Introduction

Square-Off: What Kind of Corporate Tax Is Best?

With the Democratic and Republican Presidential conventions coming up soon, the perennial question of what to do about corporate taxes has predictably entered center stage. Gary Johnson, the Libertarian candidate for president, wants to abolish corporate and personal income taxes, substituting a single consumption tax to pay for all federal government costs. An American Enterprise Institute proposal would link corporate tax liability closely to where shareholders live. Proposals to broaden th ..

Three sizable strategic deals — topped by IBM Corp.’s $4.39-billion agreement to buy business software maker Cognos Inc. — led to a 41-percent rise in North American transactions last week.

Following at about half that value in our roundup of the 10 largest deals were Ralcorp Holdings Inc.’s purchase of Kraft Foods Inc.’s Post cereals business and Celgene Corp.’s agreement with hematology and oncology products maker Pharmion Corp.

In all, 53 mergers or acquisitions worth a total of $16.73 billion were signed in the seven-day period ended Nov. 18, according to data provided to CFO.com by mergermarket. While the survey tallied three private equity deals, only one of them — the $1.94-billion exchange of UK specialty metals company Firth Rixson Ltd. between two PE firms — had a value that was made public.

For the year to date, the 4,072 transactions done have been worth $1.45 trillion, compared to 4,342 deals valued at $1.26 trillion through Nov. 18, 2006.

IBM to buy Cognos for $4.39 billion

Ottawa-based Cognos signed a definitive agreement to be acquired by IBM, adding a premier business intelligence and performance management software company to the Big Blue stable. Armonk, N.Y.-based IBM develops and manufactures information-technology products, including computer systems, software, storage systems, and microelectronics. Directors of both companies approved the merger for $58 a share, a 9.5-percent premium. Before accounting for Cognos’s cash position, the implied equity value of the transaction is about. $4.83 billion. After completion, IBM intends to integrate Cognos as a group within IBM’s Information Management Software division. IBM also will appoint current Cognos President and CEO, Rob Ashe, to lead the group. The transaction is expected to close in next year’s first quarter.
Seller financial advisor: Lehman Brothers
Bidder financial advisor: Citigroup; and Lazard
Seller legal advisor: Bingham McCutchen; Fenwick & West; and Torys
Bidder legal advisor: Cleary Gottlieb Steen & Hamilton, Cravath Swaine & Moore, and Osler Hoskin & Harcourt

Ralcorp Holdings to buy Kraft’s Post cereals business for $2.64 billion

St. Louis-based Ralcorp, the maker, distributor, and marketer of ready-to-eat and hot breakfast cereals, baby food, snacks and cookies, dressings, syrups, jellies, and sauces will issue 30.3 million shares for Kraft’s Post business under terms of the transaction, and provide about $960 million of equivalent cash value. Northfield, Ill.-based Kraft makes branded food and beverage products, including cheese products, cookies and crackers, coffee, salad dressings, packaged dinners, and sauces. The transaction is valued at $55.47 per share. Under the terms of the transaction, Post — consisting of cereal brands such as Honey Bunches of Oats, Pebbles, Shredded Wheat, Selects, Grape Nuts, and Honeycomb — will be transferred into a newly formed company to be immediately merged with a subsidiary of Ralcorp. Kraft will distribute the shares of the new company to its shareholders either in a spin-off or a split-off transaction, at its own discretion, before completion. A spin-off would involve a pro-rata distribution of shares to Kraft shareholders, with a split-off providing Kraft holders the option of exchanging Kraft shares for stock in the new Ralcorp company. When completed, the combined company will be 54-percent owned by former Kraft shareholders and 46-percent owned by former Ralcorp shareholders. The transaction is expected to be tax-free to shareholders of both companies, and will enable Kraft to diversify its resources as part of its growth strategy. Ralcorp is expected to benefit by combining Post brands with its private-label business and infrastructure. Completion is expected in mid-2008.
Celgene to buy Pharmion for $2.55 billion
Summit, N.J.- based biopharmaceutical company Celgene will pay $47 in stock and $25 in cash for each share of Boulder, Colo.-based Pharmion, a premium of 46.1 percent. Before accounting of its cash position of $135 million, the deal is worth $2.68 billion. The acquisition will help Celgene expand into a global market with three different medical therapies. Celgene will finance the cash portion of the transaction with cash on hand. At closing of the transaction, expected by the end of next year’s second quarter, Pharmion shareholders will own approximately 6 percent of Celgene’s outstanding common stock.
Seller financial advisor: Banc of America Securities
Bidder financial advisor: JP Morgan; and Merrill Lynch
Seller legal advisor: Willkie Farr & Gallagher
Bidder legal advisor: Proskauer Rose and Arnold & Porter

Seller financial advisor: Centerview Partners; and Blackstone Group Holdings
Bidder financial advisor: Banc of America Securities
Seller legal advisor: Cravath Swaine & Moore
Bidder legal advisor: Latham & Watkins (Advising Banc of America Securities); and Bryan Cave

Oak Hill Capital Partners LP to buy Firth Rixson Ltd. from Lehman Brothers Private Equity and The Carlyle Group LLC for $1.94 billion

Managers of Sheffield, UK-based Firth Rixson, a manufacturer of highly-engineered forged, cast, and other specialty metal products, agreed to an Oak Hill-based management buyout. Oak Hill is based in Menlo Park, Calif. Selling are New York-based Carlyle and Lehman. The acquisition was led by David Mortimer, Firth Rixson’s CEO, with financing through Lehman Brothers, GE Commercial Finance and Lloyds TSB Corporate Markets. Firth Rixson will continue to supply its engineered products to its aerospace and industrial customers through its 11 manufacturing plants in the U.S. Great Britain Hungary, and China. After Firth Rixson was taken private in February 2003 by Carlyle, Lehman Brothers completed a co-investment alongside Carlyle through an acquisition of a 36 percent interest in the company in September 2006. The present acquisition is expected to be completede in December.
Seller financial advisor: Lehman Brothers (Advising The Carlyle Group LLC)
Bidder financial advisor: Not Available
Seller legal advisor: Latham & Watkins (Advising The Carlyle Group LLC)
Bidder legal advisor: Macfarlanes; and Paul Weiss Rifkind Wharton & Garrison

