was sitting across from me over lunch at the University Club last week, lamenting the current state of Wall Street, which promotes a trading culture over an investing culture and offers incentives for brokers and traders to generate fees and fast profits.

“The emphasis on trading has increased. Just look at the turnover in all of the stocks,” he said, adding with a smile: “Sales people have forever gotten paid by selling people something. Generally, you pay a doctor for how often he gets you to change prescriptions.”

Mr. Buffett, 82, is famous for investing in companies that he sees as solid operations and essential to the economy, like railroads, utilities and financial companies, and holds his stakes for the long run. The argument that the markets are better off today because of the enormous amount of liquidity in the stock market, a function of quick flipping and electronic trading, is a fallacy, he said.

“You can't buy 10 percent of the farmland in Nebraska in three years if you set out to do it,” he said. Yet, he pointed out, he was able to buy the equivalent of 10 percent of I.B.M. in six to eight months as a result of the market's liquidity. “The idea that people look at their holdings in such a way that that kind of vo lume exists means that to a great extent, it's a casino game,” he said. Of course, unlike many investors, he plans to hold his stake in I.B.M. for years.

Mr. Buffett was in a reminiscing mood about a bygone era, in part because he was in New York to make the rounds on television to discuss a new book chronicling his 61-year career, which began in 1951 at Buffett-Falk & Company in Omaha. (After lunch, he was going to visit “The Daily Show with Jon Stewart.”)

The book, “Tap Dancing to Work,” by a longtime journalist and good friend of his, Carol Loomis of Fortune magazine, is a compendium of articles that she and others wrote in Fortune that creates a series of narratives spanning the arc of his career.

Ms. Loomis, who first met Mr. Buffett in 1967 - and whose long career is a story unto itself - also came to our lunch. Ms. Loomis may know more about Mr. Buffett than he knows about himself. (“There's nothing here you're going to like,” she said, after surveying the various pies when the dessert cart came around. She was right: he took a quick look and asked if they served ice cream. They did.)

As we talked about the “good old days” - he spoke of some of his early friends who were successful hedge fund investors, like Julian Robertson, who founded Tiger Management - it became clear that he was less enamored of the investor class of the next generation.

When I asked, for example, if there were any private equity investors that he admired, he flatly replied: “No.”

When I asked if he followed any hedge fund managers, he struggled to name any , before saying that he liked Seth Klarman, a low-key value investor who runs the Baupost Group, based in Boston.

“They're not as good as the old ones generally. The field has gotten swamped, so there's so much money playing and people have been able to raise money by just saying ‘hedge fund,' “ he said. “That was not the case earlier on; you really had to have some performance for some time before people would put money with you. It's a marketing thing.”

For a moment, he paused, and then posited that if he started a hedge fund today, “I'd probably grow faster, because a record now would attract money a lot faster,” speculating that his record of returns would attract billions of dollars from pension funds and others. But he then acknowledged a truism of investing that he knows all too well, as the manager of an enterprise that is now worth some $220 billion: “Then money starts getting self-defeating at a point, too.”

Until 1969, Mr. Buffe tt operated a private partnership that was akin in some ways to a modern hedge fund, except the fee structure was decidedly different. Instead of charging “2 and 20” - a 2 percent management fee and 20 percent of profits - Mr. Buffett's investors “keep all of the annual gains up to 6 percent; above that level Buffett takes a one-quarter cut,” Ms. Loomis wrote. However, in 1969, he announced he would shutter his partnership. “This is a market I don't understand,” he said, according to Ms. Loomis.

He believed that the stock market of 1968 had become wildly overpriced - and he was right. By the end of 1974, the market took a tumble. Instead, he remained the chief executive of Berkshire Hathaway, one of his early investments.

“If you want to make a lot of money and you own a hedge fund or a private equity fund, there's nothing like 2 and 20 and a lot of leverage,” he said over a lunch of Cobb salad. “If I kept my partnership and owned Berkshire thro ugh that, I would have made even more money.”

Mr. Buffett says he now considered himself as much a business manager as an investor. “The main thing I'm doing is trying to build a business, and now we built one. Investing is part of it but it is not the main thing.”

Today, Mr. Buffett is particularly circumspect about the investment strategies that hedge funds employ, like shorting, or betting against, a company's stock. He used to short companies as part of a hedging strategy when he ran his partnership, but now he says that he and Charlie Munger, his longtime friend and vice chairman of Berkshire, see it as too hard.

“Charlie and I both have talked about it, we probably had a hundred ideas of things that would be good short sales. Probably 95 percent of them at least turned out to be, and I don't think we would have made a dime out of it if we had been engaged in the activity. It's too difficult,” he explained, suggesting that the timing of short investments is crucial. “The whole thing about ‘longs' is, if you know you're right, you can just keep buying, and the lower it goes, the better you like it, and you can't do that with shorts.”

One of his big worries these days is about what's going to happen to all the pension money that is being invested in the markets, often with little success, in part because investors are constantly buying and selling securities on the advice of brokers and advisers, rather than holding them for the long term. “Most institutional investors, whoever is in charge - whether it's the college treasurer or the trustees of the pension fund of some state - they're buying what they're sold.”

Most pension funds probably didn't buy Berkshire in 1965 and hold it, but if they had, they would have far fewer problems today. At the end of her book, Ms. Loomis notes that when she mentioned Mr. Buffett's name for the first time in Fortune magazine in 1966 - accidentally spelling B uffett with only one “t” - Berkshire was trading at $22 a share. Today it is almost $133,000 a share.

Taking His Fight Against H.P. to the Web

Mike Lynch, the founder of the British software firm Autonomy, is not to walk away from his fight with Hewlett-Packard over the technology giant's claims of accounting fraud.

In fact, he apparently intends to keep the battle very public.

On Monday, Mr. Lynch set up AutonomyAccounts.org, a Web site meant to house his responses to the controversy swirling around his former company. So far, it contains very little: his open letter to Hewlett's board contesting its accusations; a video of an interview he conducted with CNBC two weeks ago; a timeline of Autonomy's history; and his biography.

But he has been very openly pushing back against H.P.'s campaign against Autonomy, which it bought last year for about $10 billion.

The company has blamed “serious accounting improprieties, disclosure failures and outright misrepresentations” at the British software maker and taken an $8.8 billion accounting charge tied to the deal. It has referred its internal inquiry to securities regulators in the United States and Britain. The Justice Department is also investigating the matter.

Mr. Lynch has argued that Autonomy followed all relevant British accounting guidelines, and that its financials were approved by the company's auditors at Deloitte. He also has said that it was H.P.'s mismanagement of its newest division that was responsible for the enormous loss of value.

S.E.C. Charges the Chinese Affiliates of 5 Big Accounting Firms

WASHINGTON â€" The Securities and Exchange Commission charged China-based affiliates of the five largest United States accounting firms on Monday with violating securities laws, saying that the firms failed to produce work papers from their audits of several China-based companies that are under S.E.C. investigation.

In an administrative proceeding, the S.E.C. said that the accounting firms refused to cooperate with the document request in part because the accountants “interpret the law of the People's Republic of China as prohibiting” them from releasing the papers.

