Cell tower consolidation

US cell phone tower owner SBA Communications announced it would acquire US rival AAT Communications for around $1 billion. The deal, according to sources, will extend SBA's coverage to 47 of the 48 continental United States, bringing together SBA's east coast holdings and AAT's Western US ones.

The cell tower industry is, for the most part, separate from the actual wireless telephone providers. SBA has as clients Cingular Wireless (AT&T) and Sprint-Nextel, while its competitors serve those companies and/or Verizon or T-Mobile or the handful of smaller companies. SBA is now #4 in the industry, competing against American Tower Corp., Crown Castle International, and Global Signal. Those companies were also in the running to buy AAT.

Curiously enough, the move marks a dramatic recovery by SBA, which sold around 800 towers located in the Western U.S. to AAT a few years ago in a $200 million deal. SBA will now have some 5,300 towers.

Like the fiber-optic cable sector, the US cell tower industry overbuilt in the late 1990s and a minor crash followed, in which many companies sold off assets, as SBA did, to keep afloat. Since that time, the industry has made a comeback. It is now highly consolidated, with only a few firms owning and/or managing the towers. This makes sense, as only the big can serve the big, and the number of cell phone providers has been drastically decreased over the past five years.

This is not the first major acquisition in this industry. American Tower in 2005 merged with rival SpectraSite in $3 billion deal. The company has around 22,000 towers in the US, Mexico, and Brazil.

Global Signal owns 3,000 towers and manages over 7,000 more for small third-parties, in the US, Canada, and the UK. In 2005, it signed a lease to manage with an option to buy 6,700 towers owned by Sprint Corporation (before the Nextel merger). The 10-year deal was for $1.2 billion. The company was founded by equity group Pinnacle Holdings in 1995, which still holds a serous minority stock position.

Crown Castle owns or manages 12,000 towers to the major phone companies in the US, Australia, and Puerto Rico. In 2004, the company sold its UK broadcast holdings to National Grid for $2 billion.

The end of antitrust

In giving an unconditional green light to Whirlpool's takeover of Maytag, US antitrust authorities have basically said that no deal, whatever the market share combined, will henceforth be forced to make even minor concessions. The $1.7 billion deal between the two appliances makers will create not only the biggest company in its segment worldwide, it will also control around 70% of the US market for washer and dryers.

The merger has been under review for eight months, and most observers believed that at least some moves to fostering competition would be demanded of the new company, such as spinning off minor brands. 

In discussing teh decision,  a Financial Times article ("Whirlpool takeover of Maytag approved,} 3/30/06) states:

It also put a spotlight on Thomas Barnett, the newly confirmed head of the antitrust division, who has gained a reputation for having approved deals during his short tenure against the recommendation of his staff. Mr Barnett said the deal would not "substantially" reduce competition, was "not likely" to harm consumer welfare and was "not likely" to give the merged entity market power in the sale of any of its products.

Not likely to give the merged entity market power? Then, Microsoft has no market power, I suppose. The idea is that at some future point, Korean and Chinese companies might possibly enter the US in a big way. This creates a new standard for antitrust, what we might call the "crystal ball" approach. Using it, it is not possible to have any antitrust rules. Let Coca Cola and Pepsico merge, Japan's Suntory might garb a big market share at some future time. Let Mars, Nestle and Hershey all join up; some Indian sweets company might be thinking of launching products in the US.

The online Antitrust Review quotes a Reuters article written before the decision:

Staff lawyers at the Justice Department's Antitrust Division have already expressed opposition to the merger …Critics charge that the business-friendly Bush administration has been lax on antitrust enforcement, but the courts have also been pro-merger in two recent major cases when U.S. antitrust authorities tried to block combinations of companies with large market shares.

If the decision is a precedent, it will be hard to regulate any new merger or acquisition. Antitrust now is history in the US.

Banking update

General Motors sells most of mortgage business

General Motors Acceptance Group, mostly in the business of car loans, also has had a significant mortgage operation. So significant in fact that it just sold a major part of the business for over $9 billion. The buyers were a collection of equity groups including Kohlberg Kravis Roberts, Five Mile Capital Partners and Goldman Sachs Capital Partners.

GM suffering crippling losses and desperate to buy out the contracts of its workers and those of former subsidiary auto parts maker Delphi, saw this as a quick route to instant cash. Of course, it is also getting rid of part of the most promising sector of the whole GM empire.

South Korean bank merger

Kookmin Bank, the #1 Korean bank, bought a majority share in the #5 bank, Korea Exchange Bank, for $6.6 billion, the country's largest acquisition deal ever. Kookmin beat out Korea's #4 bank, Hana Financial Holdings Co., and Singapore's DBS Bank.

