by Deal Pipeline Staff | Published November 2, 2012 at 5:05 PM
This report is an exclusive compilation of advance intelligence gathered by The Deal Pipeline's editorial staff. Today's highlights include:
• A123 Systems case presages deeper CFIUS participation in bankruptcy proceedings
• Innospec reiterates interest in spoiler bid for TPC • Potash Corp. makes poorly timed approach to ICL Israel Chemicals
• Chesapeake adds to the energy asset inventory
• Credit Suisse raises $420M Mexico investment fund
• Highlights from Friday's First Take: Netflix, Southcross Energy, Eloqua
The full report follows.
A123 Systems case presages deeper CFIUS participation in bankruptcy proceedings
By asking a government national security panel to investigate a Chinese company's plan to provide $50 million in debtor-in-possession financing to bankrupt battery maker A123 Corp., Republican Senators Chuck Grassley of Iowa, and John Thune of South Dakota have highlighted what is likely to become a more frequent obligation of the Treasury Department-led committee charged with review purchases of U.S. assets by foreign buyers. The lawmakers on Nov. 1 sent a letter to Treasury Secretary Timothy Geithner asking him to direct the Committee on Foreign Investment in the U.S. to examine reports that China-based Wanxiang Group Corp. intends to provide DIP financing to lithium-ion battery company A123, which has received approximately $130 million of a $249 million federal stimulus grant from the Department of Energy as well as Department of Defense contracts. One CFIUS expert noted that even amid a spate of unfavorable CFIUS rulings regarding would-be Chinese buyers of U.S. assets, bankrupt companies offer an enticing target for slaking China's appetite for investments here and will draw increasing attention of U.S. regulators. "More and more bankruptcy courts will have to deal with CFIUS issues," said the attorney, who asked not to be named. "Investment in bankrupt companies fits with the classic Chinese investment strategy -- there are companies with good technology and the Chinese zone in on them."
Innospec reiterates interest in spoiler bid for TPC
Innospec Inc. remains committed to making a bid for TPC Group Inc. On its earnings call Thursday, Innospec said its due diligence to date on TPC reinforces its interest and views on value and the suitor continues to devote time and effort to the bidding process. TPC manufactures chemical products, such as butadiene, that have applications in synthetic rubber, fuels, lubricant additives and plastics. The company has agreed to a $630 million merger with First Reserve Corp. and SK Capital Partners priced at $40 per share. That deal has been criticized on value by 7% TPC shareholder Sandell Asset Management Corp. Innospec, a chemicals enterprise based in Littleton, Colo., has a spoiler bid offering a range of $44 to $46 per share. Blackstone Group LP is an equity partner in that offer. TPC shares traded Friday for $45.44 roughly 55 cents beneath the top end of Innospec's stated interest. Butadiene pricing is typically volatile and TPC said that backing out the effects of that pricing puts its adjusted Ebitda for the quarter at $39 million compared to $28 million for the same period last year. TPC declined to comment on its sale process during its earnings call. The TPC board determined in early October that the Innospec-Blackstone bid could lead to a superior proposal and authorized negotiations. If TPC changes its recommendation of the First Reserve deal, First Reserve and SK Capital would have a three-day period to alter their offer.
Potash Corp. makes poorly timed approach to ICL Israel Chemicals
The Israeli government has blocked a $16 billion bid by Canadian fertilizer giant Potash Corp. of Saskatchewan Inc. to acquire rival ICL Israel Chemicals Ltd., hinting a takeover would not be in the national interest. "The Israeli government, which holds a golden share in Israel Chemicals, will not allow any deal that endangers or hurts the economic and environmental interests of the state of Israel and its citizens," the Ministry of Finance said in a statement. The announcement came just one day after Israel Chemicals parent, Israel Corp. conceded that Potash Corp. had been in touch with Israeli premier Benyamin Netanyahu about a possible acquisition of its separately listed subsidiary. Israel Corp. owns 52.3% of ICL and Potash holds 13.84%, according to the ICL website, while the remainder is held by institutions and the general public and freely traded on the Tel Aviv Stock Exchange. Control of the Israeli company would give Potash about 25 per cent of global potash production capacity, making it the biggest producer and boosting sales to China and India. But Potash Corp., itself the target of a controversial and ultimately failed takeover bid by BHP Billiton plc two years ago, may have chosen a politically inopportune moment to make a pitch for Israel Chemicals. Israel faces general elections in January, and reports said a foreign takeover of one of the country's best known resources companies would be a difficult sell for any government.
Chesapeake adds to the energy asset inventory
Asset sales have become the talk of the energy industry, and beleaguered Chesapeake Energy Corp. is offering the latest evidence. After announcing a $2 billion net loss in the third quarter on write-downs of its natural gas assets yesterday, its biggest in three years, the oil and gas explorer said it is selling more assets. The company it is considering a sale of Eagle Ford leasehold north of its core play that produces 10,000 to 11,000 barrels of oil equivalent per day, hiring Jefferies & Co. to advise it. Simmons & Co. International wrote in a note Friday that Chesapeake isn't the only oil and gas company selling assets. The firm said a growing number of international oil companies and recently disintegrated large cap exploration and production companies have historically above average divestiture initiatives underway, citing BG Group, BP plc, ConocoPhillips Co., Hess Corp., Marathon Oil Corp., Murphy Oil Corp., Royal Dutch Shell plc and Total SA.
