Deals of the year 2002

There are various ways of measuring the investment banking climate. The collapse in merger and acquisition (M&A) activity perhaps speaks most eloquently of the crisis that the banks are experiencing.

Dealogic, the investment banking research firm, says the value of completed M&A transactions plummeted from $3740bn in 2000 to $1230bn last year. The many thousands of corporate finance executives thrust on the job market during the past year or two substantiate that gloomy picture.

The panel of judges for The Banker's Deals of the Year Awards did not fail to notice how thin the pile of M&A pitches received from the world's leading investment banks was.

Fingers are crossed for the much-touted turnaround this year and a speedy recovery for this key driver of investment banking business.

Best Bond Deals of the Year

Best agency deal

Merrill Lynch, Goldman Sachs and Salomon Smith Barney act as KfW bookrunners

Merrill Lynch, Goldman Sachs and Salomon Smith Barney were joint bookrunners of a $3bn 4.75% inaugural programme benchmark due January 24 2007 for Kreditanstalt für Wiederaufbau (KfW). The transaction marked the beginning of a trend with high-grade sovereign/supranational issuers following KfW by penetrating deeper into the US dollar investor base. This five-year bond attracted about $6bn in orders by the time of pricing and was the first of the new look, more investor-friendly dollar outings. It benefited from a proper book building process rather than the more arbitrage driven process that has been associated with the borrower in the past. KfW was the first of the top flight names to come in at five years and the only such coupon paper outstanding in 2007. The 55% US investor involvement reflects the efforts made during roadshows.

Best convertible deal

Goldman Sachs is bookrunner for Infineon Technologies euro issue

Early in January Infineon Technologies AG issued E1bn of convertible bonds concurrently with a E1bn block trade of its shares by Siemens AG. Goldman Sachs acted as sole bookrunner on the bond offering for the German group. It was the largest ever European sub-investment grade transaction as well as the biggest German primary convertible since 1999. This first ever subordinated German convertible transaction relied on fast and effective communication of the company credit story, since Infineon went to the market without a credit rating or outstanding straight debt. The pricing of the bond was noteworthy in that it contained the highest implied volatility of any 2002 European equity-linked issue, as well as the highest equity premium and lowest bond value of any dated European issue for last year.

Best commercial paper deal

Deutsche Bank acts for Rhineland Funding Capital Corp ECP programme

Outstandings in the euro commercial paper (ELP) market dropped sharply in late 2001 following several credit events in Europe and the US. By developing increased investor interest in other sectors of this market, apart from high yielding A-2/P-2 rated paper, Deutsche Bank was able to take a leading role in strengthening and expanding the market in the difficult environment. One example was the newly-established, asset-backed ECP programme for Rhineland Funding Capital Corp. The transaction provided a high degree of liquidity and satisfied investor demand. After intensive investor marketing efforts, the market was able to absorb more than $500m initially and build up during six months to nearly three times that amount. As Rhineland continues to diversify its investor base, it will be the first asset-backed programme to be listed on the Irish Stock Exchange. This will allow investors who can only invest in regulated securities to take up the paper.

Best corporate deal

DrKW, Goldman Sachs, Barclays Capital and ABN Amro are mandated for E.ON bond

Dresdner Kleinwort Wasserstein, Goldman Sachs, Barclays Capital and ABN Amro shared the mandate of an equivalent E7.3bn debut transaction for E.ON International Finance, the financing subsidiary of Germany's EO.N AG, the world's largest private sector energy company. The strong demand for this inaugural benchmark deal translated into a well diversified order book with placements covering a wide geographic spectrum. Three quarters of the euro transactions were sold to investors outside of EO.N's traditional home market. The issue contained a number of outstanding features. The E4.25bn tranche is the largest ever corporate bond over five years and it stands as the bellwether benchmark for European utility issues. The E900m tranche is the largest long-dated euro denominated corporate bond and the £850m tranche is the largest long-dated bond issued in sterling by a non-UK corporate. All participating bookrunners used DrKW's e-bookbuilding system for online order submission, enabling EO.N to monitor the development of the order book and allowing for speedy execution and allocation.