Kookmin controls around 30% of all lending in Korea, and the merger will increase its market share by a third, far surpassing #2 Shinhan Financial Group. In addition, Kookmin will expand abroad with deal, as Korea Exchange Bank has several dozen external branches.

US equity group Lone Star Group will get most of the money, nearly $5 billion. In an illustration of how equity firms get rich as buffers, the company bought the majority share of the Korea Exchange Bank for $1.4 billion in 2003. Not a bad markup.

Wal-Mart banking: The battle begins

A Wall Street Journal article ("Wal-Mart Gains Allies for Bank Plan", 3/20/06) tells of the ongoing campaign of Wal-Mart to get into the banking business. It's a classic case of hard-core lobbying to get legislative approval to change the rules. On the one side is the Wal-Mart empire, back by several other large companies that want to expand their banking operations, including General Electric, General motors, and Toyota. On the other side is the commercial banking industry, led by trade associations and some big national banks.

As the article states, "The 1999 Gramm-Leach-Bliley law allowed linkups among banking, securities and insurance but largely ruled out combinations involving nonfinancial institutions' ownership of banks." Now some big companies liek Wal-Mart want to change the rules.

This is a true test of which powerful oligopoly can defeat the other powerful oligopoly.

Unlocking value?

In the gin rummy game of managing stock values, discards are almost as frequent as pick-ups. While in general, most industries are tending to oligopoly, companies are constantly defining and refining their positions, sometimes through getting rid of assets that are either not performing or which might have more value on the auction block or in an IPO. But those imagined leaps in value are often illusions.

That's the point of a New York Times article by Andrew Ross Serkin, "Sometimes, Two Is Less Than One", 1/8/3008). He states:

As boards of directors across the nation consider all sorts of breakups, spinoffs, and assorted other ways to "unlock" shareholder value, here's something your investment banker is likely to gloss over, and investors often do not understand: after you say you plan to break up your company, your stock is not likely to go up in the short term; in fact it may go down.

Examples abound. Cendant split up last year into four different companies. The stock value of the pieces is now 13% lower than that of the united company. Viacom's stocks dropped 20% when its split up was announced. When conglomerate Tyco announced it would split into four business units (this in 2001, before the financial scandal came to light), its stock headed drastically down. The bankrupt entity recently announced essentially the same strategy.

According to Serkin's analysis the cause for this drop is several:

• Institutional investors get out because they are interested in big-cap investments, not a bunch of small caps.
• Small investors see a redefined company and lose their original reason for investing in the company.

I think that there's another reason. Companies that are growing (even when profits are down) look like they are a deal away from getting the right hand together. A move toward getting smaller indicates that the strategy of acquiring and expansion has been, to some extent, a failure. No matter how rational the split may be, it is concession that somewhat has screwed up. It reminds investors that the management (present or past) is fallible, that business condition are rougher in the long term than management has admitted in the past, that real growth is not inevitable.

Serkin notes that the majority of companies recover after an initial dip and that shareholder value does recover in time, in most cases. As he notes, splitting up "may be the right move for some companies, of course, but more often than not it appears to be a simplistic solution to a complex problem-and it doesn't always work, especially if the goal is to satisfy the fast-money hedge fund crowd."

German pharmaceutical takeover battle

A merger melodrama developed this week over the last week as a hostile bid and a white knight have shook up the German pharmaceutical industry. First Merck KGaA made a $17.9 billion hostile bid for rival Schering AG. Soon after came the white knight bid of $19.6 from drug and chemical company Bayer, at the invitation of Schering management. Merck has now backed out of the bidding.

Don't confuse privately-held Merck KGaA with the US drug conglomerate Merck & Company. That company was split off from the German parent after World War I., when the company's US assets were confiscated. The German Merck specializes in drugs for cardiovascular disease and cancer, along with some over-the-counter medicines. It also makes specialty chemicals. It is the oldest pharmaceutical company in the world, with origins in 1668.

Likewise, don't confuse Schering AG with US-based Schering-Plough. The US company was also the result of a confiscation, this one after World War II. Schering AG specializes in gynecology, diagnostic imaging, and oncology. It is a leading supplier of birth control pharmaceuticals.

Bayer AG is a wide-ranging company with businesses in pharmaceuticals (including for animals), chemicals, and materials science. It recently bought the over-the-counter drugs unit of Swiss pharma company Roche, and it spun off much of its chemical operations in 2004 into a new company named Lanxess with $9 billion in sales. Bayer now has lots of cash for further investment.

The combined Bayer-Schering company will become a major player in the world drug market. Both companies have a good recent record of developing new drugs. German Merck can't make such a claim. The company derives about half its revenue from generic drugs, and was trying to buy development through the Schering move.

