Dealmaking Hits Bump as Market Slump Prompts Lowest Takeovers in 8 Months

Concerns about a declining global stock market and slowing economic growth are taking a toll on dealmaking, with takeovers in June tumbling to the lowest level in eight months.

The total value of takeovers announced so far this month fell 22 percent from May to about $178 billion, leaving second- quarter volume little changed from the previous three months, according to data compiled by Bloomberg. At least two banks went for a week or more without a new mandate starting at the end of May, said senior advisers who declined to be identified. Business has been sluggish since then, they said.

The global recovery that spurred companies to pursue takeovers earlier in the quarter stumbled in June with Greece seeking to avoid a default and the U.S. Federal Reserve lowering growth forecasts. That has led to a dip in stock markets worldwide and may be temporarily overshadowing companies’ plans to expand their businesses and spend stockpiled cash.

“The market has taken a bit of a breather,” said Jack MacDonald, co-head of Americas M&A at Bank of America Corp. in Palo Alto, California. “Given economic headwinds and market volatility, CEOs seem to be taking a brief pause before pulling the trigger on transformational transactions.”

Fewer Purchases

U.S. central bankers said the economy will expand as much as 2.9 percent this year, down from a maximum forecast of 3.3 percent in April. Gross domestic product slowed to 1.9 percent in the first quarter from 3.1 percent in the previous period, according to Commerce Department figures released June 24.

Out of the 20 largest acquisitions in the second quarter, four were announced in June, the data show. Capital One Financial Corp. agreed to purchase online bank ING Direct USA for $9.1 billion on June 16, and gas distributor Southern Union Co. (SUG) received competing takeover bids of more than $4 billion from Williams Cos. and Energy Transfer Equity LP this month. Carrefour SA said yesterday it’s considering a proposal to merge its Brazilian assets with a local retailer.

Other deals were scuttled during the period. Smithfield Foods Inc. (SFD) this month halted a $700 million purchase of a 50 percent stake in Spain’s Campofrio Food Group SA, citing weakness in Europe and in Smithfield’s own share price. The stock has dropped more than 7 percent in the past two months.

The MSCI World (MXWO) Index has declined similarly after the benchmark hit an almost three-year high in May. The index climbed 1.5 percent to 1,315.38 at 4:30 p.m. New York time.

Deals Derailed

At the same time, corporate debt sales are falling globally, while yields relative to government bonds widen, partly on investor concern that Greece won’t be able to meet debt obligations. High-yield loans used to finance buyouts are headed for their first monthly loss of the year, led by Europe, according to Credit Suisse Group AG’s Leveraged Loan Index.

“Macro factors, which have caused volatility in the stock markets and the recent pullback in leveraged finance, can derail certain deals,” said Ehren Stenzler, co-head of U.S. M&A at UBS AG in New York. “We tend to think it is temporary, but those factors could cause companies to push the pause button for a bit on certain deals.”

Retailer Big Lots Inc. (BIG) abandoned plans for a sale in May after bids from leveraged buyout firms came in lower than anticipated, according to a person with knowledge of the matter.

In an auction for Gen-Probe Inc. (GPRO), a maker of disease- testing diagnostics, bidders Life Technologies Corp. and Thermo Fisher Scientific Inc. dropped out of the process when the asking price neared $80 a share, another person said. Novartis AG (NOVN) may still be interested, the person said. Shares of San Diego-based Gen-Probe have since fallen to $68.41.

Price Concern

Henkel AG Chief Executive Officer Kasper Rorsted said in an interview this week that deal price has been a roadblock for companies looking to make acquisitions, rather than the broader macroeconomic environment. He said he sees attractive assets in the U.S. and Europe.

Executives are getting more accustomed to the ups and downs of the market, according to Henrik Aslaksen, global head of M&A at Deutsche Bank AG in London.

“Volatility in today’s world does not stop a healthy company making important strategic decisions and acting on them,” Aslaksen said. “The cost of capital remains relatively low on a historic basis, and corporates have strong balance sheets.”

‘Still Rallying’

The top 1,000 non-financial companies are still sitting on more than $3.4 trillion in cash, and shareholders are rewarding strategic acquisitions by pushing up acquirers’ stock prices, Bloomberg data show. Apparel maker VF Corp. surged 10 percent on June 13 when it announced a deal to buy Timberland Co. for about $1.8 billion.

As global stock markets gained in April, Johnson & Johnson agreed to pay $21.3 billion for medical device maker Synthes Inc. and Exelon Corp. (EXC), the largest operator of U.S. nuclear power plants, said it would buy Constellation Energy Group Inc. (CEG) for about $7.9 billion in stock.

“Investors are still rallying around a deal that looks to grow the top line,” said Michael Boublik, chairman of M&A, Americas at Morgan Stanley.

The market for takeovers in North America held up better than other regions in June, with announced deals rising 14 percent from May to more than $82 billion. The dollar volume of transactions fell by more than 60 percent in Western Europe and more than 40 percent in Asia Pacific in that same period.

“We still see much greater confidence in the U.S., and we are having many more conversations with U.S. buyers of European companies,” said Giuseppe Monarchi, head of Europe, Middle East and Africa M&A for Credit Suisse Group AG. “But there is less visibility on large transactions than we had several weeks ago, partly because of Greece.”

Active Buyers

Hernan Cristerna, head of M&A for Europe, Middle East and Africa, at JPMorgan Chase & Co. in London, also said that U.S. acquirers have been active in Europe, while European companies are targeting growth in emerging markets.