The nine Chinese companies all have shares that are traded in the United States, making them subject to American securities laws. The accounting firms under invest igation by the S.E.C. are the Chinese affiliates of Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers and BDO.

“Only with access to work papers of foreign public accounting firms can the S.E.C. test the quality of the underlying audits and protect investors from the danger of accounting fraud,” Robert Khuzami, the commission's enforcement director, said in a statement.

“Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions,” Mr. Khuzami said.
Among the possible sanctions is a sort of accounting death sentence: Forbidding a firm from practicing before the S.E.C., meaning that the firm's audits of publicly traded companies would not satisfy securities laws.

The S.E.C. did not name the publicly traded Chinese companies that are the subject of its document request. But the commission has previously said it is looking closely at Chinese companies that have taken part in revers e mergers in order to gain access to American investors.

In a reverse merger, a company that has continuing operations takes over a company that already has publicly traded shares. Often, these are shell companies with no real operations and whose shares are listed over-the-counter or among penny stocks.

The S.E.C. already has de-registered the securities of nearly 50 such companies and has filed fraud cases against 40 foreign companies and executives. In addition, earlier this year the S.E.C. announced an enforcement action against the Deloitte affiliate, Deloitte Touche Tohmatsu, over failure to produce documents related to an S.E.C. investigation of one of its China-based clients.

The issue also has been the focus of the Public Company Accounting Oversight Board, an independent agency that oversees accounting firms that audit publicly traded companies.

String of Insider Trading Cases Shows Prosecutors Casting a Wider Net

The end of November included a veritable rush of insider trading prosecutions, belying the notion that the government goes on hiatus at the end of the year.

Three cases filed by prosecutors in Manhattan, Los Angeles and New Jersey involve defendants from a variety of backgrounds. The cases illustrate that insider trading can involve those in all walks of life, and not just savvy traders. They include:

• A former portfolio manager at a leading hedge fund firm in the most lucrative insider trading case ever charged;
• A former major league baseball player accused of insider trading as well as tipping off three friends to make up for poor investment advice he had given them earlier;
• A web of six defendants that includes a group of high school buddies who are accused of passing along information while playing basketball.

Interestingly, none of the cases involved the use of wiretaps to capture how the information was disclosed, evidence that was a central feature of other high-profile insider trading prosecutions in the last two years.

The case that has grabbed the most attention is the prosecution of Mathew Martoma, who worked as a portfolio manager at SAC Capital Advisors, the $14 billion hedge fund firm controlled by Steven A. Cohen. Mr. Martoma is accused of receiving information about problems in a clinical drug trial conducted by Elan and Wyeth that led the hedge fund to sell out its $700 million position in the companies and then take a bearish position, all in the matter of a few days.

According to prosecutors, that led SAC Capital to make gains and avoid losses totaling $276 million, dwarfing the $63 million reaped by Raj Rajaratnam, who is serving an 11-year prison term following his convictions in 2011 for insider trading.

Mr. Cohen and SAC Capital have denied any involvement in trading on confidential information. In a recent conference call with investors, Mr. Cohen said, “We take these matters very seriously, and I am confident that I acted appropriately.”

The firm also disclosed that the Securities and Exchange Commission had sent it a so-called Wells notice that its staff is considering filing civil charges based on the illegal trading by Mr. Martoma and per haps others. This would not directly accuse the firm of engaging in insider trading, but instead claim that SAC Capital failed to properly oversee its employees.

An obscure provision of a federal statute adopted in 1988 allows the S.E.C. to seek a triple penalty for any profits or losses avoided when a “controlling person” knowingly or recklessly fails “to establish, maintain, or enforce any policy or procedure” against insider trading. Under this provision, even if Mr. Cohen and other SAC Capital executives were not personally aware of insider trading by portfolio managers, turning a blind eye to it could be enough to expose the firm to substantial liability.

In another case, federal prosecutors in Los Angeles filed charges late last month against a former major league baseball player, Douglas V. DeCinces, and three men th at he is accused of tipping about the impending acquisition of Advanced Medical Optics. The government claims he received the inside information from the company's chief executive and passed it on to make up for “prior bad investment recommendations” while also earning approximately $1.3 million himself.

This is a case in which it is - pardon the cliché - a little hard to follow the players without a scorecard. Mr. DeCinces and two of his co-defendants settled similar S.E.C. civil charges in August 2011, which indicated that the case was likely to be over for them. In August 2012, the S.E.C. charged Advanced Medical Optics' chief executive, James V. Mazzo, and the third person who is said to have received information from Mr. DeCinces. Another defendant in that case was a baseball Hall of Fame member, Eddie C. Murray, a former teammate of Mr. DeCinces's on the Baltimore Orioles, who settled the charges.

The indictment does not contain allegations diffe rent from the S.E.C.'s civil case, and it is unclear why prosecutors waited more than a year to pursue criminal charges against Mr. DeCinces and others. But Mr. Mazzo is not named as a defendant in the criminal case, only identified in the indictment as the “source.” And while three recipients of the tips are charged in the latest indictment, Mr. Murray is not one of them.

An interesting question is whether Mr. Mazzo is cooperating with the government in exchange for a reduced sentence. The typical insider trading case involves charges against the tipper because that is the person responsible for the violation (though there have been exceptions, like in case involving Mr. Martoma of SAC Capital).

Proving a case against a recipient is difficult without the cooperation of the tipper, unless there are wiretaps or other evidence to show how the information was passed. Prosecutors could add Mr. Mazzo as a defendant later, but not including him now is puzzling be cause the S.E.C. civil complaints have virtually all the information recited in the indictment.

One possibility is that prosecutors hope to use Mr. Mazzo against Mr. DeCinces and the others if a plea agreement can be worked out. Another possibility is a different cooperating witness can provide evidence of how the inside information was passed around, and prosecutors are waiting to see whether Mr. Mazzo will cut a deal before moving against him.

Another case of note involves six defendants who are accused of creating a web of inside information about pharmaceutical companies. They are accused of obtaining information from three who worked for firms in the industry. Unlike the other two insider trading prosecutions, this was not a one-time event but a scheme to break the law over nearly four years by using secret code names and passing along cash payments to the sources to avoid detection.

The defendants sought to hide their actions by saying things like â €œhow's the Fat Man doing?” to refer to the inside information and setting up meetings to make cash payments with “I have some vacation pictures for you.” One defendant is accused of putting together a research file to try to cover the group's actions. In testimony in an S.E.C. investigation about some of the trading, he denied knowing anyone at one of the pharmaceutical companies.

A conspiracy like this is dependent on each participant keeping a wall of silence. Unfortunately, the criminal complaint describes a conversation in September with a cooperating witness in which one defendant boasted that investigators would not be able to be able “to link everybody up” because they were careful.

Given the number of defendants and unindicted co-conspirators who traded and how long the scheme lasted, the gains were surprisingly low, totaling less than $1.5 million. The defendants may have hoped to avoid detection by keeping the trades small, but in the end someone turned on them.