As Mark Lander, writing in the New York Times ("A Rare Takeover Attempt in Germany's Drug Industry", 3/22/06) notes that the German drug indfustry has shrunk in importance as other comapnies have made big mergers:

The takeover tussle is shaping up as landmark battles in corporate Germany - as well as an illustration of how far this country's once-mighty drug companies have fallen in an era of global giants… Once known as the world's pharmacy for inventing aspirin and other household drugs, Germany missed out on most of the blockbuster mergers of the last 15 years that created behemoths like Pfizer of the United States, GlaxoSmithKline of Britain and Sanofi-Aventis of France.

Indeed, German drug comapny Hoechst, combined in 1998 with French company Rhône-Poulenc to make up Sanofi, was swallowed up two years ago by French company Sanofi to amke up the world's #3 drug company.

A Smartmoney.com article ("Germany's Merck Ends Bid for Schering", 3/24/06) notes the desire (and need) for size and leverage:

Merck's bid for Schering was aimed at creating a German drug company of a scale that could better compete with global giants such as Pfizer Inc. (PFE) of the U.S. and GlaxoSmithKline PLC (GSK) of the U.K. A combination of Bayer and Schering would create an even bigger company by sales.

Indeed all mid-sized drug companies are in trouble, according to a Financial Times article ("Pharmas face up to pressure to combine", 6/14/06), which states that:

the proposed €14.6bn ($17.4bn) deal highlights a growing trend internationally, whereby mid-sized pharmaceutical companies are coming under increasing pressure to combine, as rising research costs and falling growth make it more difficult to compete. Serono of Switzerland and Altana of Germany are among other mid-sized companies seeking buyers at a time when businesses that are cash-rich in the short term are seeking new ways to sustain long-term business as research productivity declines.

Colgate goes "natural"

Not long ago, in a nearby CVS pharmacy, I was thinking about Tom's of Maine. The company is best known for its "all natural" toothpaste. As I surveyed the scores of varieties of Colgate and Crest, I wondered why there was no room for this original product. Has it been relegated to health food stores or just hard to spot among the array of prominent competitors? Another example of the big guys crowding the little guys off the shelf, even when the little guys   (In fact, the product is sold in CVS stores, according to The tom's web site, but I didn't find it.)

I was not surprised, then, to read the news that Tom's of Maine had sold out to big rival Colgate. Colgate-Palmolive paid $100 million for an 84% share of the privately-held company, that is, in fact, located in Maine. It's a tiny deal compared to Procter & Gamble's purchase of Gillette, or even Colgate's $600 million purchase of Swiss oral care firm GABA in 2003.

But the purchase follows a familiar pattern. Colgate gets the credit for associating with natural products and ethical business practices (just like L'Oreal did with Body Shoppes and Danone did with Stonyfield Farms). It also gets an undersold product that it can get universally distributed in prominent shelf space with its marketing muscle, even in the CVS's and Wal-Marts. (Much as Dean Foods has put Silk soy milk and Horizon organic milk in most supermarkets.) That will allow it to claim more shelf space without just another clone of the base product. People who want to rebel a bit against corporate America can buy this "hippie," alternative product and feel good about helping the little guy. (Here the analogy is to Unilever's Ben & Jerry's ice cream.)

As one analyst is quoted as saying in a Boston Globe article ("Colgate will buy Tom's of Maine", 3/22/06)

You try to keep it stealthy….'I think the average person in a store thinks that Ben & Jerry's ice cream is still being mixed by two guys in a Vermont barn.

Aside from Toothpaste, Tom's of Maine has some 50 products, including deodorant, soap, shaving cream, and mouthwash. Colgate, significantly enough, will not identify itself as the owner of the company. Its founder, the eponymous Tom, has been a major critic of competitors like Colgate and the sugary formulation they sell for dental care.

Coal and the railroad oligopoly

As natural gas gets more expensive, US utilities are depending more and more on coal for power generation. And coal is still abundant in the US, particularly out of Wyoming. Yet many US power companies are running low on coal while paying ever higher prices. The main cause, according to a Wall Street Journal piece ("As Utilities Seek More Coal, Railroads Struggle to Deliver", 3/15/06), is an inefficient railroad oligopoly.

As we've shown before, the scores of railroads that, until a few decades ago, crisscrossed the US, have now been reduced to two. And in the West where the biggest coal mines now are, it's down to two: Burlington Northern Santa Fe and Union Pacific.

Dependence on coal deliveries is increasing. The US, with 27% of the world's proven coal reserves, has until recently had stable coal prices. But shortfalls in delivery are forcing power companies to use more costly alternatives and have raised user prices in a major way.

The reason for the tie-ups, according to the article, is the management of the big railroad, "which have been cutting rail routes and costs since the industry was deregulated in 1980. That can cause paralyzing bottlenecks when something goes wrong." The industry still hasn't recovered from a major snafu in the Wyoming sector last year. Furthermore, the rail industry, taking advantage of the demand, has raised rates by 20% and more as older delivery contracts expire.