The reason for the purge? Quite simply, they need the money. "Funding capital spending programs and maintaining dividend streams, even in a world of triple-digit oil prices, requires capital," the firm said, "and surplus cash flow generation isn't exactly generous as the industry is essentially reinvesting everything back into the business after meeting its dividend obligations." Doesn't Chesapeake know it.
Credit Suisse raises $420M Mexico investment fund
Credit Suisse raised about $420 million in Mexican pesos for its Credit Suisse Mexico Credit Opportunities Trust, the bank said Thursday, Nov. 1. The vehicle is set up as a closed-end structured credit trust known as a development capital certificate fund, or CKD, which allows Mexican pension funds to invest in private equity, infrastructure and real estate funds. Credit Suisse said it will seek to capture opportunities presented by structural inefficiencies in the Mexican credit market through investments in a diversified portfolio of alternative assets with debt-like characteristics. The trust will be managed by a team based in Mexico and New York led by Andres Borrego, who was previously in the bank's Emerging Markets Group. He will be joined by Manuel Ramos, formerly head risk manager and trader for the LatAm Financing Group, also in the investment banking division.
Highlights from Friday's First Take: Netflix, Southcross Energy, Eloqua
THE DIFFICULTY OF PAIRING NETFLIX WITH MICROSOFT: From Chris Nolter: If Netflix Inc. follows the advice of shareholder Carl Icahn and pursues a sale, there is a broad array of potential suitors. Richard Greenfield of BTIG LLC presented a list in a Friday report that examined the "Big Four" of Amazon Inc., Google Inc., Microsoft Corp. and Apple Inc., but also looked at a broader list including Comcast Corp., Time Warner Inc., Dish Network Corp., AT&T Inc. and others. For most candidates, there is a catch arising from Netflix's subscription and delivery models. Microsoft, of course, drew attention after Reed Hastings resigned from the software company's board. Greenfield suggested that Microsoft could find Netflix attractive as a way of luring customers to its new devices. "However," hes suggested, "we suspect consumers would simply hate Microsoft, rather than switch to their devices to get Netflix."
CHARLESBANK IN LINE FOR DIVIDEND AFTER SOUTHCROSS ENERGY IPO: Southcross Energy Partners LP priced its initial public offering at $20 per unit late Thursday, the mid-point of its hoped-for $19 to $21 range. It's expected to open on the New York Stock Exchange Friday under the symbol SXE. On Oct. 22 the Dallas-based midstream company said it planned to sell 9 million units for $19 to $21 apiece and would use $171 million to $189 million in gross proceeds to trim debt and pay a $38.5 million distribution to its general partner, which Boston private equity shop Charlesbank Capital Partners LLC controls. Charlesbank created Southcross in 2009 to buy natural gas transportation, gathering and processing assets in South Texas for $220 million. According to the IPO prospectus, it and other backers paid $176 million, an average of $11.05 a unit, for 15.93 million common, subordinated and general partners units, none of which they will sell in the offering. Post-IPO the backers will own 64% of Southcross' units and the public 36%. The company posted $226.3 million in revenue in this year's first half, down from $247.5 million a year earlier, while adjusted Ebitda rose 51% to $19 million. Underwriters led by Citigroup Global Markets, Wells Fargo Securities, Barclays Capital and JPMorgan Securities would have a 30-day option to purchase up to an additional 1.35 million common units to cover overallotments. RBC Capital Markets, Raymond James, Baird, Stifel Nicolaus Weisel and SunTrust Robinson Humphrey are co-managers for the offering. William Finnegan and Ryan Maierson at Latham & Watkins LLP are advising Southcross and Douglass Rayburn and Joshua Davidson at Baker Botts LLP are assisting the underwriters.
ELOQUA FILES FOR SECONDARY OFFERING TO RAISE $155M: Software company Eloqua Inc. [Nasdaq: ELOQ] filed for a follow-on offering late Thursday, to sell 6 million shares. At the proposed top offering price of $22.40 per share, it would raise up to $155 million for the company's private investment owners and others. J.P. Morgan and Deutsche Bank are joint underwriters; JMP Securities, Needham & Co. and Pacific Securities are co-managers. Vienna, Va.-based Eloqua, which specializes in software that analyzes revenue is backed by a private funds consortium of JMI Equity, Bay Partners and Bessemer Venture Partners that collectively own 58% of the company. The company's IPO in August priced at $11.50 per share, at the high point of the expected range and was one of a number of successful summer tech IPOs including Palo Alto Networks Inc. and Kayak Software Corp.