Best financial deal

Morgan Stanley, BNP Paribas and Nomura launch Caixa Geral de Depositos FRN

Portuguese savings bank Caixa Geral de Depositos launched a highly successful E1.25bn five-year floating rate note (FRN) that was enlarged by E250m due to investor demand and a heavily over-subscribed book jointly run by Morgan Stanley, BNP Paribas and Nomura. This was the number one FRN in Iberia and one of the 10 largest senior, unsecured debt transactions of the year. The deal took advantage of lack of supply in the market and tightening secondary spreads, coupled with limited supply from other Portuguese banks. The bank achieved its objectives of establishing a successful and liquid benchmark transaction and expanding its investor base throughout Europe. More than 75% of the issue was placed outside Iberia and 25% with funds and insurance instead of traditional bank buyers of FRNs.

Best high yield deal

CSFB is sole bookrunner of an AK Steel senior note issue

CSFB acted as sole bookrunner of a $550m senior notes offering for AK Steel, one of the largest US producers of flat-rolled steel. The issue came in as the lowest yielding metals high yield deal ever transacted and it priced tighter than the previous record holder (AK Steel's 1999 senior note offering) despite having a lower credit rating on the latest issue. The refinancing achieved three main purposes: to extend a large maturity by six years, to lower interest payments and to increase covenant flexibility. CSFB was able to structure, document and sell the offering within two weeks. This represented CSFB's fourth lead managed high yield offering for AK Steel and its seventh overall financing for the company.

Most innovative deal

Deutsche Bank, Alex Brown, Barclays Capital and Salomon Smith Barney lead General Mills benchmark transaction

A $3.5bn debut dollar benchmark transaction for General Mills Inc was co-led by Deutsche Bank, Alex Brown, Barclays Capital and Salomon Smith Barney. The deal represented the first step in the company's refinancing of its $10.5bn plus acquisition of Pillsbury from Diageo. The issue was the first large multi-tranche offering for an A-rated non-financial corporate borrower last year and its success initiated a wide range of refinancings by other corporates later in the year. Given the decline in M&A volumes, this was one of the few examples of an M&A-driven jumbo benchmark from a rare investment grade corporate borrower. The deal was enlarged from the original $2bn planned and the total order book exceeded $9bn. International orders were about $750m despite the absence of foreign marketing, and the transaction was seen as setting the tone for the first quarter of 2002.

Best securitisation deal

JP Morgan, Citibank and Barclays Capital act on Halifax ABS

JP Morgan, Citibank and Barclays Capital acted as joint bookrunners on a $5bn equivalent mortgage-backed issue for Halifax, the UK's top mortgage lender. The transaction stands as the largest ever European mortgage-backed deal as well as the largest ever European consumer ABS transaction. Permanent financing was offered in the US, Europe and Asia, and establishes a new benchmark in the residential mortgage-backed securitisation market. It was Halifax's first such offering. The transaction achieved the tightest pricing ever for a deal of its kind, including sub-Libor pricing on series 1 and wide distribution to US, European and Asian investors. The deal was enlarged by 10% following strong investor demand. JP Morgan acted as liquidity facility provider for the deal.

Best sovereign deal

Merrill Lynch and Goldman Sachs share the mandate for Brazil's sovereign issue

Merrill Lynch and Goldman Sachs acted as lead advisers on a $1.25bn bond for Brazil due 2008. The transaction, executed within one day, allowed Brazil to capitalise on low US Treasury (UST) yields, the overall improvement of investor sentiment towards emerging markets and the positive market momentum triggered by Moody's change in Brazil's rating outlook to positive. The deal was priced at a spread of 738bp over the five-year UST bond. The transaction enabled Brazil to minimise its funding costs, as the bond issue coincided with the lowest point in the country's emerging market bond index (EMBI) spread since April 2001. The order book was nearly four times over-subscribed, with excellent quality from high grade accounts and 'real money' emerging markets investors. With this transaction, Brazil was able to re-enter the dollar market after two unsuccessful consecutive deals.

