Global Merger Update

Telefonica and O2; Barrick Gold and Placer Dome; Novartis and Chiron; Lockheed Martin et. al. and Computer Sciences; King Win Laurel and Exxon Mobil.
Stephen TaubNovember 1, 2005

By far the largest proposal was made overseas: Spain’s Telefonica S.A. offered to shell out roughly $31.5 billion for O2 Plc., Britain’s largest mobile-phone company, according to Bloomberg. The proposed deal would depart from Telefonica’s recent strategy of scooping up telecoms in Latin America, which many observers believe will offer faster growth than European markets. Since the 1990s, the company has spent more than $50 billion on acquisitions in Latin America, according to the wire service.

Toronto-based Barrick Gold Corp. made a $9.2 billion hostile offer to Vancouver-based Placer Dome Inc., which would create the world’s largest gold producer, according to The Wall Street Journal. The newspaper speculated that Barrick is betting on continued high gold prices for quite a while.

Swiss drug giant Novartis announced that it has agreed to buy the 58 percent of U.S. vaccine maker Chiron that it doesn’t already own for $5.1 billion. “Our plan is to turn around the Chiron vaccines business, which will require investments in R&D and manufacturing to increase quality and capacity, so that we can better meet customer demand and address public health needs,” said Novartis chairman and chief executive officer Daniel Vasella, in a statement.

Lockheed Martin Corp. and three private-equity firms are mulling an offer for outsourcing giant Computer Sciences Corp., according to the Journal. The paper speculated that the aerospace giant and defense contractor would be willing to pay around $12 billion for CSC’s government-contract business. The three buyout firms — Texas Pacific Group, Warburg Pincus, and Blackstone Group — are interested in CSC’s less-valuable corporate-customer business, the paper noted.

Since private-equity firms like to use a lot of debt when they buy a company, however, CSC might find that its credit rating would be cut, possibly driving up its cost of capital. This would put the capital-intensive company at a competitive disadvantage to rivals IBM Corp. and Hewlett-Packard Co., the paper speculated.

Finally, in a spectacular-sounding but lightly regarded proposal, a Chinese company with a New Zealand business address has offered to pay $450 billion to buy Exxon Mobil Corp., the world’s largest publicly traded oil company, according to The Los Angeles Times.

King Win Laurel Ltd. reportedly stated that its offer, disclosed through a filing with the Securities and Exchange Commission, is subject to financing. An Exxon spokesman told the Times: “We do not believe that King Win Laurel Ltd. is financially capable of making such a tender offer. If we receive such a communication, we will respond appropriately.”

The newspaper noted that King Win Laurel has made two prior offers that did not go very far: one for Restaurant Brands New Zealand Ltd., that country’s KFC, Pizza Hut, and Starbucks operator, and another for Telstra, Australia’s largest telephone company.