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As if emerging markets need another boost, buyouts and takeover speculation are pushing up shares from Taiwan to South Africa.May 17, 2007

By Alexander Ragir

New York – As if emerging markets need another boost, buyouts and takeover speculation are pushing up shares from Taiwan to South Africa.

Private equity investors are looking to spend the record $33 billion (R229.4 billion) they raised last year to buy firms in the developing world.

Edgars Consolidated Stores and Advanced Semiconductor Engineering of Taiwan are among firms whose shares have soared after takeover bids. “The conditions are ripe,” said Greg Lesko, the head of equity at Deltec Asset Management.

Private equity funds increased the amount raised for emerging market investment 10-fold over the past four years, according to the Emerging Markets Private Equity Association. That war chest will help boost share prices for two reasons, according to Lesko: firms will make takeover bids and potential targets will distribute cash to shareholders in the form of increased dividends, to deter buyers.

A pick-up in deals may help extend the four-year rally in emerging markets. Morgan Stanley Capital International (MSCI) Emerging Markets index has risen 8.7 percent this year, after surging an average of 36 percent annually from 2003 to 2006. Emerging markets are beating developed markets this year for the seventh consecutive year, MSCI indices show.

Buyout firms were lured by the low debt levels and profitability of emerging markets, said Vinicius Silva, a market strategist at Morgan Stanley.

Buyers typically load up the target firms with debt to pay for the acquisitions. They can then boost profitability by cutting costs or increasing revenue, ensuring that there are enough earnings to pay off the debt.

US billionaire Warren Buffett, whose Berkshire Hathaway has about $46 billion in cash and bought its first non-US firm in Israel last year, said he was becoming more comfortable investing internationally.

He was considering a purchase in South Africa. “If we can bring in a fish, and preferably a whale, in South Africa, we would love to do it.”

Buffett was looking for acquisitions of between $40 billion and $60 billion.

The 20 largest emerging-market firms that Morgan Stanley picked as likely private equity targets have outperformed the MSCI Emerging Markets index since February 15.

Buyout firm Oaktree Capital Management said it planned to buy Fu Sheng Industrial. Fu Sheng shares surged 6.9 percent. Those kinds of gains did not always last, said Jesper Madsen, a fund manager at Matthews International Capital Management.

“Regulators in emerging markets probably will block some private equity deals because many companies are perceived as having strategic importance for developing nations,” said Madsen.

Even so, private equity funds had made a “distinct” move towards emerging markets in the past three years, said Sarah Alexander, the president of the Emerging Markets Private Equity Association.

Asia-dedicated funds garnered $19.4 billion last year. The amount set aside for Latin America, $2.65 billion, doubled from a year earlier, while money for sub-Saharan Africa-dedicated funds, $2.35 billion, almost tripled, according to the association. The funds were mostly buying closely held companies, said Alexander.

Private equity interest was a good indicator that stocks might be undervalued, said Audrey Kaplan at Rochdale Investment Management. – Bloomberg

Nikanor’s heavyweights may offer to buy out minorities for price of IPO

New York – Glencore International and Israeli diamond entrepreneur Beny Steinmetz may offer to buy out minority shareholders in Nikanor in a bid that values the Democratic Republic of Congo (DRC) copper mining company at £839.1 million (R11.5 billion).

Nikanor got a proposal of £6 a share from shareholders, including Steinmetz, that hold 72 percent, the firm said yesterday. This price matches Nikanor’s July initial public offering (IPO) and is 7.7 percent below Tuesday’s £6.50 close.

The firm’s “unconnected” directors believed the bid did not reflect Nikanor’s true value, the company said. The offer hinged on the board’s recommendation, it said.

The board declined the prospective bidders’ request to delay yesterday’s shareholders’ meeting on approving the sale of shares to fund the mine’s developments.

The proposal “is not going to sit well with minority shareholders”, said Mark Smith, a DRC mining analyst at RBC Capital Markets.

Nikanor might sell shares worth $650 million and raise $1 billion through a bank loan or bond sale to finance the development of its KOV mine in DRC, chief executive Jonathan Leslie said on March 30.

The firm raised $434 million in the July IPO. It needs $1.6 billion more to restart the mine, compared with $1.28 billion it forecast earlier, as well as $200 million more in working capital. – Bloomberg