And the utilities are pointing out the lack of competition in the market as the chief culprit: "Now, the utilities are pouncing on the delays and a longstanding beef over concentrated ownership of rail routes, which crimps competition. Major utilities are asking members of Congress to hold hearings on the coal-delivery problems." And the railroad companies in turn, want a generous handout in the form of tax credits to build more tracks and upgrade current faculties.

One remedy is t support new competition, from a far smaller regional competitor, as the article notes. "Rail regulators this year approved an application of the Dakota, Minnesota & Eastern Railroad Corp. to build a new line out of the Powder River Basin. Although it would take three years or more to construct, a new line could shake up the dominance of Union Pacific Corp. and Burlington Northern by adding 25%, or 100 million tons, of new capacity. The railroad is seeking a $2.5 billion loan from the federal government and commitments from utilities to use the new route."

Dominant oligopolies are in a position to raise prices and lower servcie in response to market shifts and national crises. They even want, and may well get, government welfare when their profits are at historical highs.

Beauty (and reputation) for sale

This week the international retail chain Body Shop International said it has accepted a buyout offer of $1.1 billion from French cosmetics company L'Oréal SA. L'Oreal has said it will maintain 2,000-store chain for beauty products as a separate entity.

The purchase is a change n direction for L'Oréal, the world's #1 cosmetics company. L'Oréal owns a few shops to sell its high-end Kiehl's and Lancôme products. The question is whether it has the retail smarts to turn around the declining sales of the Body Shop company.

Body Shop is a model of benevolent entrepreneurship. Started in England in the 1970s as a single shop, Body Shops made a mark with an "ethical trade" stance, promoting natural products, recycling, human and animal rights. It is also rare in being a company run by is female founder (who, embarrassingly enough, has often railed against big corporations). Once unique in its eco-friendly policies, the company's idea has been copied by others.

Most see L'Oréal's move as an attempt to profit from the glow of Body Shop's reputation (it is notorious for testing cosmetics on animals, a red flag issue to animal rights activists.).. (In a similar move, UK candy maker Cadbury Schweppes last year snapped dup for Green & Black's, a provider of "fair-trade" chocolate.)

L'Oréal is on the prowl for expansion. Since 1999, when it acquired the US's Maybelline, it has purchased a number of brands around the world. More recently, it bought skin care operations SkinCeuticals and SkinEthic.

Current products include:
Consumer products: L'Oréal, Garnier, Maybelline, Softsheen Carson, CCB Paris, Vive, Studio-Line
Professional products: L'Oréal Professional, Kérastase, Redken, Matrix, Mizabui
Luxury products: Lancôme, Biotherm, Helena Rubenstein, Kiehl's, Shue Uemura, Giorigio Armani (cosmetics), Ralph Lauren (cosmetics), Cacherel, Viktor & Rolf
Dermatological: Vichy, La Roche-Posay, SkinCeutical

Generic drugs sector keeps consolidating

Last week saw the announcement of an acquisition offer by Iceland-based generic drug maker Actavis Group for Pliva, a generic drug maker in Croatia. The deal, for $1.6 billion, would make Actavis the #3 generic drug maker in the world (after Teva and Novartis).

Pliva recently sold off its research and development division to prescription pharmaceutical leader GlaxoSmithKline, in order to concentrate on the generic drug business.

Actavis has been shopping over the past few years, acquiring the US's Amide, Czech Pharma Avalanche, Hungary's Keri Pharma, Bulgaria's Higia, and India's Lotus Laboartories in 2005, along with the human generics business of the US's Alpharma.  Actavis changed its name from Pharmaco in 2004. 

In the US, generic drug maker Watson Pharmaceuticals Inc. announced it will buy rival Andrx Corp. for $1.9 billion. The deal will create the US's #3 generic drug maker based on prescriptions dispensed.

These new deals join such big recent deals as last year's acquisition by Novartis of Hexal and Eon Labs for $8.3 billion, and Teva's acquisition of Ivax Corp. for $7.4 billion.

In a Bloomberg wire story ("Actavis Makes Unsolicited $1.6 Bln Offer for Pliva", 3./17/2006), the rapid consolidation of the generics industry is explained:

Generic-drug makers are consolidating to use economies of scale to improve their profits. Generic drugs work the same way as branded medicines. Because their makers spend less on research and marketing, the copycats often sell for less than half the price of brand-name equivalents.

Furthermore, the article states, the opportunity keeps growing:

Between 2002 and 2007, pharmaceutical companies including GlaxoSmithKline Plc and AstraZeneca Plc will have lost patent protection on products worth an annual $82 billion in sales, according to London-based industry consultant Datamonitor Plc.