All three cases involve very disparate means of obtaining information and vastly different sums at stake. But they all indicate that the government is not letting up on its aggressive stance in pursuing both criminal and civil insider trading cases, even when they don't have wiretap evidence.

Lawyer Says Trader Did Not Manipulate Market

A lawyer for a high-profile trader under investigation over his trading in Treasury futures says his client did not engage in any manipulative activity.

Glenn Hadden, the head of global rates at Morgan Stanley, is the subject of an inquiry by regulators at the CME, the big Chicago exchange, according to a recent regulatory filing. The trading - which took place when Mr. Hadden was at Goldman Sachs - was the subject of a page-one article in The New York Times on Monday.

“The CME matter concerns technical risk management activity in a one-minute period four years ago during which Mr. Hadden acted properly and followed established market practice. There is no legal or factual basis for any suggestion of market manipulation,” James J. Benjamin Jr., a lawyer at Akin Gump Strauss Hauer & Feld who is representing Mr. Hadden, said in a statement.

Mr. Hadden declined requests to comment for Monday's article.

Whether Mr. Hadden followed established market practice will be a topic for discussion with regulators. People briefed on that investigation but not authorized to speak on the record said the inquiry focuses on Mr. Hadden's purchases or sales of Treasury futures late right before the markets closed. The effect of this would have been to make other trades more profitable, according to the people briefed on the matter.

Mr. Hadden is one of Wall Street's most powerful Treasury traders. Morgan Stanley hired him 2011 to run its rates desk, an area of focus for the firm after the financial crisis. When Morgan Stanley hired Mr. Hadden it was not aware that the CME was looking into his trading of Treasury futures but it was aware of another incident that took place around the same time, according to people briefed on the matter but not authorized to speak on the reco rd.

In that case, Goldman received complaints involving Mr. Hadden from the Federal Reserve Bank of New York. Goldman is one of 21 firms designated to trade United States government securities with the New York Fed. Traders at the Fed, according to people briefed on this matter, felt that Goldman was trying to improperly profit from one of the federal government's bond-buying programs, which are aimed at stimulating economic growth.

After receiving those complaints, Goldman in 2009 put Mr. Hadden on paid leave. While neither Goldman nor Mr. Hadden was accused by regulators of wrongdoing in that case, Mr. Hadden's leave stretched out for months, in part because senior managers were divided on whether he should return to work, and whether he shoul d have managerial responsibilities if he did return, according to people involved in the discussions.

In November 2010, Mr. Hadden left Goldman. Soon afterward, he landed at Morgan Stanley. Several senior executives there were aware of the New York Fed's complaints when Mr. Hadden was hired, but they were satisfied that he had not done anything wrong, according to people involved in the decision to hire him.

Dell Shares Leap After Analyst Muses About a Buyout

Shares of Dell Inc. leaped on Monday after an analyst at Goldman Sachs upgraded the stock - and mused about the (distant!) possibility of a leveraged buyout in the computer maker's future.

As of midmorning on Monday, Dell was trading at $10.30, up nearly 7 percent and reaching levels unseen since September. That provides some solace to shareholders in the company, which has struggled to redefine itself as more than a maker of personal computers at a time when profit margins have shrunken to razor-thin levels.

In his note, Goldman's Bill Shope writes that the sell-off in Dell shares is likely over-exaggerated at this point. Pessimism about the fate of PC makers, whose products are far less profitable now amid a glut of supply, has gone too far. And expectations for Dell in particular have reached what he calls their nadir.

But it is Mr. Shope's discussion about a possible L.B.O. that may have excited investors. He points out that Dell has a sizable amount of cash on its balance sheet, totaling $11 billion as of Nov. 2. That cash could be enormously useful in a take-private transaction, helping to pay down the debt that would surely be accumulated.

And the company's eponymous founder and chief executive, Michael Dell, owns a 14 percent stake.

However, Mr. Shope does note that taking Dell private would be an enormous undertaking. At Monday morning's stock price, the company is now worth $18 billion, making an acquisition a huge undertaking for a consortium of private equity firms and pretty much impossible for a single one.

Mr. Shope says that a special financial model created to assess the likelihood of an L.B.O. showed that a deal would be “difficult,” given both the size of such a transaction and the tax hit that would come from bringing in cash that is currently held offshore.

More realistic prospects include using the cash for “strategic purposes,” including acquisitions, or borrowing debt t o buy back shares. But over all, he writes, even the distant-but-not-impossible prospect of a takeover should provide a decent floor for Dell's stock price.

“We highlight that a L.B.O. transaction or levered recap need not take place to help stabilize the share price, as long as investors begin to increasingly weigh the possibility of a transaction,” Mr. Shope writes.

Saputo to Buy Dean Foods\' Morningstar Unit for $1.45 Billion

Saputo, a Canadian dairy processor, agreed on Monday to buy Dean Foods‘ Morningstar division for about $1.45 billion in cash to help expand its presence in the United States.

The deal will give Saputo, one of the world's biggest dairy companies, its highest-profile business in America to date. Morningstar Foods - not to be confused with Morningstar Farms, the popular maker of vegetarian food - makes Friendship cottage cheese and various private-label dairy products like coffee creamers and ice cream mix.

For the year ended Sept. 30, Morningstar reported about $1.6 billion in revenue and $153 million in earnings before interest, taxes, depreciation and amortization. It has about 2,000 employees and runs factories in nine states.

“Our customer-centric business model and a disciplined cost control mindset have enabled our growth and we look forward to the next chapter in Morningstar's evolution,” Kevin Yost, Morningstar's president, said in a statement .

Saputo said that the deal would help expand its own manufacturing and distribution networks and could serve as the base for more takeover opportunities. It expects the deal to immediately add to its earnings.

And Dean Foods said that it expected to gain about $887 million in proceeds from the deal. It will use that money to pay down debt.

The company announced in September that it was considering selling Morningstar, which analysts considered a natural move since it was spinning off a complementary division, WhiteWave.

The deal is expected to close by the end of the year or early next year.

Dean Foods was advised by Evercore Partners and the law firms Skadden, Arps, Slate, Meagher & Flom and Dechert.

UBS Approaches Deal on Rate Rigging

The Swiss bank UBS “is close to reaching settlements with American and British authorities over the manipulation of interest rates,” DealBook's Ben Protess and Mark Scott report. “UBS is expected to pay more than $450 million to settle claims that some employees reported false rates to increase the bank's profit, according to officials briefed on the matter who spoke on the condition of anonymity because the talks were private.”

The collective penalties being discussed would top the $450 million settlement that authorities struck with Barclays in June, DealBook writes. “The authorities claim that UBS traders colluded with rival banks to influence rates in an effort to bolster their profits, according to officials briefed on the matter.” The UBS settlement is expected to heighten calls for overhauling the Libor system.

“American authorities are hoping to complete a deal with UBS by the middle of the m onth, according to officials briefed on the matter. The officials noted that the discussions could spill into next year. The talks could also break down, in which case the authorities would file a lawsuit against the bank.” More than a dozen banks are being investigated by the Justice Department, the Commodity Futures Trading Commission and Britain's Financial Services Authority. Two American banks, Citigroup and JPMorgan Chase, have been identified as targets.

