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Morning After Blues

Dealing with the credit-market turmoil
Janet Kersnar, CFO Europe Magazine
September 1, 2007

A severe case of indigestion is how Ken Hanna, CFO of Cadbury Schweppes, describes what's been going on in the credit markets. With so much debt clogging up the system, the market is "virtually closed," he said when announcing Cadbury's decision last month to postpone the sale of its US soft drinks business to private equity.

While it's now clear after the summer of anxiety that the market turmoil is affecting banks most of all, CFOs such as Hanna are feeling the knock-on effects and are having to put buying and selling plans on hold.

But what about the corporate deals that are going ahead, asks "Premiums Without Peril." The watchword will be restraint — something that hasn't been apparent in the recently over-stimulated M&A market. As deal-making enters a new era of caution and the cost of capital rises, now is a good time for CFOs to re-examine the metrics they've been using to value targets in order to avoid the sky-high premiums seen in a number of deals this year.

"Too Big to Ignore" explores a less obvious factor affecting corporate finance decisions — credit derivatives. Though these instruments are now a $30 trillion market, they've largely gone unnoticed by CFOs. That is changing. A small but growing number of finance chiefs have first-hand experience of how derivatives can have a big impact on their corporate finance strategies, not to mention investors' appetite for corporate debt.

Whether the credit crunch will develop into a broader meltdown remains to be seen. But if, in the worst case, private equity deals come to a screeching halt, "Equity Options" shows why some CFOs will be feeling glum on a personal level. After all, the new careers that private equity houses have been offering CFOs who tire of listed-company life will also disappear. Indeed, there's no two ways about it — all this is what CFOs know as the morning after blues.