Best Loan Deals of the Year

Consumer products

JP Morgan, ABN Amro, BNP Paribas, Deutsche Bank, Morgan Stanley and Royal Bank of Scotland underwrite an Imperial Tobacco acquisition facility

Imperial Tobacco raised a E5.9bn equivalent loan to finance its acquisition of Reemstma Cigarettenfabriken. The facilities were underwritten by JP Morgan, ABN Amro, BNP Paribas, Deutsche Bank, Morgan Stanley and the Royal Bank of Scotland. Syndicating a loan of this size presented significant challenges given Imperial's split BBB/Baa3 rating, its pro forma leverage of 4.1 times earnings and most particularly the prohibition on lending to the tobacco sector by which some banks are constrained. The senior debt was split into three syndicated tranches and two non-syndicated tranches. In the end, a successful syndication resulted in a substantial over-subscription and no requirement for general syndication.

Telecoms

ABN Amro is sole arranger of Maxis syndicated loan

The Maxis $670m and RM640m syndicated term loan facilities were financings for a Malaysian corporate since the Asian crisis as well as the biggest in South Asia in 2002. ABN Amro was sole arranger and joint bookrunner with Barclays Capital, Singapore's DBS and Sumitomo. The transaction provided a long-term bridge facility and offered future capex and working capital funding. Maxis obtained insurance against potential delays in the timing of its IPO by converting its short-term bridge loan to a long-term financing that could be fully and comfortably serviced by the company's operating cash flows. Four facility agreements and one swap agreement were executed and funded within one month of the award of the mandate. The facilities attracted a broad-based group of 19 domestic and international banks from Malaysia, Singapore, Japan, Europe and the US.

Industrial

Barclays Capital, Deutsche Bank and JP Morgan are joint bookrunners for E.On

Barclays Capital, Deutsche Bank and JP Morgan were joint bookrunners of a E15bn revolving credit facility for German energy service provider E.On. This was the largest debut issuer to come to the syndicated loan market in 2002. Barclays Capital, Deutsche Bank, Dresdner Kleinwort Wasserstein, HSBC, JP Morgan and Salomon Smith Barney acted as lead arrangers of the deal that involved a E10bn and E5bn revolving credit. More pure lender banks were committed to this transaction than to any other raised in the year. A total of 40 banks committed funds in spite of the challenging credit market and sector backdrop. The company achieved a 100% hit rate at the top tier of the syndicate and unusually for a syndicated loan, the borrower was able to successfully complete an acquisition in the middle of the syndication process.

New technology

ABN Amro and BNP Paribas are lead arrangers of an Atos Origin facility

Atos Origin, a French international information technology services provider, raised E840m through senior credit facilities with ABN Amro and BNP Paribas as lead arrangers of the transaction. The facility was raised to support the company's E659m acquisition of KPMG's consulting businesses in the Netherlands and the UK. Working under the worst conditions in the credit markets in more than a decade for IT services companies, the transaction was satisfactorily syndicated and stands as one of the largest ever deals executed in the sector.

Media

UBS Warburg is sole lead arranger and bookrunner of Cinven loan

UBS Warburg acted as sole lead arranger and bookrunner of E601.8m in loan facilities to support the acquisition of business publisher Aprovia and healthcare communication group by a consortium of private equity investors led by Cinven. The split into two separate transactions (E242m and E298.5m), despite identical sponsorship and closing dates, allowed the equity investors maximum flexibility in the management of two different businesses and the realisation of different exit strategies. This required the parallel negotiation of two financings. As an innovative feature, the introduction of a cash collateral package covering internet losses until 2004 allowed for the adjustment of earnings before interest, taxes, depreciation and amortisation (EBITDA) by future internet losses and therefore significantly increased debt capacity.

Food

ABN Amro is sole bookrunner of a Campofrío Alimentación syndicated loan

ABN Amro acted as sole bookrunner for a widely acclaimed E300m five-year syndicated term loan facility for Spanish food group Campofrío Alimentación. The purpose of the loan was to refinance a seven-year syndicated facility arranged in 2000 for the acquisition of two major Spanish competitors. The loan was priced along a margin grid depending on the net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, while the facility carries this and the interest cover ratio as covenants. The offer consisted of a global package including other financing products, while distribution strategy was directed at a mixture of the existing syndicate and additional international banks with a co-arranger phase prior to general syndication.