 

MORGAN STANLEY TRADER UNDER INVESTIGATION  |  The head of Morgan Stanley's global interest rate desk, Glenn Hadden, is the focus of a regulatory investigation into his trading of Treasury futures while at his previous employer, Goldman Sachs, DealBook's Susanne Craig reports. “Regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden's purchases or sales of Treasu ry futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable, according to people briefed on the matter who were not authorized to speak publicly.”

Mr. Hadden, a highly paid trader known for his aggressive risk taking, has been given formal notice by the CME that an inquiry is under way, Ms. Craig reports. “It is unusual for someone of Mr. Hadden's stature to be the target of a civil complaint like this, and if he is found to have violated exchange rules, he could, in the extreme, face millions in fines and be barred from trading on the CME Group.”

Mr. Hadden has previously drawn the ire of regulators. He was put on paid leave from Goldman in 2009 after the firm received complaints from the Federal Reserve Bank of New York - a controversy of which Morgan Stanley was also aware, Ms. Craig reports. “Traders at the Fed, according to people briefed on the matter, suspected that Goldman was trying to improperly profit from one of the federal government's bond-buying programs, which are aimed at stimulating economic growth.”

 

DELTA IN TALKS OVER STAKE IN VIRGIN ATLANTIC  |  Delta Air Lines is in talks to buy a 49 percent stake in Virgin Atlantic Airways from Singapore Airlines, the latest sign of consolidation in the airline industry, Jad Mouawad and Michael J. de la Merced report in DealBook. “Talks are continuing but a deal will not be announced soon,” DealBook reports, citing a person briefed on the matter.

A transaction would “be Delta's most significant strategic move since its 2008 merger with Northwest Airlines, which made it the biggest American carrier until the union of United Airlines and Continental Airlines last year.” It would also help strengthen Delta's international operations and give it more access to London's Heathrow Airport. F or Virgin, a deal could give it a competitive edge and also allow for an eventual change of control of the airline.

 

ON THE AGENDA  |  The three-day UBS Global Media and Communications conference begins in Manhattan, where the chief executive of Viacom, Philippe Dauman, is to speak at 12:30 p.m. The Financial Stability Oversight Council holds a closed-door meeting in Washington. Alan R. Mulally, chief executive of the Ford Motor Company, is on CNBC at 8 a.m. and on Bloomberg TV at 12:30 p.m. Stephen A. Schwarzman of the Blackstone Group is on CNBC at 3:10 p.m. Anthony Scaramucci of SkyBridge Capital is on CNBC at 5 p.m. The Institute for Supply Management releases results of its manufacturing survey for November at 10 a.m.

 

GREECE ANNOUNCES BUYBACK OFFER  |  Greece has presented the terms of its offer to buy back bonds from investors. The troubled nation is offering to pay 10 billion euros ($13 billion) for the debt, at an average maximum price of 34.1 cents on the euro, Bloomberg News reports. That price is “higher than previously published or announced,” Spyros Politis, head of an Athens-based asset manager, told Bloomberg. “At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin.”

The International Monetary Fund has insisted Greece must complete the buyback, which is intended to reduce the government's debt load by as much as 30 to 40 billion euros, before it signs off on the latest package of aid. DealBook reported on Friday: “Hedge funds are holding firm on their stance that they will not sell for any price below 35 cents on the euro - a significant premium to today's average price of around 30 cents.” The market for Greek debt had become robust in anticipation of th e offer.

Greece plans to conduct the transaction as a modified Dutch auction, with bondholders submitting the prices they are willing to accept. Finance ministers of the euro zone are set to meet in Brussels on Monday to discuss the troubles of Greece and Cyprus. The economist Tyler Cowen writes in The New York Times that the negotiations in Europe are like a game of chicken. “Unfortunately, the economic study of strategic behavior - also known as game theory - suggests that if you play chicken too many times, you will eventually crash the proverbial car.”

 

 

 

Mergers & Acquisitions '

Cable and Wireless to Sell Units for Up to $1 Billion  |  Cable and Wireless Communications of Britain agreed on Monday to sell a number of businesses to the phone operator Bate lco Group of Bahrain for up to $1 billion. DealBook '

 

News Corp. Shuffles Top Management  |  Tom Mockridge, who was chief executive of News Corporation's British newspapers after a phone hacking scandal, is stepping down at the end of the year, he announced on Sunday. The news followed reports that Robert Thomson, the top editor at The Wall Street Journal, would be named chief executive of News Corporation's planned spinoff publishing company. NEW YORK TIMES MEDIA DECODER

 

Martin Marietta Said to Be Weighing Friendly Offer for Vulcan  |  After an earlier unsolicited offer for Vulcan Materials was rejected, Martin Marietta Materials is now “likely to explore a friendly offer” for Vulcan, The Wall Street Journal reports, citing unidentified people familiar with the decision. WALL STREET JOURNAL

 

Airbus Parent Expected to Alter Investor Base  |  The New York Times reports: “The board of European Aeronautic Defense and Space, the parent company of Airbus, was expected Monday to announce a significant restructuring of its core shareholder base that would give the German government a direct stake in the group equal to that of France.” NEW YORK TIMES

 

H.P.'s Blunder for the Record Books  |  Until now, it seemed likely that a deal like AOL's acquisition of Time Warner would never be repeated, rivaled or surpassed, reports James B. Stewart, the Common Sense columnist for The New York Times. DealBook '

 

Berkshire Moves Into Spain With CaixaBank Reinsurance Deal  |  Warren E. Buffett and his sizable insurance team are betting that at least one Spanish firm is in good financial shape, even as its home country remains on shakier economic ground. DealBook '

 

INVESTMENT BANKING '

Bank of America Holds Off on New Fees  |  The bank “has shelved plans for new fees that could have hit at least 10 million customers by the end of this year, skirting a potential replay of a 2011 uproar over consumer-banking charges,” The Wall Street Journal reports. WALL STREET JOURNAL

 

Goldman Pitches Subprime Mortgages to Clients  |  Goldman Sachs “said in a Nov. 28 report on its top 10 market themes for 2013 that clients should buy some” derivatives linked to subprime mortgages, Bloomberg News reports. BLOOMBERG NEWS

 

Pressure Mounts on Credit Suisse C.E.O  |  Brady W. Dougan, the head of Credit Suisse, “has outmaneuvered an internal rival with his recent revamp of the Swiss bank and management shake-up but is still on borrowed time, senior banking sources say,” Reuters reports. REUTERS

 

Buffett's Broad Appeal  |  Warren E. Buffett's investing style sets him apart from the times, and his calls for higher taxes set him apart from the superrich. “Rather than fret about Buffett's being a traitor to his class, Wall Street and the superrich should see that his message helps keep the pitchforks at bay,” The New Yorker's James Surowiecki writes. “If Buffett didn't exist, the rich would have had to invent him.” NEW YORKER

 

HSBC Names New Head of Retail Banking  | 
REUTERS

 

PRIVATE EQUITY '