Vodafone sells Japanese operations;
American ones next?

We've said it over and over. Being #3 in a market is a sorry place, especially when that industry is relatively static and the two bigger rivals are not inclined to stumble.

That's the case of Vodafone in Japan, where it just unloaded its cell phone business to Japanese conglomerate Softbank for $15 billion. Those cell phone operations have been mired in third place behind those of NCC DoCoMo and KDDI. Vodafone's efforts to grow its market share have been in vain, as a Wall Street Journal article ("Vodafone Sells Japanese Unit To Softbank for $15 Billion", 3/187/060) points out:

Despite repeated efforts to kick-start its Japanese operations, including frequent leadership shuffles and new gadgetry, Vodafone could never quite shake the perception that rather than an asset, its businesses in Japan was instead a drag on the rest of its global operations, and criticism of the business in Japan was mounting.

Softbank among other properties already owns some land-line phone systems along with Internet connection services. Softbank had been thinking of building its own cell phone network. It beat out US equity firms Cerberus Partners LP and Providence Equity Partners Inc. The deal is one of Japan's all-time biggest leveraged buyouts.

Meanwhile, Vodafone is also eager to cash out its partnership with Verizon in the US, selling off its 45% holdings in Verizon Wireless. Verizon is eager to buy the whole company in order to compete with the newly expanded AT&T after the Bell South purchase. Vodafone, whose equipment in Europe is incompatible with Verizon Wireless's, would be smart to sell out that valuable property.

The biggest problem is the tax bill due on the sales. But Verizon also owns a piece of Vodafone's Italian operations. The companies are working out a way to make at least some of the paper profit disappear with a switch of assets. Speculation is that Vodafone might sell off its Verizon Wireless shares in stages to minimize the tax bill from the enormous appreciation of the American assets.

Woof

US food company DelMonte had scarcely managed to tighten the pet food oligopoly with the purchase of Meow Mix and other brands when it struck again. The new target was the Milk-Bone dog biscuit line, acquired from Kraft Foods (Altria) for around $580 million.

This move gets Kraft out of the pet food business, where it had only a marginal presence. According to a story in Brandweek ("Del Monte Wags Its Tail Over Milk-Bone", 3/16/06),

The Milk-Bone brand alone posted about $180 million in net revenue last year, Kraft said, which is also selling off non-core brands to focus more on brands like Oreos and Kraft cheese. Still, Milk-Bone languished under Kraft, without focus and innovation at a time of double-digit growth for the pet category. Del Monte plans to pump up Milk-Bone with marketing and new products.

In the eternal gin-rummy game of oligopolies, the deal makes sense for both companies. Kraft discard s an isolated card, gets some cash, and DelMonte picks up an established but under-marketed addition to its own growing pet product line.

Capital One extends banking holdings

In the past year we have seen US banking giant Bank of America extend its credit card empire with the purchase of MBNA. Now we see the opposite, as Capital One, one of the biggest credit-card companies, significant grows its commercial bank holdings with purchase of New York-based regional bank North Fork. The deal is set at $14.6 billion.

This is not the first bank purchase by Capital One, which last year bought regional bank Hibernia Bank, centered in Louisiana, in a $5 billion deal.

The though is that Capital One, the biggest credit-card issuer not linked to a major national bank, wants to hedge its bets. Credit card profits are reportedly down, and a bank like North Fork offers a less volatile source of income and of capital. Capital One is also increasingly in the business of auto loans, personal loans, and mortgages, something that a purchase of a strong retail bank will be a major plus in funding through deposits.

Capital One has shown meteoric growth, most of it organic. Its origins go back to 19888, but it achieved amazing growth in the 1990s and early 200s through aggressive television ad campaigns and equally aggressive direct mail campaigns. It is now the #4 credit card issuer in the US.

North Fork is itself the beneficiary of an acquisition. Last year it bought fellow New York region bank GreenPoint in a $6.3 billion deal. It is the #3 bank in the profitable New York City market.

Knight-Ridder newspaper chain bought out

Knight-Ridder, the #2 newspaper publisher in the US, was bought out by rival McClatchy Co. in a $6.5 billion deal (cash, stock, and debt assumption). The move follows a bidding war between McClatchy and a consortium of equity funds. Knight-Ridder has been under serious pressure from key investors.

But the story does not end there. Three of the main Knight-Ridder newspapers, the Philadelphia Inquirer, Philadelphia Daily News, and the San Jose Mercury-News, along with 0 others will be sold off either together or piecemeal by McClatchy. That firm noted that it is interested in buying papers in growing cities, mostly in the Sunbelt, and that those papers do not fit in.