Best Equities Deals of the Year

Best rights issue

Morgan Stanley acts as lead adviser on Ericsson rights issue

Morgan Stanley was lead financial adviser for the largest ever fully underwritten rights issue, a E3.3bn transaction executed for Ericsson. The issue represented the biggest ever Nordic primary raising and was a critical step in the restructuring of the Swedish group. The deal was completed against an exceptionally difficult equity market and industry background for technology companies, and for telecom equipment manufacturers in particular. Enskilda, Goldman Sachs, Handelsbanken and Citigroup also acted as advisers to Ericsson and participated in the underwriting. The proceeds were used to supplement the company's balance sheet with permanent equity capital and repay maturing and potentially higher cost debt, as well as for general corporate purposes.

Best initial public offering

CSFB is sole global co-ordinator of an Alcon IPO

Eye care company Alcon's $2.5bn IPO was the largest ever for the healthcare sector as well as the largest sole US IPO by a foreign private issuer. The company, domiciled in Switzerland and with its corporate headquarters in the US, used CSFB as its sole global co-ordinator for the transaction. This marked the return of Alcon to the NYSE 25 years after its acquisition by Nestlé. The parent company managed to increase visibility for its subsidiary and Nestlé realised $4.3bn from the IPO proceeds, inter-company debt repayments and a special dividend. The IPO generated strong demand, with the institutional indication book 4.3 times over-subscribed and a 73% success rate from 75 one-to-one meetings with investors.

Best M&A Deals of the Year

Industrial

Morgan Stanley is sole adviser to RAG disposal/acquisition

Morgan Stanley acted as sole adviser to RAG on the sale of its Rhurgas stake and the acquisition of a majority holding in Degussa. The transaction involved four major German companies, each representing a key industry and commanding a top place in their respective sectors. The deal was triggered by E.On's interest in acquiring a majority holding in Rhurgas, the largest central European gas transporter and distributor. In exchange, RAG acquired a majority position in E.On's subsidiary Degussa, the world's largest speciality chemicals company. This was the largest transaction of the year for Germany, valued at some E12.8bn, as well as the largest public takeover offer under the new German takeover law.

Beverages

JP Morgan is exclusive financial adviser to SAB on Miller Brewing acquisition

South African Breweries' (SAB) $5bn acquisition of Miller Brewing Company created the world's second largest brewer. JP Morgan acted as exclusive financial adviser to SAB and sponsor to the listing of the consideration shares. This was a transformational deal for SAB and is expected to change the structure of the world brewing industry significantly. It is the largest ever brewing acquisition. The acquisition generated strong cash flows, with pro forma adjusted EBITDA of $1512m expected to be used to support the development of internal and external growth opportunities globally. The deal improved the credit profile of the group by lowering the cost of capital.

Financial

CSFB is sole financial adviser to Grupo Financiero Bital sale to HSBC

CSFB was exclusive financial adviser to Mexico's Grupo Financiero Bital recapitalisation and sale to HSBC for $1.14bn. CSFB executed the transaction under tight deadlines set by the Mexican government for meeting capital requirements. Bital was under pressure to meet the 10% capital ratio set by the government at the end of the year. The transaction represented a significant milestone for the Mexican financial system, in that it signified a major vote of confidence, with 75% of the country's banking system assets controlled by top global players such as Citigroup, BBVA, SCH and Bank of Nova Scotia. The Mexican banking industry is now fully capitalised as a result of this transaction, thus ending problems originated during the 1994-95 financial crisis.

Telecoms

Merrill Lynch and Lehman Brothers act on Qwest Communications sale

Qwest Communications International's $7.05bn sale of its yellow pages directory business Qwestdex to a consortium of private equity firms was executed by Merrill Lynch and Lehman Brothers. The two stages of the US transaction split the assets and operations of Dex among Qwest's 14-state local service area based on geography as well as expected regulatory approval timing. This was the largest leveraged buyout since 1989 and was a critical liquidity transaction for Qwest. The deal's primary objective was to generate substantial liquidity for Qwest to meet upcoming debt maturities and to generally deleverage the company's capital structure.

