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20-08-2010 16:07:45

BHP, Intel and RSA shatter usual August M&A lull

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By Quentin Webb

LONDON (Reuters) - Global mergers and acquisitions have hit nearly $200 billion (128.9 billion pounds) this month, making it already one of the busiest Augusts on record in what is typically one of the year's quietest periods, Thomson Reuters data shows.

The $197.6 billion of deals appears to vindicate analysts and bankers who have spent months predicting an upturn in M&A, as cash-rich corporates regain confidence, the economic backdrop improves and banks are increasingly ready to lend.

The tally is led by BHP Billiton's (BHP Billiton PLC ORD $0.50) (BHP BLT FPO) $39 billion hostile offer for Potash Corporation of Saskatchewan Inc (POT), the year's biggest deal, but blue-chips in other sectors, such as Intel Corp (Intel Corporation) and RSA Insurance Group PLC (RSA Insurance Group PLC ORD GB), are also pursuing major acquisitions.

"Companies have been feeling more positive, valuations often look reasonable, and financing markets are open again," said Tom Cooper, co-chair of M&A at Deutsche Bank, this year's fourth-busiest adviser on deals.

Still, bankers said the rush was partly coincidental, since takeovers usually require months of preparation. And while improving visibility on corporate profits has lightened the mood, most boards remain far from gung-ho about risky deals.

"As stability begins to return, you'll definitely see more M&A -- but I don't think this flurry of activity presages the start of a huge boom," said Guy Dawson, vice chairman of Europe, the Middle East and Africa (EMEA) investment banking at Nomura.

The largest August on record was in 1999 when M&A totalled $274.8 billion, the data shows. This year is already the busiest August since 2006.

Taken alone, this week boasts the highest value of announced deals since November -- when Warren Buffett's Berkshire Hathaway Inc (BRKA)(BRKB) agreed to buy rail company Burlington Northern Santa Fe Corp, in the billionaire investor's biggest-ever takeover.


One big spur is cheaper and more readily available funding. Solid A-rated companies now pay a premium over Libor of about 71 basis points for loans, half that of a year ago, data from Thomson Reuters unit Loan Pricing Corp (LPC) shows.

And BHP's bid is even funded by $45 billion of loans on terms cheaper than the last mammoth acquisition loan of 2008, bankers told LPC.

"If you're borrowing, you can do big deals on attractive terms and even the sub-investment grade market is willing to fund in size," Deutsche's Cooper said.

BHP illustrates another big trend -- four of the eight biggest deals involve natural resources. In contrast, uncertainty about future rules governing the sector has curbed banking M&A, traditionally a hotbed of deals.

(Reporting by Quentin Webb; editing by David Cowell)

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