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Pending deals seen unaffected by Swiss franc leap

[LONDON] Deals involving Swiss companies Sika and Holcim were expected to survive the impact of a shock decision to scrap a cap on the franc, said several analysts and banking sources involved in such transactions.

Bigger deals are insulated against the effects of Thursday's sudden surge in the value of the Swiss currency because companies involved tend to buy insurance to protect them against such moves.

However, some bankers said that the volatility introduced by the Swiss National Bank (SNB) decision to scrap the cap after three years could dampen deal-making in the longer term.

French building materials company Saint-Gobain, which is buying Swiss rival Sika in a 2.75 billion Swiss franc deal and does most of its business in euros, said it had covered itself against exchange rate moves.

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"I don't see this is a vital game changer (for Saint-Gobain)," said Martin Hüsler, Senior Equity Analyst at Zurich Cantonal Bank.

"For me it's still a done deal. The family sold their shares to Saint-Gobain, and Saint-Gobain has hedged the purchasing price. I don't expect the currency event to change the rationale of the deal," he added.

Holcim also said that it remained committed to a planned merger with France's Lafarge to create the world's biggest cement maker despite the move by the Swiss National Bank that knocked almost 3 billion francs off the Swiss company's market value.

Holcim was one of the companies caught up in a 10 per cent all in Swiss blue chip stocks on fears over the impact on their exporting power.

Holcim slumped 20 per cent at one point and was trading almost 12 per cent lower by 1505 GMT, while Sika was down 7.5 per cent.

Some even sensed an opportunity in the sudden currency move. "That's brilliant news," said a source close to telecom tycoon Xavier Niel, who has just acquired Switzerland's third biggest mobile operator Orange Switzerland for 2.3 billion euros.

"This means that without doing anything, you suddenly end up with an asset worth much more that what you bought it for." Complications might arise in deals including a material adverse change (MAC) clause allowing the parties to terminate a transaction if an external event significantly changed the outlines of the deal.

It could not be established whether a MAC clause was included in the deals mentioned in the article because of confidentiality issues.

One of the bankers however thought that some smaller companies were more likely to have been affected by the currency swing as they had seen the cap as enough of a guarantee to preventing them buying insurance.

Switzerland's second largest mobile operator Sunrise could also benefit from a stronger currency as it plans to raise around 1.35 billion Swiss francs in a stock market listing.

"Sunrise is being sold primarily on a yield perspective. And this is a very attractive dividend yield, worth 20 per cent more because it's being paid in Swiss francs," said a source close to the deal. "In Switzerland, there are not that many opportunities with this kind of yield opportunities."

Swiss groups like Sarasin, Julius Baer and Credit Suisse vying for Royal Bank of Scotland's private bank Coutts International may have a competitive advantage in the auction, a financial institutions banker said.

"They have a great currency now. But if stock markets and possibly the whole economy slide it is unclear how big the advantage ends up being," the banker said.

Most bankers said although it was too early to have a clear idea of the long-term impact of a stronger Swiss franc on dealmaking, they all agreed that volatility is unlikely to help. "Today's decision is definitely a bad news for M&A because it has introduced an additional element of uncertainty in an already fragile market depressed by oil price levels", said one of the bankers currently involved in a Swiss deal.

"We didn't need that to start the year with."