Microsoft Corp's (MSFT.O) CEO said the
company will not seek to make a spate of other Internet
acquisitions in the wake of its failed bid for Yahoo Inc
(YHOO.O), the Financial Times reported on Friday.
Speculation has emerged that Microsoft could try to buy
division of Time Warner (TWX.N) and a slew of smaller concerns,
the newspaper reported in its online edition.
"People don't understand what they're talking about," Chief
Executive Steve Balmer said in an interview with the Financial
"At the end of the day, this is about the ad platform. This
is not about just any one of the applications," he added.
Microsoft abandoned a $47.5 billion offer to buy
month, but had more recently discussed a deal to take a 16
percent in Yahoo and buy its search business for $9 billion as
part of its effort to establish a stronger foothold in online
(Reporting by Matt Daily)
Retail mergers and acquisitions look to
have dried up for at least another nine months, according to
speakers at the Reuters Retail and Consumer Summit, but once
the credit crunch eases and consumer trends are more
predictable, buyers are poised for dealmaking.
"I'm very confident not much is going to change in the next
six to nine months," said James George, a partner at strategy
consultancy OC&C specializing in the retail and consumer goods
"Beyond that it is quite difficult to predict because
people are keen to get back in. Private equity is keen to
second guess the starting whistle because someone is going to
make a lot of money on the rebound."
European retail shares (.SXRP) have shed nearly 30 percent
of their value in the past six months, almost equal to the
losses sustained by the European bank stocks (.SX7P).
Still, retail stocks are predicted to have further to fall
because the impact from the credit crunch and rising commodity
costs is only just starting to be felt by consumers.
Casualties are already evident in the British market.
Shares in sofa retailer ScS Upholstery (SUY.L) fell more than
50 percent last week on complications with its financing
related to the credit crunch.
While deals for private equity-held companies such as New
Look and Pets at Home have been put on the back burner.
"We will see M&A starting up again substantially when the
credit crunch is over and that will be when the financial
markets are convinced most of the bad assets have been fully
accounted for," said Ira Kalish, Director, Global Economics,
First movers among potential buyers are expected to be
corporates and sovereign wealth funds, although the latter were
more likely to stick to small and medium-sized deals after
taking flak last year when sizing up blue chips like UK
supermarket group J. Sainsbury (SBRY.L).
One of the biggest attempted cross-border deals in Europe
last year was Qatari fund Delta Two's $22 billion proposed bid
for Britain's third largest supermarket group J. Sainsbury.
That bid unraveled as the credit crunch hit, but speakers
at the Reuters summit predicted sovereign wealth funds were
likely to be return players in the retail sector.
"We expect some activity by sovereign wealth funds, but on
a large scale these have created political controversy so think
there will tend to be more small and medium-sized deals that
are under the radar screen," Kalish said.
Types of businesses catching the eye of predators are those
which may be suffering due to the downturn but are structurally
in a strong position -- such as the clothing or online
electricals industries, OC&C's George said.
Emerging markets retailers in Russia and Eastern Europe may
also prove more appetizing because the price tags are lower but
the growth potential much bigger.
An example of that growth is X5 Retail Group (PJPq.L),
Russia's largest food retail group, which tripled its net
profit to $86.3 million in the first quarter.
China was also an interesting possibility because it was an
unsustainable, and therefore unstable, market where a dozen of
the world's leading retailers, including
jostling for market share.
George predicted consolidation of the Chinese market was
likely in the next 3 to 5 years with other potential targets
for foreign retailers the newly privatized, formerly
state-owned department store network.
For Rajan Bharti Mittal, managing director of India's
Bharti Enterprises, which has a food retail joint venture with
Wal-Mart, India presented another opportunity. He tipped food
distribution centers to cold chain storage as possible targets
of foreign investment.
Indeed, Mittal said he believed India was a greater
opportunity than China where supermarket majors like Wal-Mart
and Carrefour have taken 10 years in the market to turn
revenues of around $1 billion.
