Archive for September, 2009

UBS to sell U.S. wealth management unit, but not yet: report (Reuters)

Monday, September 28th, 2009 | Finance News

LONDON/ZURICH (Reuters) –
UBS (UBS.N) (UBSN.VX) chief executive Oswald Gruebel said Paine Webber, the bank's U.S. wealth management unit, is "non-core" but the bank will not sell at present, the Financial Times quoted him as saying.

"We've had a lot of inquiries from potential buyers, but it wouldn't make sense to sell at current valuations," Gruebel said, according to the report on Tuesday.

Gruebel also told the newspaper the bank wanted to cut ties with the Swiss government by buying its way out of a bad bank deal and aimed to return to health within a year.

The bank has locked horns with Switzerland's financial regulator, FINMA, over its aim to leave the bad bank scheme, under which it pays for protection against big losses on toxic assets, the paper said.

With the credit markets recently recovering, the bank believes it could take the assets back onto its balance sheet, but conceded it may not be able to do so until late 2010, the newspaper said.

"It is very expensive," Gruebel said of the bad bank scheme in an interview with the FT.

(Reporting by Martin de Sa'Pinto; Editing by Dan Lalor)

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Xerox to buy ACS to expand back office services (Reuters)

Monday, September 28th, 2009 | Finance News

NEW YORK (Reuters) –
Xerox Corp (XRX.N) plans to buy Affiliated Computer Services Inc (ACS.N) for $5.5 billion to move into the outsourcing business, but shares of the printing company plunged on concerns that it was gambling on a major shift in strategy.

The cash-and-stock deal, Xerox's biggest ever and the first major move by new CEO Ursula Burns, is the latest in the technology services sector, where reliable revenue streams have attracted hardware vendors looking to diversify. Xerox rival Hewlett-Packard Co (HPQ.N) bought EDS last year, and Dell Inc (DELL.O) plans to buy Perot Systems Corp (PER.N).

Shares of Xerox fell 14.48 percent to $7.68 as some analysts questioned how quickly the acquisition will bear fruit and others cited concerns about the dilution of Xerox shares.

BMO Capital markets analyst Keith Bachman said Xerox is seeking to buy access to new markets for its copiers and printers through ACS, but their sales teams could struggle to sell each other's services.

"Xerox's (deal) appears more radical in scope than any deal contemplated by HP, Sun, or IBM -- more change at once, with less initial product overlap," Bachman wrote in a client note.

"To be fair, we believe that Xerox has proven with Global Imaging Services that it can effectively integrate companies, but we question the amount of current strategic overlap." Xerox acquired GIS in April 2007 for about $1.5 billion.

Xerox said it will pay 4.935 Xerox shares and $18.60 cash for each share of ACS, totaling $6.4 billion, or $63.11 a share based on Friday prices. That was a 33.6 percent premium -- and about the same as ACS's record share price of $63.66 in 2006.

But with the fall in Xerox shares on Monday, the deal value shrank to $56.60 per share. ACS rose 13.99 percent to $53.86.

Norwalk, Connecticut-based Xerox, which has about $1 billion in cash, said about $3 billion of the deal will be financed through capital markets. Its credit default swaps rose by 0.10 percentage point to 1.78 percentage points, indicating that the cost of protecting its debt has risen.

Xerox said that if its board terminates the deal, the company will have to pay ACS $235 million. If ACS's board terminates the deal, then the company will pay Xerox $194 million.

Despite Xerox's share fall, analyst Shannon Cross of Cross Research said the deal appeared to be fairly priced when compared to Dell's bid for Perot and HP's acquisition of EDS.

"The ACS acquisition will strengthen Xerox's enterprise business, allowing it to expand from a document management company ... into the (outsourcing) space with strongholds in government and healthcare," Cross said in a note to clients.

SERVICES REVENUE TO TRIPLE

While ACS would be the first big deal for Burns, Xerox has eyed the company for at least two years. Talks began in the first quarter of 2009, before Burns succeeded Anne Mulcahy on July 1, according to sources familiar with the matter.

Burns said Xerox's revenue from services will triple to $10 billion next year from $3.5 billion in 2008 after the deal, which is expected to add to earnings in the first year. Xerox said the deal will likely close in the first quarter of 2010.

"The reason why we pursued this is that our customers have been telling us that they need a ... deeper connection between back-office document infrastructures and front office business process services," Burns said on a conference call. "Putting our two companies together allows us to do this."

Roughly two-thirds of Dallas-based ACS' revenue comes from handling back office operations for companies, and the rest comes from providing technology services.

Some bankers said other services companies like Computer Sciences Corp (CSC.N), CGI Group Inc (GIBa.TO)(GIB.N), Cap Gemini (CAPP.PA) and Unisys Corp (UIS.N) are likely takeover targets. Accenture (ACN.N) is also a possibility, but its $23 billion market value makes it pricier than rivals.

Unisys shares jumped 14.58 percent, Accenture shares rose 4.9 percent and CSC shares rose 4.75 percent.

