Important News Everyday

FirstGroup, the Aberdeen-based transport group led by its chairman Martin Gilbert, confirmed on Monday that it made an approach for smaller, embattled National Express on June 19.

But, National Express’s newly appointed chairman, John Devaney, and his chief executive, Richard Bowker, believe they can go it alone and have firmly rebuffed First Group. They are hoping, instead, to launch a £400 million rights issue.

This is not the first time the two companies have been linked as merger partners: there was talk three years ago of doing a £3 billion, nil-premium merger.

This time, however, FirstGroup made its opportunistic all-share merger proposal to National Express, after talks broke down between the British government and National Express over a bail-out of its London-to-Edinburgh East Coast Mainline franchise.

“No bail-outs in rail” is the government’s stance on the matter. No surprise there, then, when the coffers over at Treasury are empty.

“National Express now faces the choice of either racking up huge losses at East Coast or defaulting on the franchise, which would mean exiting UK rail altogether,” believes UK broker Collins Stewart.

National Express has been particularly hit hard from the cost of the East Coast line. To pay the government £138 million per year, it needs annual passenger revenue growth of at least 9 percent. It has only managed 0.3 percent in the first quarter.

That doesn’t put National Express in a very good position, when it has around £1.2 billion of net debt on its balance sheet. Indeed, its shares have more or less collapsed over the course of the year by around 70 percent, despite being confident that it will meet its renegotiated debt covenant tests tomorrow.

Advised by JPMorgan Cazenove, FirstGroup is clearly exploiting the situation, given that up until this point its strategy had always been focussed on cash generation and organic growth while it lumbered under a £2.5 billion debt pile.

“Without rail and with a sensible balance sheet structure – our sum-of-the-parts points to a fair value of around 500p for National Express,” says Collins Stewart. That’s about 70 percent above where the company’s share price is currently.

Buying National Express would make First Group into the UK’s biggest transport company. Failing that, there are plenty of other companies out there that might look to do a deal during these hard times: Arriva, Go-Ahead, and Stagecoach all come to mind.

By Steve James

Although Enterprise Products Partners CEO Michael Creel could not join a conference call with analysts to dicuss his company’s planned $3.3 billion acquisition Teppco Partners, the energy pipeline company was quick to reassure investors all was well.

“He is not hiking the Appalachian Trail, he is not in Argentina and his wife IS with him,” Randy Burkhalter, Enterprise’s executive in charge of investor relations, told the call.

It was a joking reference to South Carolina Governor Mark Sanford, who last week admitted cheating on his wife with a woman in Argentina, where he had disappared for several days. His office had told reporters during his absence that Sanford was hiking the Appalachian Trail.

A spokesman for Houston-based Enterprise said Creel was “out of town” and was unable to take part in the analyst call.

Hostile deals – and there are a few going on – have one unintended consequence: too many press releases.

Every side feels compelled to correct a rival’s spin as things heat up, which means almost every press statement has an equal and opposite reaction.

In Bermuda, a three-way battle between IPC, Validus and Max Capital flooded the wires for weeks with innumerable press releases, as each side tried to make a case for why their deal was better. (Shareholders voted down an IPC-Max deal, but the fight is not over yet.)

Sometimes the new point is, well, a rather fine point.

Consider this statement put out by Agrium, which is battling to take over rival CF.

Mike Wilson, Agrium’s CEO:
“Following a successful stockholder referendum on Agrium’s offer and after we reached out to CF and its advisors, CF’s Chairman and CEO Steve Wilson told me that CF would not meet with Agrium. Contradicting recent public comments that CF is prepared to engage, he stated to me that ‘there is no reason to meet because nothing has changed.’ Steve Wilson said he called since stockholders wanted him to engage with Agrium. I do not consider returning my phone calls to say that CF refuses to meet to be engagement and I don’t think CF stockholders will either.”

This time, though, CF did not rush out its own statement to address the allegation by Agrium’s Wilson that CF’s Wilson was contradicting his recent public comments.

CF spokesman Charles Nekvasil, when reached by phone, said the company did not “wish to engage in duelling press releases or press statements.”

And then he added: “Our position is that — as we spelled out last week when our CEO did an interview — nothing has changed from the perspective of the Agrium offer. We have indicated that given that situation we are willing to listen but nothing new is on the table.”

Watson Wyatt and Towers Perrin executives are excited about their deal to create Towers Watson, but investors are not cheering as much. 

Watson Wyatt’s shares plunged nearly 10 percent in Monday morning trading, as investors woke up to the all-stock deal valued at about $3.5 billion, announced Sunday.

A Citi analyst downgraded the Watson Wyatt, which is publicly held, to “hold” from “buy”, calling the companies’ three-year integration plan a “major risk.” 

Among the concerns: integration and deal costs may lower earnings, and rivals like Hewitt and Mercer could grab people and other opportunities in the interim. 

It will take three years to achieve savings of $80 million through job cuts and the streamlining of overlapping operations. The companies also expect one-time costs of $80 million from the merger and “significant noncash expenses” for the first two years. 

“The merger will create a global leader, but the three-year path to accretion could imply a difficult integration,” Citi analyst Ashwin Shirvaikar wrote in a research note.

Welcome to our live coverage of the Bernie Madoff sentencing. Reuters journalists are outside and inside the Manhattan court where the admitted thief will hear his punishment for running Wall Street’s biggest and most brazen investment scheme. Reuters.com’s intern, Franz Strasser, is sending us updates from the scene that you can follow in the live headline box below.

(Editor’s note: Readers’ comments will appear in a smaller font.)

Update: The live coverage has now ended, but you can still leave a comment below.

TMT is heating up. Vodafone, the British mobile phone operator, is pondering a bid for T-Mobile UK, while Microsoft has hired Morgan Stanley to sell its digital agency Razorfish. Both stories are in the Financial Times. Private equity group Candover says it has ended talks with potential acquirers, confident it can meet debt covenants. For all Reuters Deals news, click here.

And here’s what other media are writing today.

* Anglo American (AAL.L) is building its defences against a 41 billion pound ($67.74 billion) merger approach from Xstrata (XTA.L) by plotting talks about a major Chinese investment, the Sunday Telegraph reported.

* Switzerland’s UBS (UBSN.VX) is to pay 3 to 5 billion Swiss francs ($2.77-$4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported on Sunday.

* China National Offshore Oil Corp (CNOOC) (0883.HK) and Petrochina are planning bids for a stake in Canadian oil firm InterOil Corp’s (IOC.N) natural gas project that could be worth up to $500 million, the South China Morning Post reported on Monday.

* The potential buyer of General Motors Corp’s (GMGMQ.PK) Hummer division will begin formal talks with Chinese regulators on Monday in an effort to win approval for its acquisition, The Wall Street Journal said on Saturday.

* British train and bus operator National Express Group Plc <NEX.L> has rejected an unsolicited takeover bid from rival FirstGroup Plc <FGP.L>, the Financial Times reported on Monday, without citing sources.

June 29. – Disgraced Wall Street financier Bernard Madoff was sentenced to 150 years in prison after committing the biggest Wall Street fraud in history.

June 29. – Bernie Madoff is headed to prison after getting the maximum sentence for his ponzi scheme – 150 years.

June 29. – Bernard Madoff victims speak out after a judge hit the confessed swindler with the maximum sentence allowed — 150 years in prison.

Jun. 29 – American car drivers have paid the same at the pump for the last two weeks and low demand is expected to hold prices down this summer.