“Companies are not just looking for cost synergies, but real growth,” he said.

Worldwide, announced deals in the second quarter rose to almost $620 billion, or less than 1 percent from the first three months of the year, according to data through June 28.

Year to date, JPMorgan is leading financial advisers in global M&A transactions at $269.2 billion in deal volume, just ahead of Morgan Stanley and Goldman Sachs Group Inc., according to Bloomberg data. Rounding out the top five are Credit Suisse and Citigroup Inc.www.bloomberg.com

New Zealand Dollar Heads for Weekly Loss on Greece, Slowing U.S. Economy

New Zealand’s dollar headed for its biggest weekly decline in six weeks as speculation that Greece’s debt crisis will worsen damped demand for higher-yielding assets.

Australia’s currency was 0.9 percent from a three-week low against the greenback before a report that economists said will show U.S. consumer confidence fell in June as the world’s largest economy slows. A default by Greece is “almost certain” and could help drive theU.S. economy into recession, according to former Federal Reserve chairman Alan Greenspan.

“Greece’s debt issue and a slowdown in the U.S. economy remain the main focus of the markets,” said Kengo Suzuki, manager of the foreign bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank. “Reduced risk-appetite is weighing on the Aussie and kiwi.”

New Zealand’s dollar traded at 80.63 U.S. cents as of 11:49 a.m. in Sydney from 80.48 cents in New York yesterday, having dropped 1.8 percent this week. The so-called kiwi was at 65.05 yen from 64.89 yen. Australia’s dollar bought $1.0557 from $1.0558 after sliding to $1.0478 yesterday, the lowest level since May 25. The currency was at 85.13 yen from 85.12 yen.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet today in Berlin to discuss a rescue package for Greece. EU finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid.

‘Extremely Unlikely’

“The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, said in an interview yesterday with Charlie Rose in New York. “The chances of Greece not defaulting are very small.”

European Central Bank President Jean-Claude Trichet reiterated his opposition to any Greek bailout that forces private investors to participate, according to a transcript published by the ECB of an interview with The Times newspaper conducted June 13.

“The twin concern of markets at present was again at the fore -- Greece and the poor run of U.S. data,” Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington, wrote in a note to clients. “Safe-haven currencies the Japanese yen and the Swiss franc were the top performers in the currency market, with the New Zealand dollar one of the worst-performing currencies.”

The Thomson Reuters/University of Michigan index of U.S. consumer sentiment slipped to 74 this month from 74.3 in May, according to economists surveyed before today’s report.

The two South Pacific currencies snapped a two-day decline as Asian shares halted losses.

The MSCI Asia Pacific Index of shares was little changed after sliding 2.3 percent yesterday. www.bloomberg.com

U.K. Pound Climbs Versus Dollar as Equities Rise on Greek Rollover Plan

The pound rose against the dollar and the yen as stocks advanced after European Central Bank President Jean-Claude Trichet signaled his support for Greek government bond rollovers.

The U.K. currency gained versus the dollar for the third day in four. Data showed U.K. home prices rose 0.1 percent in May, following a 1.4 percent decline the previous month. Ten- year gilts fell as the U.K. Debt Management Office sold 1 billion pounds ($1.64 billion) of inflation-linked bonds due in March 2040. The FTSE 100 Index advanced 0.2 percent and futures on the Standard & Poor’s 500 Index increased 0.5 percent. The pound weakened for a sixth day against the euro.

“The market is taking its cue” from stock-market futures, said Steve Barrow, head of research for Group-of-10 currencies at Standard Bank Plc in London. “Sterling is looking a little bit firmer, but that data is still looking iffy.”

The pound strengthened 0.5 percent to $1.6430 as of 12:09 p.m. in London. It climbed 0.6 percent to 131.76 yen, and weakened 0.2 percent to 89.27 pence per euro.

Sterling touched its weakest level on record in Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-market currencies, as Prime Minister David Cameron’s coalition government pushes through the biggest spending cuts since World War II.

The Bank of England has kept its main interest rate unchanged at a record-low 0.5 percent since March 2009 and bought 200 billion pounds of bonds under a so-called quantitative easing program that ended in February 2010. Policy makers will announce their latest decision on June 9.

Gilt Yields, Offering

The 10-year gilt yield rose two basis points to 3.29 percent. It reached 3.22 percent on June 3, the lowest since November 30. The 3.75 percent security maturing in September 2020 fell 0.17, or 1.70 pounds per 1,000-pound face amount, to 103.635. Two-year yields were little changed at 0.87 percent.

Investors bid for 2.3 times the amount of index-linked gilts on sale, the DMO said. The bonds were allotted at a real yield of 0.587 percent.

Gilts have handed investors 2.5 percent this year after returning 7.6 percent last year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

They advanced amid optimism the government would control Britain’s record deficit after the coalition between Cameron’s Conservatives and Nick Clegg’s Liberal Democrats replaced the Labour party after last year’s election.

Gilt futures may rise as high as 121.91 should the price of the September 2011 contract breach a so-called resistance level at 121.03, UBS AG said, citing trading patterns.

“Gilts are bullish while they trade above the 119.87 mid- point,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote in an e-mailed report today.

The long gilt future contract expiring in September slipped 0.1 percent to 120.39. It reached 121.03 on June 3, according to data compiled by Bloomberg.

“A break above Friday’s high at 121.03 will be the next bullish trigger, opening the door to our objective marked by the October extreme at 121.91,” Adcock wrote. www.bloomberg.com