By Serena Saitto and Poppy Trowbridge
June 30 (Bloomberg) -- Mergers and acquisitions may show signs of recovering from a six-year low as the credit freeze thaws and chief executive officers such as Xstrata Plc’s Mick Davis gain confidence to do deals.
Record bond sales and the Standard & Poor’s 500 Index’s 40 percent gain from a 12-year low in March are fueling optimism that deals can be funded again. Any rebound may be fragile, bankers say.
“Financing is now available for strategic buyers,” said Rob Kindler, global head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first half of this year. “What is less positive is that the stock market, a proxy for M&A, continues to be volatile.”
Companies announced $773 billion of takeovers in the first half, the slowest period for mergers since 2003, data compiled by Bloomberg show. Xstrata’s 24 billion-pound ($40 billion) bid for miner Anglo American Plc, and takeovers by companies such as Cisco Systems Inc. may be among second-half deals.
The S&P 500 has moved by more than 3 percent on 23 trading days this year. That’s the third-most volatile period in the benchmark’s 81-year history after 1932 and 1933, said Howard Silverblatt, senior index analyst at S&P in New York. The VIX, the Chicago Board Options Exchange Volatility Index, returned yesterday to levels that prevailed before the collapse of Lehman Brothers Holdings Inc. in September.
‘Recovery of Confidence’
Goldman Sachs Group Inc. and JPMorgan Chase & Co. were the second and third-placed advisers after Morgan Stanley this year. Goldman Sachs, Citigroup Inc. and Merrill Lynch & Co. were the top advisers in the same period a year earlier. All are based in New York.
Mergers and acquisitions dropped 42 percent in the U.S., 58 percent in Europe, and about 50 percent in Asia in the first half, Bloomberg data show. U.S. firms led $350 billion of takeovers, topping $260 billion for Europe.
BlackRock Inc., the New York-based money manager started by Laurence Fink, agreed this month to buy Barclays Plc’s asset management division for $13.5 billion. China Petrochemical Corp. agreed last week to buy Swiss explorer Addax Petroleum Corp. for C$8.3 billion ($7.2 billion) to tap oil reserves in Iraq’s Kurdish region and Africa.
“In the second half of 2009 and in 2010 the number of active sectors will become broader,” said Jeff Stute, co-head of North American mergers at JPMorgan Chase & Co. in New York.
Xstrata, Vodafone
The technology industry may be ripe for takeovers. Cisco, which has made more than 130 purchases since 1995 and has $34 billion in cash, will be “aggressive” in making acquisitions to fuel growth, CEO John Chambers said May 7. EMC Corp., the world’s largest maker of data-storage computers, is vying with NetApp Inc. to acquire Data Domain Inc., in a deal valued at about $1.7 billion.
Successful fundraisings helped boost investor confidence, according to Steve Wallace, Citigroup’s head of mergers and acquisitions for the Asia Pacific region outside Japan. More Asian firms are now raising money because they see opportunities to make acquisitions, rather than repair losses from the credit crisis, he said.
“People are generally feeling that the worst is over,” Wallace said. “They’re feeling that the financial system is more stable than it was and that there is a path to recovery.”
Rio Tinto, Chinalco
Rio Tinto Group is selling $15.2 billion of stock in the U.K. and Australia to help pay debt of the London-based mining company. Aluminum Corp. of China, also known as Chinalco, plans to buy 880 million pounds ($1.5 billion) of shares to maintain a 9 percent stake after its proposed $19.5 billion investment in Rio, the single largest foreign investment by a Chinese company, was rebuffed.
Investment-grade U.S. companies sold $667 billion of bonds this year, 23 percent more than in the same period in 2008, Bloomberg data show. European companies sold more than 680 billion euros ($949 billion) of bonds this year, a 52 percent increase on the year-earlier period.
“Financing has always been the tail on the M&A dog,” said Bruce Evans, head of Americas mergers at Deutsche Bank AG. “Today, however, the tail is clearly wagging the dog.”
To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Poppy Trowbridge in London at ptrowbridge@bloomberg.net
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