Potential buyers for IT services companies could include IBM (IBM.N), Cisco (CSCO.O), Microsoft (MSFT.O), Oracle (ORCL.O) and Fujitsu (6702.T), bankers said, as these firms seek new growth opportunities.

Xerox will assume $2 billion of ACS debt and issue $300 million of convertible stock to ACS founder Darwin Deason.

The companies expect annualized cost savings of $300 million to $400 million in the first three years. ACS CEO Lynn Blodgett said some jobs will be affected but gave no details.

Xerox derives some 70 percent of cash flow from the sale of supplies, financing and services to repeat customers. But the economic downturn has forced some of its customers to slow their plans to buy new equipment or order service.

"HP strengthened their position in terms of business services (in addition to) printing," said Gabelli & Co analyst Hendi Susanto. "Xerox may have to compete with HP, and this will strengthen their position."

J.P. Morgan and Blackstone Advisory Partners acted as financial advisers to Xerox for the deal, Citigroup Global Markets Inc was financial advisor to ACS and Evercore Partners was financial advisor to a special board committee at ACS.

(Additional reporting by Anupreeta Das and Tiffany Wu; Editing by Derek Caney, Gary Hill)

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Spurt of M&A buoys Wall Street, but volume light (Reuters)

Monday, September 28th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks rallied on Monday, snapping a three-day losing streak, as a spurt of corporate takeovers in the technology and health-care sectors fueled optimism about share values.

Mergers and acquisitions are typically viewed as bullish as it suggests companies are more optimistic about the business outlook.

A number of deals were announced and investors bet more could follow. Xerox Corp (XRX.N) agreed to buy Affiliated Computer Services Inc (ACS.N) , and Abbott Laboratories (ABT.N) said it would pay $6.6 billion for Solvay's (SOLB.BR) drug unit.

"It's always a positive sign when you see companies putting money to work, whether they buy other companies, invest in new plants, (or) buy back their own stock," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.

"With depressed stock prices, like we've had over the past year and a half, a lot of companies will find it cheaper to buy a company than to grow that same type of company organically. It's a more effective way to put money to work sometimes."

The Dow Jones industrial average (.DJI) rose 124.17 points, or 1.28 percent, to end at 9,789.36. The Standard & Poor's 500 Index (.SPX) gained 18.60 points, or 1.78 percent, to 1,062.98. The Nasdaq Composite Index (.IXIC) shot up 39.82 points, or 1.90 percent, to 2,130.74.

With Monday's gains, the Dow Jones industrial average held an advance of about 16 percent in the quarter so far, which would make it the index's best such period since the fourth quarter of 1998.

But the end of the third quarter on Wednesday may spur volatility as fund managers engage in what is known as "window dressing" -- when they sell laggards in favor of outperformers to spruce up portfolios at quarter's end.

In the last three sessions, the S&P 500 had declined more than 2 percent after rallying nearly 60 percent from the 12-year closing low of early March.

MERGER MONDAY

Abbott climbed 2.6 percent to $48.58, while Affiliated Computer advanced 14 percent to $53.86.

Xerox, which valued the cash-and-stock deal for Affiliated at an initial $6.4 billion, sank 14.5 percent to $7.68.

Other deals on Monday included U.S. diversified health-care company Johnson & Johnson's (JNJ.N) purchase of an 18 percent stake in biotech firm Crucell (CRCL.AS)(CRXL.O) for 302 million euros ($444 million) as part of a flu vaccine development deal, the Dutch company said on Monday.

The pharmaceuticals index (.DRG) climbed 1.3 percent.

Crucell fell 6.6 percent to $22.13 on Nasdaq, but J&J, a Dow component, was up 1.1 percent at $61.27 on the New York Stock Exchange.

Apple Inc (AAPL.O) rose 2.1 percent to $186.15 after China Unicom (0762.HK) said it would sell Apple's iPhone in China, starting in October. France Telecom's (FTE.PA) Orange also said it would sell the product later this year. Apple provided the Nasdaq's top boost, followed by chip maker Qualcomm Inc (QCOM.O), up 2.8 percent at $45.97. The semiconductor index (.SOXX) was up 2.1 percent.

Cisco Systems Inc (CSCO.O) gained 4.4 percent to $23.61 after Barclays Capital raised its rating on the network equipment maker, citing improving demand.

Dow Chemical Co (DOW.N) rose nearly 5 percent to $26.39 after U.S. antitrust regulators cleared Dow's $1.68 billion sale of Morton Salt to Germany's K+S AG. (SDFG.DE)

Other industrial standouts were U.S. aircraft manufacturer and defense contractor Boeing Co (BA.N), up 3 percent at $53.07, and diversified manufacturer 3M Co (MMM.N), up 1.6 percent at $75.01.

The Jewish holiday of Yom Kippur observed on Monday kept volume lighter, with only about 979.3 million shares changing hands on the New York Stock Exchange, compared with last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.92 billion shares traded, below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones by a ratio of about 4 to 1 on the NYSE, while on Nasdaq, about 10 stocks rose for every seven that fell.

(Editing by Jan Paschal)

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