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Jul 6, 2016

DealBook Today's Top Headlines on July 6, 2016: Pressures Grow After 'Brexit' Vote | It May Be Time to Unwrap Another Hershey Deal | A Tasty, High-Calorie Deal

PRESSURES GROW AFTER 'BREXIT' VOTE The financial strains from Britain's vote to leave the European Union are starting to show, Chad Bray reports in DealBook.

Three major real estate funds, run by Standard Life, Aviva Investors and M&G Investments, have frozen withdrawals in the last two days in an effort to slow the exodus of nervous investors. M&G said investor redemptions had "risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum." It said the suspension would allow managers time to "raise cash levels in a controlled manner, ensuring that any asset disposals are achieved at reasonable values."

The moves have prompted more turbulence in markets as investors have rushed out of risky investments to haven assets, pushing American Treasury yields to new lows. Australian and Japanese government bonds are also at record lows, The Financial Times reports. The pound dropped to its lowest point in more than 31 years in early Asian trading on Wednesday, while the yen and gold price continued to climb. Asian markets slumped, with the Nikkei 225 closing down 1.85 percent, asCarlos Tejada and Prashant S. Rao report in DealBook.

European markets continued the slide when they opened as concerns about Italian banks added to worries about Britain's vote to leave the bloc,Bloomberg reports. European bank stocks in particular took a hammering.

Authorities around the world are paying close attention to the economic, financial and political fallout of the vote. These reverberations could test whether they have put in place the necessary measures to protect the broader system from a shock after the global financial crisis.

The Bank of England warned on Tuesday that the environment had become "challenging," noting that credit was tightening up in the commercial real estate market. The central bank provided some support by cutting the buffer that British banks need to keep on their books, a move that should allow them to lend more to business and consumers.

The Bank of England's financial stability report on Tuesday noted that "valuations in some segments of the market, notably the prime London market, had become stretched," warning that any fall in commercial property prices could be "amplified" by investors and real estate funds.

Andrew Bailey, the head of one of Britain's financial regulators, said that so-called open-ended real estate funds faced a structural problem because their assets did not "revalue naturally" in the market and that it was sensible to suspend withdrawals. Officials from Britain's Financial Conduct Authority were to meet with major asset managers on Tuesday to discuss the impact of the referendum on whether Britain should leave the European Union, a spokeswoman said.
ON THE AGENDA The Federal Reserve will publish the minutes from the last Federal Open Market Committee meeting at 2 p.m. The Commerce Department will report data on the nation's trade balance for May at8:30 a.m.
IT MAY BE TIME TO UNWRAP ANOTHER HERSHEY DEAL The success of Mondelez International's bid for the Hershey Company will depend on the charitable trust that controls the chocolate bar maker - an example of how a controlling interest can make economics secondary to politics and relationships, Steven Davidoff Solomon writes in Deal Professor.

The Hershey Trust is basically the town of Hershey, controlling the cemetery, an amusement park, residential and commercial real estate, and a garden. It also mints money, collecting $160 million in dividends a year from Hershey, and had assets of about $12 billion in 2014.

There have been repeated controversies. The biggest battle in recent years has been over the fate of the Hershey Company itself. In 2002, the trust held an auction of the company and was close to declaring the Wm. Wrigley Jr. Company the winner when the Pennsylvania state attorney general sued in local court to block the sale on the grounds that it would violate the trust's mandate to protect the Pennsylvania community where it is based. Other companies made attempts to buy Hershey, but the state had enacted a law requiring the trust to get the attorney general's approval before it could sell its Hershey stake.

The trust has never been particularly well run, and the attorney general has forced out numerous trustees and accused it of malfeasance by overpaying trustees and buying a golf course.

The turmoil at the trust may have provided an opening for Mondelez. A sale would require approval from the company, the trust and the attorney general, all of whom have different interests. But the trust may be more willing to contemplate becoming a more passive financial administrator.

The Pennsylvania attorney general, Kathleen Kane, has also been indicted in a scandal and had her law license suspended.

Mondelez knows that community interests are paramount to the acquisition, but the more it makes commitments regarding keeping jobs and headquarters, the less it can pay shareholders. But the Hershey board has already rejected an initial offer.

It is hard to know what to make of it, Mr. Davidoff Solomon writes. "While I wouldn't want many companies to be in Hershey's predicament, perhaps it is a jewel to be treasured, one that should be exempt from the law of economics and today's hyper market efficiency."
A TASTY, HIGH-CALORIE DEAL Hostess Brands announced on Tuesday that they had agreed to sell a majority stake in the company to thepublicly traded affiliate of the Gores Group, an investment firm, for about $725 million, Michael J. de la Merced reports in DealBook.

The stakes are high for Hostess, which emerged from bankruptcy protection three years ago. It is joining public markets at a time when more consumers are shunning sweets in favor of more nutritious treats.

Apollo Global Management and Metropoulos & Company, which currently control Hostess, stand to collect a return of about $1 billion on an initial equity investment of $185 million.

Gores Holdings, the so-called blank-check company that Gores Group is using to make the acquisition, raised $375 million in an initial public offering last year to finance acquisitions.

At 10.4 times adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, it is a high price for a baker that went bankrupt twice because of changing consumer tastesRobert Cyran writes in Breakingviews.