K.K.R. Struggles to Get a Foothold in Japan  |  K.K.R.'s experience “underscores the hurdles private-equity firms face in Japan, and how the government and big corporations still wield influence over strategic industries,” The Wall Street Journal writes. WALL STREET JOURNAL

 

K.K.R. Ends Talks on Lending to IDB Holding of Israel  | 
REUTERS

 

HEDGE FUNDS '

Some SAC Investors Move Toward the Exit  |  The French bank Société Générale, which has money in SAC Capital Advisors through an asset management arm, is among investors that have put in requests to withdraw money, as the hedge fund is the focus of an intensifying government investigation, The Wall Street Journal reports. WALL STREET JOURNAL

 

Tax Increases on Investments Would Not Be So Bad, Some Say  |  The hedge fund manager Douglas Kass, founder of Seabreeze Partners Management, says fears of the negative effects of tax inc reases on dividends and capital gains may be overblown, The New York Times reports. NEW YORK TIMES

 

Explaining Argentina's Debt Mess Through Legos  |  Felix Salmon of Reuters dramatizes the struggle between Argentina and its bondholders, including Elliott Management, with a cast of Lego actors. REUTERS

 

Hedge Funds Start-Ups Take a Quantitative Approach  |  The Financial Times reports: “Trend-following quantitative ‘black-box' hedge funds are accounting for their highest-ever proportion of hedge fund start-ups, despite weak returns since the financial crisis.” FINANCIAL TIMES

 

I.P.O./OFFERINGS '

Spanish Phone Company Plans to Float Part of Latin American Unit  |  The Spanish mobile company Telefónica may list up to 15 percent of its Latin American operations, a deal that could raise more than $4.6 billion, Reuters reports. REUTERS  |  FINANCIAL TIMES

 

Facebook's Unlikely Insider Takes a Different Path  |  Chris Hughes, who was at Facebook from the beginning, now runs The New Republic. New York magazine writes of the company's chief executive, Mark Zuckerberg: “If Zuckerberg used to refer to himself, presumably jokingly, as the ‘enemy of the state,' Hughes, whose demeanor is less piratical, has his eye on state dinners.” NEW YORK

 

VENTURE CAPITAL '

Uber Runs Afoul of Regulators  |  Transportation regulators in Washington recently discussed ways to clarify the legality of apps, including Uber, that allow users to request rides in taxis or cars. The New York Times reports that the regulators “proposed guidelines that would effectively force Uber, a San Francisco start-up, to cease operations in the United States.” NEW YORK TIMES

 

Hosts of Airbnb Travelers May Be Breaking the Law  |  The New York Times columnist Ron Lieber writes about the start-up Airbnb, which lets people host travelers in their homes: “Local laws may prohibit most or all short-term rentals under many circumstances, though enforcement can be sporadic and you have no way of knowing how tough your local authorities will be.” NEW YORK TIMES

 

Partnership Aims to Support Media Entrepreneurs  |  The New York Times reports: “Matter Ventures, a start-up accelerator that will provide four months of financial and logistical support for budding media entrepreneurs, will be unveiled Monday by its partners: KQED, a public television and radio station operator; the John S. and James L. Knight Foundation; and the Public Radio Exchange, known as PRX.” NEW YORK TIMES

 

LEGAL/REGULATORY '

Widows Fall Victim to Foreclosure  |  The New York Times reports: “Just as the housing market is recovering, a growing group of homeowners - widows over the age of 50 whose husbands a lone were holders of the mortgage - are losing their homes to foreclosure because of a paperwork flaw that keeps them from obtaining loan modifications.” NEW YORK TIMES

 

F.H.A. Heads Toward a Crisis  |  If the Federal Housing Administration “were to stop insuring new home loans today, it wouldn't have the money it needs to cover its expected losses in the coming years,” Gretchen Morgenson writes in The New York Times. NEW YORK TIMES

 

Silicon Valley Legend on the Lam in Belize  |  John McAfee, who made his fortune from computer antivirus software, is a “person of interest” in the investigation of a murder in Belize, and “has turned lamming it into a kind of high-tech performance art,” The New York Tim es reports. NEW YORK TIMES

 

S.E.C. Chief Said to Have Been Influenced by Concerns Over Legacy  |  The Wall Street Journal reports: “In one of her last acts as chairman of the Securities and Exchange Commission, Mary Schapiro delayed a rule potentially affecting hundreds of billions of dollars of private offerings by companies, in part because of concerns about her personal legacy, according to previously unpublished documents.” WALL STREET JOURNAL

 

Aide to Obama in the Spotlight in Fiscal Talks  |  Jacob J. Lew, the president's budget director, has much at stake in the current negotiations in Washington over tax increases and spending cuts. If the talks fails, The New York Times reports, “Mr. Lew could wind up with a blot on his nearly impeccable record.” NEW YORK TIMES

 

Hospital in Brooklyn Plans to Declare Bankruptcy  |  Interfaith Medical Center “is planning to declare bankruptcy this week, hospital officials said on Sunday, raising concerns that New York State may force it to close or merge with another institution,” The New York Times reports. NEW YORK TIMES

 

Archer Daniels Raises Bid for GrainCorp

The Archer Daniels Midland Company raised its offer for GrainCorp on Monday, valuing the Australian grains processor at about $2.9 billion, as the agricultural products giant pressed ahead with its unsolicited takeover bid.

It comes three weeks after GrainCorp rejected A.D.M.'s last offer as insufficient.

Under the terms of the revised proposal, A.D.M. would pay 12.20 Australian dollars a share, 80 cents higher than its previous offer. The new price is 39.6 percent higher than GrainCorp's closing price on Oct. 18, the last trading day before the first offer became public.

The American suitor also said that it had raised its holdings in GrainCorp again, to 19.9 percent, after having purchased an additional 5 percent stake. Archer Daniels is now at the maximum level allowed by Australian regulators.

Behind the takeover campaign is a bid by Archer Daniels to expand its global agricultural process and oilseeds businesses

In its statement, the agri business titan said that its latest offer accounts for GrainCorp's annual results for 2012 that were announced last month, including a profit of 204.9 million Australian dollars. Any finalized deal is subject to due diligence.

“ADM is a disciplined buyer, and any combination with GrainCorp must meet our key financial hurdles, taking into consideration the impact of the Australian agricultural cycle on GrainCorp's earnings power,” Patricia Woertz, Acher Daniel's chairwoman and chief executive said.

Cantor Fitzgerald to Acquire Irish Stockbroker

LONDON â€" Cantor Fitzgerald agreed on Monday to acquire the Irish firm Dolmen Stockbrokers as part of its expansion into global markets.

The deal for Dolmen, one of Ireland's largest stockbrokers, comes as the economy of the European country continues to rebound from the financial crisis when Ireland's financial services industry had to be bailed out by local politicians.

Ireland's gross domestic product, however, is expected to rise 0.4 percent this year, compared to a 0.3 percent decline for the entire European Union.

Under the terms of the deal, Cantor Fitzgerald said it would offer Irish customers access to a number of financial instruments, including capital markets trading and wealth management products.

“Building a full-service sales and trading, research and advisory business in Ireland is an important step in our continued expansion,” Cantor Fitzgerald's chief executive, Shawn P. Matthews, said in a statement. A purchase price was not disclosed.