Media

Lehman Brothers is sole financial adviser on De Agostini acquisition

Lehman Brothers was sole financial adviser to publishing group De Agostini's E1.08bn acquisition of a 59.3% stake in Lottomatica, which operates Italy's state lottery. The transaction was the largest unsolicited takeover on the Milan stock exchange. Lehman Brothers and De Agostini were able to accomplish a number of goals within the short time frame of the offer period, such as: pre-empting all other potential buyers; securing control of the company during the tender offer period through subsequent negotiations with the largest shareholders; and orchestrating an efficient financing structure to maximise returns for the buyer. The deal was value accretive to the buyer and the minority shareholders, thanks to a post closing rerating of the stock and its appreciation by more than 35% in the two months following the tender offer. Lehman Brothers was also joint lead arranger and underwriter of the E650m acquisition loan facility. Lottomatica was advised by CSFB, Mediobanca and Lazard.

Information technology

Schroder Salomon Smith Barney advises on Navision sale to Microsoft

Schroder Salomon Smith Barney advised Navision A/S on its sale to Microsoft Corp, the largest announced and completed cross-border technology deal of the year, valued at $1.4bn. Goldman Sachs acted as adviser to Microsoft on the transaction. The transaction combined two industry leaders in the development and implementation of inter-connected business solutions, each with a common ambition to offer web-based solutions to the small and medium-sized enterprise market. The offer was attractive to Navision shareholders in view of the development of trading performance, outlook and valuations for industry players since the time of completion. This was Microsoft's largest acquisition in terms of value.

Food

Morgan Stanley, CSFB and Schroder Salomon Smith Barney advise on Bunge's acquisition of Cereol

Bunge's acquisition of Edison's controlling stake in Cereol created the largest oilseed processor in the world, ranking number one in Canada, South America and Eastern Europe and second in the US. Morgan Stanley and CSFB jointly advised Bunge, with Schroder Salomon Smith Barney acting for Edison. The acquirer in this US-France cross-border deal paid E1.7bn in cash for Cereol, a disposal that carried a significant 58% premium of a complex asset, with a very limited universe of potential buyers that required three parallel disposals, a buy out of two minority partnerships, dealing with the French farming community and overcoming important liability issues. The timely execution provided Edison with the needed cash proceeds, supporting its own corporate restructuring and meeting management's and shareholders' expectations.

Pharmaceuticals

UBS Warburg and JP Morgan act on Chugai-Roche alliance

UBS Warburg acted as joint financial adviser on the $3.6bn alliance of Japan's Chugai Pharmaceutical with the Roche group of Switzerland. The transaction structure was one of the most complex ever used by a Japanese public company. It consisted of a spin-off of Chugai's 100% US subsidiary Gen-Probe to Chugai shareholders, a tender offer for about 10% of Chugai shares outstanding, an allocation of new Chugai shares to Roche and the merger of Roche's Japanese subsidiary, Nippon Roche, into Chugai. As a result of this transaction, Roche will own 50.1% of the combined entity in Japan. The transaction was Japan's largest ever pharmaceutical merger. Having overcome initial resistance from some Chugai shareholders, the deal showed that Japanese companies must give consideration to shareholder interests when structuring M&A transactions.

Mobile communications

Deutsche Bank and Merrill Lynch advise on MobilCom restructuring

MobilCom AG achieved a landmark E7.5bn restructuring, with Deutsche Bank and Merrill Lynch as joint advisers on a complex deal that was one of the top three transactions of its type in Europe last year. MobilCom negotiated the restructuring of its universal mobile telecommunications system (UMTS) related debt through an agreement with 28.5% shareholder France Telecom, whereby the French operator acquired a 90% economic interest in MobilCom's UMTS assets and assumed E7bn of MobilCom debt. In a highly innovative structure, the senior interim facility (put together by a consortium of banks for the acquisition of the German UTMS licence) was swapped into a perpetual bond convertible into France telecom equity. MobilCom also obtained further funding of up to E600m from France Telecom to close down its UMTS operations, as well as E112m from a group of German financial institutions to restructure its core mobile reseller, fixed line and internet operations.