Maxim and Analog Devices agree $21bn deal

BY Richard Summerfield

Analog Devices Inc. (ADI) has agreed to acquire rival Maxim Integrated Products Inc. for $20.9bn in an all stock deal.

The deal values Maxim at $78.43 per share, a premium of about 22 percent to its closing price last Friday.

The transaction is expected to close in the summer of 2021, subject to the satisfaction of customary closing conditions, including receipt of US and certain non-US regulatory approvals, and approval by stockholders of both companies.

The newly combined company will have a market value of $68bn and form a larger rival to industry leader Texas Instruments. Maxim shareholders will own approximately 31 percent of the combined entity.

“Today’s exciting announcement with Maxim is the next step in ADI’s vision to bridge the physical and digital worlds,” said Vincent Roche, president and chief executive of ADI. “ADI and Maxim share a passion for solving our customers’ most complex problems, and with the increased breadth and depth of our combined technology and talent, we will be able to develop more complete, cutting-edge solutions.

“Maxim is a respected signal processing and power management franchise with a proven technology portfolio and impressive history of empowering design innovation,” he continued. “Together, we are well-positioned to deliver the next wave of semiconductor growth, while engineering a healthier, safer and more sustainable future for all.”

“For over three decades, we have based Maxim on one simple premise – to continually innovate and develop high-performance semiconductor products that empower our customers to invent,” said Tunç Doluca, president and chief executive of Maxim. “I am excited for this next chapter as we continue to push the boundaries of what’s possible, together with ADI.”

He added: “Both companies have strong engineering and technology know-how and innovative cultures. Working together, we will create a stronger leader, delivering outstanding benefits to our customers, employees and shareholders.”

The deal is the largest technology merger announced in 2020 to date and follows a broader trend of consolidation in the semiconductor market. Previous deals in the space include Infineon Technology AG’s $9.4bn acquisition of Cypress Semiconductor Corp. in June 2019 and NXP Semiconductors NV’s $1.76bn acquisition of Marvell Technology Group Ltd.’s wireless connectivity business unit in May 2019.

News: Chipmaker Analog Devices to buy rival Maxim for about $21 billion

Nearly half of European banks hold a negative profit outlook, reveals new report

BY Fraser Tennant

Europe’s financial institutions are facing testing conditions as a result of the coronavirus (COVID-19) pandemic, with 46 percent of banks now carrying negative outlooks – a 14 percent rise year-over-year (YOY) – according to a new report by S&P Global Ratings.

In ‘S&P Credit Conditions Europe – Curve Flattens Recovery Unlocks’, S&P also notes that having been forced to set aside higher provisions to account for the pandemic, a quarter of the top 35 European banks reported a loss for the first quarter, with the remainder seeing pre-tax profit decline by a third on average YOY.

Furthermore, states the S&P report, the outlook distribution is uneven by country, with some having most banks with negative outlooks and others having just a few. Additionally, weaker asset quality and revenue pressure will exacerbate many banks’ pre-existing profitability challenges.

“Despite this, the number of rating downgrades has been modest, with most banks benefiting from comfortable capital and liquidity buffers, and unprecedented government support for households helping contain damage,” said Paul Watters, senior director, corporates at S&P Global Ratings. “As such, the economic shock is expected to be shorter-lived than a standard recession, however the ultimate extent of credit losses will depend on the speed and magnitude of the rebound, with a softer, longer upturn expected to weigh heavily on bank ratings.”

Among the key developments highlighted in the report are: (i) banks’ lending to companies in particular picked up strongly in the eurozone and the UK in March and April, confirming that banks are playing their role as providers of the financing that companies need to cope with liquidity shortages; (ii) the low cost of credit demonstrates the at least initial effectiveness of central banks’ intervention; (iii) consumers repaid some unsecured debt during the lockdown, but this trend is likely to start reversing; and (iv) access to the European Central Bank (ECB) funding facility has surged.

That said, banks may be unwilling to make full use of the flexibility on offer  to operate temporarily with lower capital levels, according to Mr Watters. “They know that at some point they will have to rebuild these capital buffers,” he explained. “Future provisioning needs are particularly uncertain, and banks may be mindful of investors’ perceptions and ultimately their cost of capital.”

Mr Watters concluded: “The ultimate size of credit losses depends on the speed and magnitude of the rebound, becoming evident only once payment holiday schemes wind down. All in all, bank provisioning will likely peak in the second or third quarter but could persist at an elevated level well beyond this.”

Report: S&P Credit Conditions Europe – Curve Flattens Recovery Unlocks

M&A predicted to rise after post-COVID-19 crash, reveals new report

BY Fraser Tennant

Mergers and acquisitions (M&A) are predicted to rise over the next few years, as banks seek to reduce costs in the short term, refocus core business for the long term and transform operating models, according to new analysis by Kearney.

In ‘Life after COVID-19: building a new banking landscape through M&A’, Kearney predicts that, post-crisis,  banks will likely find M&A as the most efficient means to radically reshape their business portfolio – for both buyers and sellers – to achieve the required amount of cost reduction and transformation to stay afloat.

The analysis also reveals that the market is likely to see changes to operating models, with banks refocusing their core business offering. Some may seek to divest non-essential assets where they are not able to maintain competitive edge in the mid-term, while others might opt to source new capabilities, such as analytics and artificial intelligence  – further bolstering and scaling up their core business.