Ronan Reid, the current head of Dolmen, will continue to serve as chief executive of the newly-acquired business that will be renamed Cantor Fitzgerald Ireland, according to a company statement.

Cable & Wireless to Sell Units for Up to $1 Billion

 

3 December 2012

CABLE & WIRELESS COMMUNICATIONS PLC

Agreement on Monaco & Islands Disposal

 

 

Cable & Wireless Communications Plc ("CWC" or "the Company") today announces that it has agreed with Batelco Group ("Batelco") the sale of the majority of the businesses within its Monaco & Islands division for an enterprise value of US$680 million (the "Disposal").

 

CWC will divest its entire shareholdings in its businesses in the Maldives, Channel Islands and Isle of Man, the Seychelles, South Atlantic and Diego Garcia as well as a 25% shareholding in Compagnie Monegasque de Communication SAM ("CMC"), the company which holds CWC's 55% interest in Monaco Telecom.

 

The Disposal accelerates the delivery of CWC's strategy to reshape its business, reduce its geographic spread, and focus on the Central American and Caribbean region, as well as increasing the Company's financial flexibility.

 

The consideration (on a cash and debt-free basis and assuming a normal level of working capital) of US$680 million will be paid in cash by Batelco upon completion of the transaction ("Completion"), and represents a multiple of 6.3 times the proportionate EBITDA (for the 12 months to 31 March 2012) of the businesses being sold.

 

Subject to the satisfaction of necessary regulatory and other conditions, including approval from CWC shareholders, Batelco will take control of each of the majority-owned business units upon Completion, which is expected to take place by the end of CWC's current financial year. CWC will continue to operate the Monaco Telecom business in partnership with the Principality of Monaco as co-shareholder.

 

The cash proceeds arising from the Disposal will be used to reduce the Company's net borrowings and increase its financial flexibility.  As a result of the Disposal (including the 25% shareholding in CMC), the Group's net debt position will be reduced from US$1,588 million as at 30 September 2012 to approximately US$937 million on a pro forma basis, implying proportionate net debt / EBITDA of 1.8x (for the 12 months to 30 September 2012).

 

CWC and Batelco have also entered into certain put and call option arrangements over CWC's remaining 75% interest in CMC.  The options will enable CWC to sell, and Batelco to purchase, the controlling stake in Monaco Telecom for an additional consideration of US$345 million. These options can be exercised within 12 months of completion of the Disposal, subject to obtaining necessary regulatory and other consents, including the approval of the Principality of Monaco. If the necessary consents are obtained and either option is exercised, the completion of the second stage of the transaction would increase the total consideration to US$1,025 million, representing a multiple of 6.7 times the proportionate EBITDA (for the 12 months to 31 March 2012) for the sale of the entire Monaco & Islands business unit.

 

If the necessary consents are not obtained, CWC and Batelco have agreed a further option arrangement which enables the return of the 25% shareholding in CMC (originally transferred to Batelco) back to CWC for a consideration of US$100 million.

 

The Disposal will also position CWC to be able to make value-enhancing investments in the pan-America region. Any investments will be based on strict financial criteria and considered alongside regular reviews of balance sheet efficiency and shareholder returns policy.

 

Tony Rice, CEO of Cable & Wireless Communications, commented:

 

"The disposal of the Monaco & Islands portfolio is consistent with our objective of building a growth-driven, Pan-America focused business. The Monaco & Islands portfolio is a premium telecoms business and we are pleased to have agreed a deal that achieves an attractive value for our shareholders. We believe that Batelco will be an excellent owner and operator, bringing deep telecoms capability and international experience, and will continue the development of the businesses. The disposal will substantially reduce the geographic spread of our Group as well as increasing our financial flexibility. We will continue to operate the Monaco Telecom business, with the option to crystallise the second stage of the transaction if necessary consents are obtained."

 

Sheikh Mohamed bin Isa Al Khalifa, Batelco Group Chief Executive, commented:

 

"We are pleased to announce this acquisition which will increase the scale and diversification of our operations. Batelco Group will have the opportunity to operate, in collaboration with its new business partners, communications businesses across 17 markets. This acquisition supports our strategy by adding new cash generative business clusters to our existing operations across the Middle Eastern region. We look forward to working closely with all the shareholders and management teams in the companies to ensure we continue to deliver value and innovation to customers and be recognized as market leaders."

 

The consideration is subject to normal post-completion cash, debt and working capital adjustments. In addition, owing to the size of the transaction relative to the size of the Company, the transaction constitutes a Class 1 transaction under the UK Listing Rules and is therefore conditional upon the approval of CWC shareholders.

 

A circular will be sent in due course to CWC shareholders containing further details of the transaction, together with a notice convening a General Meeting of the Company to consider and, if thought fit, approve the transaction.

---

 

Conference Call

A conference call for analysts and investors to discuss the Disposal will be held at 11 am GMT on 3 December 2012. A presentation will be simultaneously webcast at www.cwc.com

Dial-in details:

UK:                                                        +44 (0) 20 3364 5381

US:                                                         +1 646 254 3361 

Confirmation Code:                        6450378 

Participants will have to quote the above code when dialling into the conference.

 

Audio playback of the call will be available shortly after the call finishes until 10 December 2012. The details for the playback are:

UK:                                                         +44 (0) 20 3427 0598

US:                                                         +1 347 366 9565

Replay Access Code:                      6450378

---

 

For further information contact:

Cable & Wireless Communications Plc                                                                                    

Investors:

Kunal Patel                                         +44 (0) 20 7315 4083

Mike Gittins                                       +44 (0) 20 7315 4184

 

 

Media:

Lachlan Johnston                           +44 (0) 20 7315 4006 / +44 (0) 7800 021 405

Steve Smith                                        +44 (0) 20 7315 4070 / +44 (0) 7785 778 375                                                     

                                                                                               

 

 

Advisers:

J.P. Morgan Cazenove (Financial Adviser, Sponsor & Joint Corporate Broker)                          

Dwayne Lysaght                              +44 (0) 20 7742 4000

Rupert Sadler

                                               

Akira Partners LLP (Financial Adviser)                                                                                        

Andre Sokol                                       +44 (0) 20 7565 0808

Matthias Uepping

               

Maitland (Financial PR)

Neil Bennett                                       +44 (0) 20 7379 5151

 

 

Notes to Editors:

About Cable & Wireless Communications Plc

Cable & Wireless Communications Plc is a global full-service communications business. We operate leading communications businesses through four regional units - the Caribbean, Panama, Macau and Monaco & Islands. Our services include mobile, broadband and domestic and international fixed line services in most of our markets as well as pay TV, data centre and hosting, carrier and managed service/social telecom (telecom enabled public services) solutions. Our operations are focused on providing our customers - consumers, businesses, governments - with world-class service. Serving the communities where we operate is at the heart of our approach, and we are committed to behaving in an ethical and socially responsible manner. For more information visit www.cwc.com

 

About Batelco

Batelco Group, listed on the Bahrain Bourse, is the leading integrated communications provider in the Kingdom of Bahrain and a company of reference among the region's key telecommunications players for innovation and customer experience. Batelco serves both the corporate and consumer markets in the most liberalised and competitive environment in the Middle East region. It delivers cutting-edge fixed and wireless telecommunications services to its customers in Bahrain, Kuwait, Saudi Arabia, Jordan, Yemen and Egypt. The Batelco Group of companies offers end-to-end telecommunications solutions for its residential, business and government customers in Bahrain on Next Generation, all IP fixed and 3.75G wireless networks, MPLS based regional data solutions and GSM mobile and WiMax broadband services across the countries in which it operates.

