From Volume 5, Issue Number 28 of EIR Online, Published July 11, 2006

World Economic News

Lazard Is Advisor in Mega-Bid by Veolia

Lazard is the advisor in a huge bid by Veolia, the world's biggest water company, for Vinci SA, the world's largest builder. Lazard Ltd. was hired by France-based Veolia in Summer 2005, along with Morgan Stanley, to advise Veolia on its hostile takeover plans, according to Le Figaro and Reuters. Veolia traces back to 1853, set up by an imperial decree of Napoleon III; it first supplied water to Lyons, then by the 1880s, it had water concessions for Venice, Istanbul, and many other cities. France-based Vinci's building projects include the Channel Tunnel; it also owns Autoroutes du Sud, Europe's second biggest toll-highway concessionaire.

Hedge Funds Take Leading Role in Mergers and Acquisitions

According to a new report by the Morgan Stanley investment bank, hedge funds have built a leading role in recent mergers and acquisitions, with some of these takeovers getting more and more hostile, the Frankfurter Allgemeine Zeitung reported July 5.

In the case of the Arcelor-Mittal "merger," hedge funds controlled 78% of the transaction; in the German case of Bayer-Schering, it was 88%. Takeovers are now the most profitable branch of hedge-fund activities (through which they may want to recover certain losses in other operations).

The second quarter of 2006 has been a high time for hedge funds, with a total volume of $930 billion transacted in mergers and acquisitions; funds hope to make 2006 a new record high, over the year 1999, when mergers had a total volume of $3.2 trillion.

One may add that the investment funds (which provide the money flows for the takeovers) and the hedge funds collaborate closely with each other. In the case of Arcelor, a record number of 13 investment banks and funds were reported as engaged, which included Lazard's.

'While N. Korea Fires Missiles, S. Korea Attacks U.S. Businesses'

South Korean anti-trust authorities have upheld a ruling against Microsoft, forcing them to de-link their media player and messaging operations from their operating system, and fining them $34 million, the Wall Street Journal reported July 5, under the above headline.

Euro Commission: Abolish Restrictions on Hedge Funds

European Union rules that restrict access by small investors to hedge funds should be abolished, says a report released by the European Commission July 4. The report was commissioned last year by Charlie McCreevy, the EU internal market commissioner, a rabid free-marketeer and deregulator, who has been warning against over-regulating the $325 billion European hedge fund "industry."

"Retail investor access to appropriately marketed hedge fund-based investments should no longer be taboo," the report says.

The Financial Times notes that the report's stance is in sharp contrast to the statements by former German Chancellor Gerhard Schröder, who has called for more restrictions. And just last month, the European Central Bank warned that hedge funds constitute a major risk to global financial stability.

ECB Warns Against Asia-Style Crisis in Southeastern Europe

In a special report presented in Frankfurt, July 5, the European Central Bank sounded a surprise alarm over the risks involved in the excessive borrowings abroad, by Eastern and, especially, Southeastern European countries like Romania and Bulgaria. There, about 50% or more of new borrowings are denominated in foreign currencies, which the ECB says poses the risk of "an Asia-style financial crisis."

The ECB warns of an "Asian scenario" with a "sudden reversal" of capital flows, local and regional turbulences. "Experience shows that such booms ... often end in banking crises," the release announcing the report, says.

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