3M Co. to buy Aearo Corp. from Pacer Holding Co. for $1.2 billion

Saint Paul-based technology company 3M agreed on the purchase of Indianapolis-based Aearo Technologies, a manufacturer and marketer of personal protective equipment and energy absorbing products, from Arkansas City, Ark.-based Pacer. Pacer is a holding company of London-based Permira, a private equity concern. The acquisition is in line with 3M’s strategy to expand its market to involve industrial, military, and construction customers. The transaction will be funded through a combination of cash and other borrowings. 3M does not expect the acquisition to affect its 2007 earnings per share. Aearo has approximately 1,700 employees worldwide, and its annual sales have grown more than 12 percent over the last five years to $508m. The transaction is expected to close in next year’s first quarter.
Seller financial advisor: Goldman Sachs
Bidder financial advisor: Lehman Brothers
Seller legal advisor: Willkie Farr & Gallagher; and Fried Frank Harris Shriver & Jacobson
Bidder legal advisor: Sidley & Austin

Constellation Brands Inc. to buy the U.S. win business of Fortune Brands Inc. for $885 million

Fairport, N.Y.-based Constellation, a producer and distributor of beverage alcohol brands,agreed to acquire the wine business from Deerfield, Ill.-based Fortune, a consumer brands company. The sale includes the Clos du Bois, Geyser Peak, Wild Horse, Buena Vista Carneros and Gary Farrell labels, associated vineyards and assets, and sales organizations. The business acquired had revenues of $214 million, including excise taxes, for 2006. Constellation Brands will finance the acquisition with debt and expects the purchase to add to its 2009 earnings per share. Through the sale, Fortune Brands will realize net proceeds of $840 million after tax, with an after-tax gain of $50 million to $60 million. The transaction is expected to close in the current quarter.
Seller financial advisor: Citigroup
Bidder financial advisor: Credit Suisse
Seller legal advisor: Not Available
Bidder legal advisor: Pillsbury Winthrop Shaw Pittman

Mubadala Development Co. PJSC to buy an 8.8-percent stake in Advanced Micro Devices Inc. for $622 million

Dubai-based investment vehicle Mubadala, wholly owned by the UAE government, acquired 49 million newly issued AMD shares from the Sunnyvale, Calif.-base semiconductor computer hardware group. Mubadala will be reimbursed $14 million, making the total consideration $608 million. The transaction will result in Mubadala acquiring approximately a non-controlling, minority investment, and Mubadala will not receive any board representation as part of the deal. This transaction is not subject to review by the Committee on Foreign Investment in the U.S. AMD will use proceeds to accelerate long-term, customer-focused growth by investing in R&D.
Seller financial advisor: Merrill Lynch
Bidder financial advisor: Lehman Brothers; and Morgan Stanley
Seller legal advisor: Not Available
Bidder legal advisor: Not Available

McCormick & Co. to buy the Lawry’s business of Unilever Group for $605 million

Sparks, Md.-based McCormick, a manufacturer, marketer, and distributor of spices, seasonings, and flavors, agreed to pay cash to London-based Unilever for the Lawry’s business. The acquired operations include Lawry’s and Adolph’s brands, related inventory, and a number of production lines. McCormick will finance the acquisition with cash from operations, committed bank lines, and commercial paper borrowings. The purchase price represents about nine times EBITDA.
Seller financial advisor: Lehman Brothers
Bidder financial advisor: Goldman Sachs
Seller legal advisor: Cravath Swaine & Moore; and Arnold & Porter
Bidder legal advisor: DLA Piper

AltaGas Income Trust to buy a 90.4-percent stake in Taylor NGL Limited Partnership for $635 million

Calgary-based AltaGas is an integrated energy infrastructure and services company, and Taylor, also in Calgary, is a gas extraction and production company. The offer price of $12.05 per share represents a premium of about 24 percent. Under the terms of the agreement, Taylor shareholders have an option of a $12.05-a-share payment in cash or in equity. The offer is subject to a maximum payment of $263.56 million cash and a maximum of 8 million shares, including a limit of 1.9 million exchangeable shares. In addition, AltaGas will assume Taylor’s debt. Prior to the transaction, AltaGas holds a 9.6 percent stake in Taylor. The transaction is expected to close in January 2008.
Seller financial advisor: Peters & Co
Bidder financial advisor: Scotia Capital; and Clarus Securities
Seller legal advisor: Macleod Dixon
Bidder legal advisor: Stikeman Elliot; and Felesky Flynn

Raycom Media Inc. to buy Lincoln Financial Sports, WBTV Inc., WCSC Inc., and WWBT Inc. from Lincoln National Corp. for $583 million

Montgomery, Ala.-based Raycom operates television and radio stations. It is buying the properties in Charlotte, N.C.; Richmond, Va.; and Charleston, S.C. from Philadelphia-based Lincoln National, a financial holding company. Completion of the television and radio properties transaction is expected in the second quarter of 2008, while the sports syndication transaction is expected to close by early December.
Seller financial advisor: Merrill Lynch
Bidder financial advisor: Belmoro Corporate Advisors
Seller legal advisor: Not Available
Bidder legal advisor: Not Available

source: mergermarket

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