 

Cautionary Statement

This announcement has been issued by, and is the sole responsibility of, Cable & Wireless Communications Plc. No representation or warranty express or implied, is or will be made as to or in relation to, and no responsibility or liability is or will be accepted by J.P. Morgan Limited (which conducts its UK investment banking activities as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") or Akira Partners LLP ("Akira Partners") or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers and any liability therefore is expressly disclaimed.

J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove), which is authorised and regulated by the Financial Services Authority in the United Kingdom, is acting exclusively for Cable & Wireless Communications Plc and for no one else in connection with the matters described in this document and is not, and will not be, responsible to anyone other than Cable & Wireless Communications Plc for providing the protections afforded to clients of J.P. Morgan Cazenove, or for providing advice in connection with the matters described in this document.

Akira Partners LLP which is authorised and regulated in the UK by the FSA, is acting for Cable & Wireless Communications Plc and for no one else in connection with the transaction and will not be responsible to anyone other than Cable & Wireless Communications Plc for providing the protections afforded to clients of Akira Partners or for providing advice in relation to the transaction, the contents of this announcement or any transaction, arrangement or other matter described in this announcement.

This announcement contains (or may contain) forward-looking statements which are subject to assumptions, risks and uncertainties associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates.  These and other factors could affect the results, strategy and prospects of the Retained Group and/or the Monaco & Islands Disposal Companies.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations will prove to have been correct.  Since these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by those forward-looking statements.  Each forward-looking statement is correct only as of the date of the particular statement. The information contained in this announcement is subject to change without notice and, except as required by the rules of the London Stock Exchange, the Listing Rules, the Disclosure and Transparency Rules or any other applicable law, none of the Company, J.P. Morgan Cazenove or Akira Partners assumes any obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

 

 

 

Agreement on Monaco & Islands Disposal

1.     Introduction and summary

 

Cable & Wireless Communications Plc ("CWC" or the "Company) through its wholly owned subsidiary Sable Holding Limited (the "Seller") has entered into an agreement with Bahrain Telecommunications Company ("Batelco") for the sale of the majority of its Monaco & Islands business unit for an enterprise value of US$680 million.

 

The Seller will divest its entire shareholdings in CWC Islands Limited and CWC Holdco Limited, comprising its businesses in The Maldives, Channel Islands and Isle of Man, the Seychelles, South Atlantic and Diego Garcia as well as a 25% shareholding ("CMC Minority Shares") in Compagnie Monegasque de Communication SAM ("CMC"), the company which holds CWC's 55% interest in Monaco Telecom (the "Disposal").

 

The consideration of US$680 million (on a cash and debt-free basis and assuming a normal level of working capital) will be paid in cash by Batelco upon completion of the Disposal ("Completion"), which is expected to take place by the end of CWC's current financial year.

 

Subject to the satisfaction of necessary regulatory and other conditions, including approval from CWC shareholders, Batelco will take control of each of the majority-owned business units upon Completion. CWC will continue to operate the Monaco Telecom business in partnership with the Principality of Monaco as co-shareholder.

 

CWC and Batelco have also entered into certain put and call option arrangements over CWC's remaining 75% interest in CMC ("Monaco Option"). These options can be exercised by CWC and Batelco within 12 months of completion of the Disposal, subject to the satisfaction of certain conditions, including the receipt of necessary regulatory and other consents. If exercised, CWC's remaining 75% interest in CMC (the "CMC Majority Shares") will be transferred to Batelco for an additional consideration of US$345 million. If neither option is exercised, CWC may require Batelco to transfer back to CWC, and Batelco may require CWC to purchase, the 25% shareholding in CMC transferred to Batelco for US$100 million (the Disposal and Monaco Option together being the "Transaction").

 

2.    Background to and reasons for the Transaction

 

Since its demerger from the Cable & Wireless Group in 2010, the Company's strategy has been to manage its portfolio actively with the aim of an increasing focus on the Caribbean and Central American region, where it has a critical mass of operations and the ability to realise operational efficiencies.

 

Having received approaches for its Monaco & Islands division, a process was undertaken by CWC to review the strategic alternatives for its Monaco & Islands division. The Board believes the Transaction is in the best interest of the Company's shareholders as a whole because it:

 

·      accelerates the delivery on the Company's strategy to increase its focus on its Caribbean and Central American operations;

·      achieves an attractive value for the businesses being sold (the "Monaco & Islands Companies") and reflects their strong financial performance and market positions. In terms of valuation:

o  the aggregate consideration for the Disposal (including the CMC Minority Shares) represents a multiple of approximately 6.3 times the Company's proportionate share of the EBITDA of the relevant companies (including the CMC Minority Shares) for the twelve months ended 31 March 2012; and

o  the aggregate consideration for the Transaction as a whole represents a multiple of approximately 6.7 times the Company's proportionate share of the EBITDA of the Monaco & Islands Companies (including the companies comprising CWC's Monaco business ("CMC Companies")) for the twelve months ended 31 March 2012;

·      enables the Company to materially reduce its net indebtedness and increase its financial flexibility; and

·      provides funds for potential further inorganic, value-accretive investment, in line with the Company's stated strategy and acquisition criteria.

 

Following the Disposal, the Board believes that the continuing Group (the "Retained Group") will be more focused and in a stronger position to realise operational efficiencies and pursue value-enhancing expansion opportunities in the Caribbean and Central American region. If the Monaco Option becomes exercisable and is exercised, the sale and purchase of the CMC Majority Shares (the "CMC Disposal") will further this strategy.

 

3.    Information on the businesses within the Monaco & Islands business unit

The Monaco & Islands Companies constitute substantially all of the Group's Monaco & Islands operation. The Monaco & Islands operation incorporates a number of island nations, including Guernsey, Jersey, Isle of Man, Seychelles, the Maldives, several UK overseas territories such as the Falkland Islands and St Helena, and Monaco and Afghanistan. Until the recent divestment of Afinis Communications S.A., the Monaco & Islands business also incorporated the Afinis business (a high-speed broadband service in West Africa, covering Benin, Burkina Faso, Cameroon, Guinea, Niger and Senegal). The Monaco & Islands Companies operate through five primary divisions:

 

·      Channel Islands and Isle of Man ("CIIM"): CIIM, operating through the 'Sure' brand, offers telephony services to the Channel Islands and the Isle of Man. It is the full service incumbent operator in Guernsey with market-leading positions in fixed-voice, mobile and broadband services. It is also an alternative carrier in Jersey and the Isle of Man. CIIM is operated through wholly-owned subsidiaries of the Group.