The buyout makes McClatchy the new #2 newspaper publisher (it was #8), behind Gannet, the publisher of USA Today and 90 other daily papers. McClatchy will own, after the deal and the sell-off, 32 daily newspapers and around 50 non-dailies.

The rapidly dwindling US newspaper market is in a seeming death spiral, especially in big cities. Fewer readers means fewer ads and massive layoffs of reporters, fewer reporters means less worth reading. Add to that the growth of the Internet and the indifference of young people, and the sector looks progressively weaker. The only saving grace is the ability in one-paper towns (most of them now) to charge big advertisers (like department stores) higher prices for lower circulation. But even there, the consolidation of the department store business puts limits on that strategy.

Who will buy the Inquirer, the Daily News, and the Mercury-News? Presumably McClatchy had some offers before it went ahead. It might be another news chain, such the Tribune, Newhouse, or Times groups. Or it may be an equity company, looking to remake the papers then selling or spinning them off. But the basic problem remains: can these and other once-proud newspapers avoid shrinking into much more than sports pages, a few headlines, movie listings, and lots of ads?

Gas giant

German chemical gas producer Linde AG announced that it has arranged to buy UK rival BOC Group PLC in a $14 billion deal. The deal will make for #1 worldwide producer of gases like hydrogen, helium, nitrogen, and oxygen for use in manufacturing of chemicals, food, pharmaceuticals and other products moving ahead of France's Air Liquide SA, which had been #1.

The two companies have different regions of strength. BOC is big in the UK and Asia, while Linde is a major company in mainland Europe. Both have operations in the US. The industry is growing at about 7% a year. The combine companies with have revenue of over $19 billion.

The deal has been in the works for some time. The deal will probably involve some divestments in order to pass regulatory muster. According to a Wall Street Journal article, (Linde Agrees to Buy Gas Rival BOC For $14 Billion", 3/6/06)

To help finance the acquisition, Linde plans to shed businesses that aren't tied to industrial gases, including its material-handling division, a leading maker of forklifts and warehouse equipment. BOC, of Windlesham, England, would sell its Edwards division, which supplies the semiconductor industry. The noncore assets would be auctioned in coming weeks, amid interest from private-equity firms, people familiar with the matter say.

Also mentioned is BOC's logistics business. Linde had already sold off its refrigeration division in 2004 to Carrier, the air conditioning company.

This isn't the first attempt to roll up the industrial gas market. According to the Financial Times ("Reitzle fashions a new world leader in gases", 3/6/06), it was tried just a few years ago:

The combination of BOC and Linde has always been seen by analysts as the last possible big deal in a sector that is highly concentrated and where geographical overlap has led to competition difficulties in the past. A potential takeover of BOC by Air Products of the US and Air Liquide of France failed on such grounds in 2000.

AT&T to buy BellSouth

That the new AT&T decided to buy out closely allied BellSouth in a $89 billion deal is no great surprise, but the timing certainly is. SBC had just swallowed the old AT&T, its own parent company, and renamed itself as AT&T, with only a slight change to the old AT&T logo. That the company could be already able to absorb yet a bigger rival is breathtaking.

Also breathtaking is the challenge to the antitrust regulators. The reasons:

• The new AT&T is already an amalgamation of four of the Baby Bells that were spun off by antitrust decree in 1984, with the remnant of the old AT&T as well. The BellSouth deal will leave only three Baby Bells standing, only three major companies with land lines: AT&T, Verizon, and smaller competitor Qwest, an because of Qwest's problems, a virtual duopoly.
• The new company will be the largest telecommunications company in the world. It will dominate land lines in California, throughout the South and the Midwest. It will also hold the largest wireless phone company, Cingular a joint venture of SBC and BellSouth that also in 2004 bought AT&T Wireless. It also has the largest direct business phone service company in the US, based primarily on the old AT&T.
• The deal would be the fifth-largest ever in US history, according to some sources.
• The new AT&T will be able to bundle wireless phone, land-based phone, Internet, and TV services in a way that would make life even more difficult for smaller rivals that offer or only one of the above.
• The company would be able to be a dominating force in the Internet, and join with others to change the rate structure. "AT&T wishes to be lord of the digital domain, able to impose a raft of tolls, fees and what they term 'monetization' strategies for the Internet -- whether it comes to us via wires or wireless devices," according to Jeff Chester, the executive director of the Center of Digital Democracy. ("Pact Represents Gamble Regulators Will Accept A New Telecom Giant", Wall Street Journal, 3/6/06)
• The number of suppliers of high-volume phone connections to businesses nationwide will be cut down to two, AT&T and Verizon.

On the face of it, the acquisition of BellSouth would seem to violate every rule of antitrust and the history of the industry and its regulators. But clearly AT&T's strategy will be one of redefining market segments.