In India, Mittal saw Bharti Retail making revenues of more
than $1 billion well before a decade was out.
Japan's Sumitomo Mitsui Financial Group
Inc (8316.T) may invest about $926 million in British bank
Barclays (BARC.L), people familiar with the matter said on
Friday, as subprime-hit Western lenders increasingly turn to
Asia for funding.
Japan's third-largest bank is also considering a business
alliance with Barclays in Asia, according to the sources, who
spoke on condition of anonymity as the deal has not been
Barclays, Britain's No.3 bank, has lost more than $5
billion on assets hurt by the U.S. subprime market crisis and
credit crunch, and said this week it plans to sell billions of
pounds worth of shares to new and existing investors to rebuild
The UK bank is expected to raise about $8 billion from
sovereign wealth funds and other investors, and then offer
shareholders the right to buy on the same terms. If Sumitomo
Mitsui opts to invest it would give the Japanese bank a stake
of just over 2 percent.
Up to five outside investors are expected to participate,
and backers may include existing Singapore-based sovereign
wealth fund Temasek (TEM.UL) and China Development Bank, plus
the Qatar Investment Authority.
Barclays shares were down 1.5 percent at 311 pence by 4:18
a.m. EDT, with the DJ Stoxx banking sector (.SX7P) down 0.3
Shares in Sumitomo Mitsui were little changed on the news,
and some market participants said the investment was too small
to become a major earnings driver.
"This is certainly an opportunity for Sumitomo Mitsui, but
they don't seem to be taking full advantage of it," said
Mitsushige Akino, chief fund manager at Ichiyoshi Investment
Management in Tokyo.
"If they are going to do this properly, they will need to
increase the size of their investment," Akino said.
After a decade of faltering under bad debt, Japanese banks
have cleaned up their balance sheets and rebuilt their
businesses. Now faced with a shrinking market at home, Tokyo's
big banks are once again looking for opportunities abroad.
Asian lenders, which avoided the worst of the subprime
crisis, are in a strong position to step in with funding for
their overstretched Western rivals, analysts have said.
One of Asia's biggest subprime casualties, Japan's Mizuho
Financial Group (8411.T), earlier this year injected $1.2
billion into Merrill Lynch (MER.N).
Stricken U.S. bank Lehman Brothers (LEH.N) almost did a
deal with Korean financial institutions as part of its $6
billion in fundraising, the Financial Times reported last week.
Sumitomo Mitsui is considering an investment of about 100
billion yen ($926 million) in Barclays, the sources told
A spokeswoman for Sumitomo Mitsui, Chika Togawa, declined
to comment. Barclays declined to comment.
Sumitomo Mitsui is likely to take a stake of several
percent in Barclays through a private placement of shares, and
look to form an alliance in Asia and in the asset management
business, the Nikkei business daily said on Friday.
Kristine Li, a banking analyst at KBC Securities in Tokyo,
said the deal was evidence that Japan's lenders are still too
conservative about expanding overseas.
"It's very typical Japanese style: first you put a little
capital in and try to do some kind of tie-up," Li said.
"I just don't think it's Western style and I don't think it
will really deliver anything significant."
Ratings agency Standard & Poor's said in a report this
month that Japanese banks need to improve their overseas
strategies and increase investments abroad in order to gain
ground on weakening Western lenders.
With most of the investment in Barclays likely to come from
sovereign funds, Sumitomo Mitsui would likely be the only
foreign bank to invest into Barclays, the Nikkei said.
Barclays' credit crunch-related losses are far lower than
many rivals but it still has one of Europe's leanest levels of
capital adequacy. Its ratio of Tier 1 capital, or core capital,
was at 5.1 percent at the end of 2007. Raising $8 billion would
lift it to near 6 percent, analysts said.
(Additional reporting by Nathan Layne in Tokyo and Steve
Slater in London; Editing by Louise Ireland)