·      Dhiraagu: Dhiraagu is the incumbent telecom operator in the Maldives. Dhiraagu is the market leader in mobile, broadband and fixed voice services.  The Group owns a 52% stake in Dhiraagu and runs the business in partnership with the Maldives Government. In December 2011, the Maldives Government, which held the remaining 48% interest, completed an initial public offering of 5.9% of the share capital of Dhiraagu and a related offering of 0.3% of the share capital of Dhiraagu to the employees of Dhiraagu.

·      Cable and Wireless Seychelles ("CWS"): CWS is the full-service incumbent operator in Seychelles with market-leading positions in fixed-voice, mobile and broadband services. It is a wholly-owned subsidiary of the Group.

·      Cable and Wireless South Atlantic Diego Garcia ("SADG"): SADG offers communications services to Diego Garcia and three British foreign territories in the South Atlantic: Saint Helena, Ascension Island and the Falklands. It is the exclusive operator in three out of these four markets and provides services to the US military in Diego Garcia and the UK military in the Falklands. SADG is operated through wholly-owned subsidiaries of the Group. 

·      Monaco Telecom: Monaco Telecom is the incumbent operator in Monaco. The Group holds 49% of the total share capital of Monaco Telecom and has voting and economic rights in respect of an additional 6% through a contractual arrangement with Compagnie Monégasque de Banque. The Principality of Monaco holds the remaining 45%. Monaco Telecom is the market leader and the only full service telecommunications operator in Monaco. In addition, Monaco Telecom owns 36.75% of Roshan, a leading mobile telecommunications operator in Afghanistan. Monaco Telecom also has a Service-to-Operators division, which supplies the international country code and international carrier services to Kosovo and has a service contract with On Air, a company that provides passenger telephony solutions onboard aircraft. CMC holds the Seller's 55% interest in Monaco Telecom.

 

The revenue of the Monaco & Islands Disposal Companies for the twelve months ended 31 March 2012 was US$319 million, gross margin was US$254 million, EBITDA was US$130 million (the Group's proportionate share of the EBITDA being US$92 million), profit before tax was US$73 million, capital expenditure was US$58 million and operating cash flow was US$72 million.  During the year to 31 March 2012, the Monaco & Islands Disposal Companies had an average of 1,229 employees. At 30 September 2012, the Monaco & Islands Disposal Companies had net assets of US$172 million and gross assets of US$695 million.

 

The revenue of the CMC Companies for the twelve months ended 31 March 2012 was US$248 million, EBITDA was US$78 million (the Group's proportionate share of the EBITDA being 55%), profit before tax was US$47 million.  During the year to 31 March 2012, the CMC Companies had an average of 412 employees. At 30 September 2012, the CMC Companies had net assets of US$203 million and gross assets of US$538 million. 

 

4.    Use of Proceeds and financial effects of the Transaction on the Retained Group

At Completion, the Cash Proceeds arising from the Disposal (including the proceeds from the disposal of the CMC Minority Shares) are expected to be approximately US$680 million.

 

It is intended that US$330 million of the Cash Proceeds will be used to reduce borrowings under the Company's revolving credit facility, which had drawings of US$330 million as at 30 September. The Company believes there are likely to be an increasing number of opportunities to reinvest the remaining sale proceeds within the Caribbean and Central American region. Accordingly, the Company intends to retain the remainder of the net cash proceeds as cash, thereby being used to increase the Company's financial and strategic flexibility. The Company plans to pursue value-enhancing investments in the pan-America region. Any investments will be based on strict financial criteria and considered alongside regular reviews of balance sheet efficiency and shareholder returns policy.

 

As a result of the Disposal, the Group's net debt position will be reduced from US$1,588 million as at 30 September 2012 to approximately US$937 million on a pro forma basis.

 

If the Monaco Option becomes exercisable and is exercised, the cash proceeds arising from the CMC Disposal will be used to reduce net borrowings further and/or pursue value-enhancing investments in light of the overall efficiency of the balance sheet and the implications for shareholder returns.

 

Although the net cash proceeds of the Transaction will strengthen the Company's balance sheet and enhance its financial and strategic flexibility, if the Company does not make further acquisitions or undertake other balance sheet management activities, the Transaction is expected to be dilutive to earnings per share.  This is due to the limited benefits from immediate reinvestment in repayment of the Company's revolving credit facilities and holding the balance of the Transaction proceeds as short-term cash and cash equivalents, as compared to the annual income of the businesses being sold.

 

5.    Dividend Policy

As announced on 8 November 2012 in the Group's unaudited half-yearly results for the six months ended 30 September 2012, the Board declared an interim dividend of US1.33 cents per share to be paid on 11 January 2013 to Shareholders on the Company's register at the close of business on 16 November 2012. Subject to financial and trading performance in the second half of 2012/13, the Board expects to recommend a final dividend of US2.67 cents per share, resulting in a full year dividend of US4 cents per share. In the absence of unforeseen circumstances, the Transaction is not expected to impact the Group's dividend intentions for the financial year 2012/13.

 

6.    Current Trading and Future Prospects

On 8 November 2012, CWC announced its unaudited half-yearly results for the six months ended 30 September 2012.

 

The Company announced that, despite a challenging period for the telecoms industry as a whole, CWC has continued to perform respectably and in line with the Board's expectations for the full year. Momentum continues to build for the Group's mobile data services and private sector and government enterprise pipelines retain a healthy potential. Voice revenue continues to decline and CWC continues to reduce costs to mitigate this decline. CWC intends to focus management capability and future investment on the Pan-America region where the Group has scale, synergy and strong market positions.

 

7.    Key individuals of Monaco & Islands division

The names and principal functions of the key individuals within the Monaco & Islands division are set out below:

Denis Martin                      Chief Executive Officer of Monaco & Islands

Frédéric Pinchaud          Chief Financial Officer of Monaco & Islands

Catherine Delom              Chief Technical Officer of Monaco & Islands

David Woods                     Human Resources Director of Monaco & Islands

Martin Péronnet              Chief Executive Officer of Monaco Telecom

Markus Lackermaier      Chief Financial Officer of Monaco Telecom

Eddie Saints                       Chief Executive Officer of Channel Islands and Isle of Man operation

Sean Cassidy                      Chief Financial Officer of Channel Islands and Isle of Man operation

Andy Bridson                    Chief Commercial Officer of Channel Islands and Isle of Man operation

Ismail Waheed                  Chief Executive Officer and Managing Director of Dhiraagu

Ismail Rasheed                 Chief Executive Officer of Dhiraagu

Avnish Jindal                    Chief Financial Officer of Dhiraagu

Adam Dunlop                    Development Director, Chief Executive Officer of Seychelles and SADG operation

Charles Hammond          Chief Executive Officer of Seychelles operation

Ajay Walia                          Chief Finance Officer of Seychelles operation

 

8.    Shareholder Circular

A circular will be sent to the Company's shareholders in due course containing further details of the Transaction, together with and a notice convening a General Meeting of the Company to consider and, if thought fit, approve the Transaction. A further announcement will be made upon posting of the Circular.