The deal includes a lot of continued good fortune on top of lots of debt. Gores will inject its $375 million of cash into the company, along with another $350 million from additional investors. That will bring the total debt burden to around 4.5 times Ebitda, which is hefty for a public company.

There is little room for missteps. Hostess cannot easily jump aboard the healthy food bandwagon, and a giant buck in food's bottom line could easily knock Twinkie the Kid off the saddle again.
Bret Taylor at home in Lafayette, Calif., last year.
Twitter Brings Aboard Facebook Veteran As Twitter continues to reshape its board, Bret Taylor was appointed for his experience in consumer technologies and his prominent role at Facebook.
Medivation Agrees to Takeover Talks The biotechnology company agreed to hold discussions about potentially selling itself for $10 billion to large global pharmaceutical groups, including Sanofi of France, ending a monthslong hostile pursuit in which Sanofi tried to replace Medivation's entire board.
Ventas Signs $1.5 Billion Deal Focused on Life Sciences Ventas, a real estate investment trust focused on medical properties, signed a $1.5 billion deal to buy assets from Blackstone Group and made its entry into university-affiliated properties.
AC Milan Close to Finding New Owner After Berlusconi Reveals Deal With Chinese "I didn't discuss price. I've accepted what they offered me," Silvio Berlusconi said on Tuesday.
British Turnaround Specialist Buys Nasdaq-Listed NortekMelrose Industries, a British buyout specialist, agreed to buy Nortek, a manufacturer of cooling and heating systems for homes and offices, in a $1.44 billion cash deal.
An order by the Swiss tax authorities for UBS to share account information with France is the latest development in a continuing effort to pursue individuals who seek to avoid paying taxes
UBS Told to Share Clients' Account Information With France The order from tax authorities in Switzerland, where the bank is based, is the latest move in an effort by officials in the United States and Europe to pursue those who seek to avoid paying taxes.
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K.K.R. Agrees to Buy Software Maker K.K.R. has agreed to buy the Epicor Software from Apax Partners for about $3.3 billion, including the assumption of existing debt, The Wall Street Journal reports, citing people familiar with the matter.
Foxconn Unit Plans I.P.O. That Could Raise $1 Billion Foxconn of Taiwan, which assembles most of Apple's iPhones, filed for an initial public offering of its cable and connector unit in Hong Kong that could raise up to $1 billion.
Chinese Regulator Plans to Prune Waiting List for I.P.O.s China's securities regulator is looking to cull the nearly 900-strong backlog of companies seeking to list on domestic stock exchanges by weeding out those deemed unsuitable, The Wall Street Journal reports, citing people familiar with the situation.
'Chaos Monkeys' An account of success and failure - and the relationship between them - in the tech industry.
Snow, the popular South Korean Snapchat clone, has a dog filter for images, right, that looks very similar to Snapchat's, left.
A South Korean Copy of Snapchat Takes Off in Asia The quick growth of Snow, an almost one-to-one clone of that other photo app, shows that success abroad is no guarantee for American tech stars.
Mary Jo White, chairwoman of the Securities and Exchange Commission.
S.E.C. Victories Delay Challenge on In-House JudgesCourts have backed the S.E.C.'s use of administrative proceedings, but none examined the constitutional issue of the appointment of the agency's judges, Peter J. Henning writes in White Collar Watch.
F.B.I. Is Conducting 30 Undisclosed Insider Trading InquiriesThe number of investigations comes during a resurgence of insider trading cases, with prosecutors in Manhattan charging 11 people so far in 2016, up from four in 2015.
Lisa Edwards commutes from Barclays Bank to Per Scholas, a nonprofit offering low-income workers training in I.T.
Job Training Works. So Why Not Do More? Giving a leg up to United States workers on the lower rungs of the labor ladder could be a cost-effective way to counter economic and political hopelessness, Eduardo Porter writes in the Economic Scene.
An ailing economy in Newport, which voted to leave the European Union, is reflected in vacant storefronts and game parlors.
Welsh Reject E.U., but Its Money Will Be Missed One of the looming questions in the aftermath of Britain's vote to leave the European Union is what happens to bloc aid flowing into places like Wales.
Manchester United goalkeeper David de Gea, right, a Spaniard, would be among an estimated 135 first-team players in the Premier League who might not be eligible for work permits if the United Kingdom left the European Union and stricter permit rules took effect.
British Soccer Teams Brace for the Impact of 'Brexit'The ability of Britain's top soccer clubs to sign and retain some international stars would be complicated should the country leave the European Union. Rugby and cricket teams could also be affected.
An English flag outside a house in a suburb of Wigan, a gritty northern English town where 64 percent of the population voted for
Wigan's Road to 'Brexit': Anger, Loss and Class Resentments The Labour-dominated city voted "Leave" to jolt elites in London as well as in Brussels into restoring a lost world of secure jobs and communities.
Home Secretary Theresa May in London on Tuesday. Ms. May has emerged as the clear front-runner among the five candidates seeking to replace David Cameron as leader of the Conservative Party.
'Brexit' Briefing: Conservative Backbiting; Labour Civil War; Welsh Regrets? A member of the Conservative Party was caught on camera sharing candid comments about his colleagues seeking the party's leadership.