The company cites competition looming from non-phone companies. TV cable companies, satellite companies, wireless company Sprint/Nextel, software companies like eBay (Vonage), Skype, and, potentially, Google, perhaps even electric power companies and, are starting to offer Internet-based VOIP and wireless telephony, while AT&T is entering into their bailiwick with video and broadband services. The reality, it will be argued, is that there are not two big players in the phone industry but at least four major players (adding Comcast and Time-Warner Cable). Competition, it will be stated, will still be alive and well.

As a New York Times article ("Huge Phone Deal Seeks to Thwart Smaller Rivals", 3/6/2006) notes

The new, more complex environment is a big reason why anti-trust watchdogs have not blocked large phone deals in recent years. Regulators in the Bush Administration have also been generally sympathetic to mergers, which has not escaped AT&T's attention, analysts said.

Most analysts believe the deal will go through, with only a few provisos on such matters as network neutrality. And it will clear the way for more takeovers by phone rival Verizon, as well as the leading cable companies.

One of the first consequences of the deal will be the loss of 10,000 jobs. That's in addition to 12,000 job losses announced in the wake of the SBC/AT&T merger in 2004. And a further 4,000 announced in 2003 just to please the stock market. (Verizon eliminated 7,000 jobs after the MCI deal, and eliminated 30,000 jobs in preceding years) This is a big deal, with a large set of well-paid jobs flushed away in record time. But the top execs will most certainly shed nary a tear.

Already there is speculation that Verizon will act to keep from being eclipsed. It has recently acquired MCI as a counter to the SBC/AT&T deal. It is trying to buy out 45% share of Verizon Wireless now owned by British warless firm Vodafone, a deal that Vodafone would apparently be glad to agree to except for tax implications. It is also interest in smaller US wireless competitor Alltel, which has been prepping itself for a sell-off by unloading non-core assets. Even Qwest is rumored to be in its sights.

Meow

Yes, there is a growing rush to oligopoly in cat food. The oligopoly was tightened by the announced acquisition of the brand Meow Mix by DelMonte Foods in a $705 million deal. DelMonte is already a major player in this market, with its 9 Lives and Kibbles 'n Bits brands. Meow Mix has a 16% market share in the US for dry cat food and is the #2 brand in its segment (after Nestlé's Friskies brand).

DelMonte Foods is the largest US supplier of canned fruits and vegetables. It owns such brands as Contadina (canned tomato products), S& W (canned vegetables), StarKist (tuna), and College Inn (coup), as well as the flagship DelMonte brand. The company also sells dog food, under such brands as Gravy Train, Cycle, Snausages, Reward, Skippy, and Nature's Recipe. The Meow Mix purchase will push up the firm's pert food sales over a billion dollars per year.

(DelMonte Food is a separate company from Fresh DelMonte Produce, a company that sells pineapples (it is #1 in the world), bananas, and other produce. It also sells pre-cut salads and fruit and some other food products. The two companies, once one, split in 1989, are no longer related, but, curiously, they do use the same logo.)

The sequence of ownership is typical equity firm buffering. The brand was originally owned by Swiss food giant Nestle. Nestle offloaded it to a private equity firm, J.W. Childs Associates LP, in 2002. The price then was $120 million. Childs sold it in turn to another equity firm, Cypress Group in 2003. By that time, the price was $425. As stated above, DelMonte is buying it at $705 million. That's over 500% appreciation in three years, and it's not because four times as many cats are eating the product.

A Wall Street Journal article ("Del Monte Nears $700 Million Deal For Meow Mix, 3/2/06) notes that most equity firm trades often involve little real increase in fundamental value. However it notes:

Private-equity proponents could point to Meow Mix as a case where private-equity holders made a difference, either by restructuring operations, changing marketing or cutting costs. Cypress, for instance, pushed Meow Mix into the "wet" cat-food category.

While doubtless the idea of expanding out of the bagged cat food business into the canned variety was a stroke of sheer marketing genius (irony intended), the real issue was probably that DelMonte was not ready to buy in 2002, and is paying dearly for waiting. The equity firms buffered the M&A market and profited handsomely. DelMonte, according to WSJ article, has 20% of its product sales in pet foods but 40% of its profits, hence the scramble to expand even at an inflated cost.

At the same time, the gin game goes on. DelMonte Foods announced it will sell its private-label lines of soup and infant-food products to TreeHouse Foods Inc. for about $275 million. That sell-off will help fund the Meow Mix deal.

TreeHouse is itself an interesting company. it was spun off in 2005 by dairy giant Dean Foods, in order to get rid of its non-dairy food products. These include several pickle brands (Farmans, Nalley's, Peter Piper, and Steinfeld) non-dairy creamers (Cremora, Mocha Mix), and an egg substitute (Second Nature), as well as a number of private-label foods.

