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Thursday 24 July 2014

PUNT: Investors finally splashing out

Published 15/02/2013|04:00

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IT'S the second company everyone is familiar with to be involved in a deal worth tens of billions of dollars, and it could be a sign of further improvement in the US economy.

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The news that the investing behemoth Warren Buffet will combine with Mexican private equity firm 3G to buy HJ Heinz in a deal worth as much as $28bn (€20.9bn) is more proof, if it were needed, that there is lots of money waiting to be put to use in major investments.

That deal follows the plan from Michael Dell to take his computer company private in the biggest leveraged buyout since before the financial crisis, while the media giant Liberty Global has bid $15.75bn for Virgin Media.

So where is the money coming from? Much of it is coming from the amount of cheap debt available to blue-chip firms at the moment.

Debt has fuelled takeover booms before. In 2007, the average deal was worth $1.6bn or so, and much of that came from the ease with which companies could raise funds quickly. Those funds, however, dried up during the credit crunch.

Now though, as the finances return, it seems companies are looking to do deals that they have had their eyes on for years, but lacked the means to follow through on.

It's barely the middle of February and already there have been a handful of massive deals. They won't be the last.

Not quite as nice as we thought

IT'S just over a week since the Government emerged triumphant from securing a deal on the much loathed promissory notes.

But it received a bit of a sting yesterday courtesy of stockbrokers Goodbody.

It has estimated that the State will be €10bn better off over the next decade, and not €20bn as the Government claimed.

Goodbody, although accepting that the €20bn figure was correct in gross terms, claimed that the National Treasury Management Agency (NTMA) had overlooked certain aspects of the deal.

"It probably has been overlooked somewhat," economist Dermot O'Leary (pictured) said.

Perhaps it was. Or perhaps the Government was slightly disingenuous when touting the €20bn figure, and failed to spell out the numbers in detail.

Either way, it's clear that the numbers are now being forensically picked over.

To be fair though, Goodbody did say it was the best deal under the circumstances.

No light shed on Bord Gais cash

For once it couldn't be any plainer. In a note to the Irish Stock Exchange, Bord Gais has invited anyone interested in buying its 'energy' unit to pick up the phone.

"Potential buyers are invited to contact RBC Capital Markets," the company said yesterday in a three-sentence market announcement.

The Canadian bank, steeped in the energy sector thanks to the country's huge reserves of oil and other natural resource reserves, is handling the sale of one of Ireland's major state companies.

So the starter gun has finally been fired on 'New Era', and the country's most ambitious privatisation programme since the sale of the former state-owned telecoms company Eircom is finally under way.

However, while we know what's being sold, the planned use of the cash raised remains a bit of a mystery.

Half of any proceeds will be used to cut the national debt – half, that is, after costs and associated debt repayments by the semi-states.

The more interesting half is the cash targeted to go into jobs creation schemes.

That's presumably labour-intensive public infrastructure projects, such as schools and hospitals.

That's exactly the kind of thing that politicians love to announce, raising the intriguing question of why none of the details about what projects will be supported has yet to emerge.

The Punt is not in a position to dispute that.

Irish Independent

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