“Retail banks will be feeling the effects of this current crisis for the next two to three years, so never has there been a better opportunity for banks to reshape their cost base and revise their long-term outlook,” said Simon Kent, partner and global head of financial services at Kearney. “Analysis of previous market crashes indicate that change will be needed for most European retail banks, requiring bold decisions and quick action. After the 2008 crash, domestic M&A was a route to success, with 80 percent of banks outperforming their peers after such a transaction.”

In addition to a rise in M&A, Kearney also predict a rise in strategic partnerships, particularly across smaller banks and FinTechs, as they look to gain reach quickly and efficiently. Positive collaborations with these smaller enterprises, notes Kearney, will also allow larger legacy banks to leverage capabilities off others, either through back-end operations, technology platforms, or shared supplier networks.

“For a successful merger, banks will need to ensure strong due diligence and realistic expectations – setting out a good plan for integrating both entities,” said Mr Kent. “They will need to take extra care in communication to all stakeholders, such as clients, employees and investors ensuring cultures are aligned and employee motivation and retention remains strong.”

Mr Kent concluded: “While the COVID crisis in Europe has subsided, it is far from over, but the resulting surge in M&A activity will present a multitude of opportunities for the years ahead creating a better and strong market in the long run.”

Report: Life after COVID-19: building a new banking landscape through M&A

Dominion Energy to sell gas assets for $4bn

BY Richard Summerfield

Berkshire Hathaway’s energy unit has agreed to acquire Dominion Energy Inc’s natural gas transmission and storage network for $4bn.

The deal gives Berkshire Hathaway Energy, a unit of the parent company Berkshire Hathaway, that already runs a $100bn energy portfolio, ownership of almost 8000 miles of natural gas transmission lines, and transport capacity of almost 21 billion cubic feet a day.

The deal, which is subject to regulatory approvals, is expected to close in the fourth quarter of 2020. The Berkshire unit will also assume $5.7bn of debt, giving the transaction a $9.7bn enterprise value.

“Today’s announcement further reflects Dominion Energy’s focus on its premier state-regulated, sustainability-focused utilities that operate in some of the most attractive regions in the country,” said Thomas F. Farrell, II, chairman, president and chief executive of Dominion Energy.

“Over the past several years the company has taken a series of steps – including mergers with Questar Corporation and SCANA Corporation, and the divestiture of Blue Racer Midstream and merchant generation assets – to increase materially the state-regulated nature of our profile, enhance the customer experience, strengthen our balance sheet, and improve transparency and predictability,” he added. “Our mission over that period has remained the same: providing round-the-clock affordable and sustainable energy, world-class customer service, and meaningful community engagement.”

“I admire Tom Farrell for his exceptional leadership across the energy industry as well as within Dominion Energy,” said Warren Buffett, chairman of Berkshire Hathaway. “We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”

The acquisition is Berkshire’s biggest since 2015, yet it is small by the company’s usual standards. Berkshire Hathaway had $137bn in cash at the end of the first quarter 2020. Mr Buffett has been criticised by some for missing the stock market rally from the March lows.

Dominion and Duke Energy Inc separately announced on Sunday they would be abandoning their $8bn Atlantic Coast Pipeline, running under the Appalachian Trail and through West Virginia, Virginia and North Carolina.

News: Buffett's Berkshire to buy Dominion Energy gas assets for $4 billion

BP sells petrochemical business in $5bn deal

BY Richard Summerfield

BP has agreed to sell its petrochemicals business for $5bn to INEOS in a deal that will boost the oil company’s under-pressure balance sheet.

Under the terms of the deal, INEOS will pay BP a deposit of $400m, followed by $3.6bn when the deal completes and another $1bn in three instalments by June 2021.

The sale will aid BP’s shift in direction. The company announced in February that it planned to sharply cut carbon emissions by 2050, and it intends to announce further plans for this change in September.

The petrochemical business includes stakes in manufacturing plants in the UK, the US, Trinidad and Tobago, Belgium, China, Malaysia and Indonesia, however the petrochemical plants attached to BP’s oil refineries in Gelsenkirchen and Mulheim in Germany will not be sold.

“This is another significant step as we steadily work to reinvent BP,” said Bernard Looney, chief executive of BP, in a statement. “These businesses are leaders in their sectors, with world-class technologies, plants and people. In recent years they have improved performance to produce highly competitive returns and now have the potential for growth and expansion into the circular economy. I am very grateful to our petrochemicals team for what they have achieved over the years and their commitment to BP.”

He continued: “I recognise this decision will come as a surprise and we will do our best to minimise uncertainty. I am confident however that the businesses will thrive as part of INEOS, a global leader in petrochemicals.”

“We are delighted to acquire these top-class businesses from BP, extending the INEOS position in global petrochemicals and providing great scope for expansion and integration with our existing business,” said Sir Jim Ratcliffe, founder and chairman of INEOS. “This acquisition is a logical development of our existing petrochemicals business extending our interest in acetyls and adding a world leading aromatics business supporting the global polyester industry.”

The COVID-19 pandemic has had a significant impact on the finances of oil producers around the world, accelerating BP’s need to cut costs and restructure. BP said the crisis would take as much as £14bn off the value of its assets and is cutting 10,000 jobs worldwide.

News: BP sells petchems arm for $5 billion in energy transition revamp