The agricultural equipment oligopoly

If you want to buy a tractor, a combine, a tiller, a sprayer, a spreader, or most other kinds of agricultural vehicles, you'll find that you can choose between a wide number of brands. But all those brands are essentially owned by three multinational companies that have over the decades bought up rivals in the US and across the world.

John Deere is a $22 billion dollar US-based company whose origins go back to making steel plows in the 1830s. Deere sells both agricultural and construction/forestry equipment. It a thriving credit business for those buying its equipment. Deere also has a sideline in consumer products like lawn mowers and mini-tractors, and another in manufacturing small engines. (It is even going into the business of selling wind turbines.)

In contrast to the other two market leaders, Deere has grown almost exclusively internally, with no major acquisitions in the past five years. It has expanded operations with more global manufacturing plants and also in the area of agricultural and landscape consulting. It also has seen an expansion in sales when it started to sell tractor-mowers through retail (non-dealer) channels. The last deal of note was the 2000 purchase of Finland-based Timberjack, a major maker of forestry equipment.

The second major agricultural equipment company is Dutch-based CNH Global, the #2 ag equipment maker and the #3 construction equipment maker. Farm equipment makes up 70% of its $11.8 billion in sales. The company is 90% owned by Italian automaker Fiat, a company that is itself fighting for its life. It will be interesting to see what this means for CNH's future, though for now it is bringing Fiat badly needed profits.

CNH is the result of the 1999 merger of ag industry giants Case (whose history goes back to the 1830s) and New Holland (started in 1895). Brands and companies subsumed under its name over the years include Braud, Case, Claeys, Fiat, Flexicoil, Ford, International Harvester, New Holland, Steyr.

Like Deere it has a major credit business, and like Deere it has made only a few deals in the last few years:

• In 2002, CNH acquired a 65% interest in Kobelco America, a division of Japanese heavy construction equipment maker Kobelco. It also bought 10% of the parent company, which is mostly owned by Japanese conglomerate Kobe Steel Company.
• In 2002, CNH bought Flexicoil, a Canadian maker of planters and tillage equipment.

AGCO is well behind as the #3 company, but it is acquiring frantically in an attempt to be a contended. It is a $5 billion US-based company, which was started in 1990, when a US investment group bought farm equipment maker Deutz Allis from German company Kloeckner-Humboldt-Deutz AG (KHD). KHD had bought US-based Allis-Chalmers in 1985, and then decided to spin off the whole business five years later. Subsequently in 1997, KHD changed its name to Deutz AG, and is now a specialist in making diesel and gas engines, both for vehicles and power generation.

AGCO is a truly multinational company with 75% of its sales outside of the US. It has continued to expand over the decades, by buying yet other ag equipment vendors, including the US's Massey-Ferguson and Germany's Fendt. AGCO products are now sold under the brands AGCO, Ag-Chem, Challenger, Farmhand, Fendt, Fieldstar, Gleaner, Glencoe, Hesston, LOR*AL, Massey Ferguson, New Idea, Soilteq, Spra-Coupe, Sunflower, Tye, White Planters and Willmar.

One big recent purchase was that of the MT Challenger tractor series from construction equipment giant Caterpillar, as that company exited the ag equipment business. AGCO also recently bought:

• Ag-Chem Equipment Co., Inc., a sprayer company (2001)
• Sunflower Manufacturing Company Inc., a producer of tillage, seeding and specialty harvesting equipment (2002)
• Valtra Corporation, a Finnish tractor and off-road engine manufacturer especially big in Scandinavia (2004)
• Beeline Technologies, a maker of steering systems for tractors (2005)

The reality now is that while there were once dozens of companies selling equipment to the agricultural market, there are now only three. Typically, #3 is far behind the two leaders. As with seeds, fertilizers, and pesticides, world agriculture is dependent on a very tight oligopoly in buying tractors and other machinery.

BASF buys yet another

Germany-based chemical giant BASF announced it has reached an agreement to buy a division of Germany-based Degussa AG in a $3.2 billion deal. The Division in question manufactures and sells so-called construction chemicals. These include admixtures for concrete making as well as waterproofing, coatings, and flooring. It has emerged as one of the fastest growing segments in the chemicals market. Degussa claims to be the world leader in this segment.

Degussa retains chemicals businesses in supplying such industries as pharmaceuticals, water treatment, paint, cosmetics, and mining. It also manufactures Plexiglass. Degussa was the #1 specialty chemicals company in the world and German coal company RAG has a majority share.

BASF is still bidding around $5 billion for US-based Engelhard Corp., a maker of catalytic converters and chemical products. BASF has bypassed company management and is now making the bid directly to shareholders. If it wins, it will be largest European hostile takeover of an American company.