Minority investments rise amid credit crunch

PHILADELPHIA (Reuters) - Warren Buffett's investment in Wm Wrigley Jr Co WWY.N and Kirk Kerkorian's purchase of Ford Motor Co (F.N) stock this week brought big names to the growing trend of buying small stakes.

As tightening credit markets have made it more difficult and costly to raise funds for large acquisitions, investors have opted to buy smaller stakes in companies rather than pursuing full takeovers.

April marked the eighth consecutive month of increasing minority-stake acquisitions, according to Thomson Reuters.

Globally, 93 percent of deals by dollar value involved the purchase of a minority stake, marking the highest monthly proportion of total deals since January 2006, according to Thomson Reuters.

"There are funds with a lot of capital to invest and they are finding opportunistic ways to invest it," said Robert Kennedy, a private equity lawyer at Jones Day in New York.

"It's part of a broader strategy they are adopting. There's not all the cookie-cutter deals of a large, full-scale acquisition. Those opportunities are becoming fewer and farther between," Kennedy said.

So far this year, the number of global deals involving minority investments has risen to 4,000, up 32 percent from the same period a year ago. The number of such deals in the United States has more than doubled to 444 deals, up from 220 a year ago, according to research firm Dealogic.

In the case of Wrigley, Mars Inc will purchase the chewing-gum company with the help of $17.2 billion in combined funding from JPMorgan Chase & Co (JPM.N) and Goldman Sachs Group Inc (GS.N) -- and about $6.5 billion in help from Buffett.

Buffett's Berkshire Hathaway Inc (BRKa.N) will gain a "more than 10 percent" minority stake in Wrigley, which will become a separate Mars subsidiary. In an interview with CNBC, Buffett said Mars approached him about the deal. "They knew the check would clear and (I) wouldn't interfere in any way," Buffett said.

With $44 billion in cash on hand, the Wrigley investment is almost inconsequential for Buffett.

Yet, a small, passive investment may be a good use of cash and lets Berkshire diversify, analysts said. Berkshire has large insurance holdings, but in recent years it has expanded into construction, energy and food.

"More PE (private equity) funds and investors are becoming flexible in terms of their business model. The expectations on returns may not be as high as in the past, but you have to look at what opportunity is the best at the time," Kennedy said.

The largest deal this year that involved the purchase of a minority stake was in February when Chinese mining group Chinalco teamed with U.S. aluminum producer Alcoa (AA.N) to buy a 12 percent in Rio Tinto (RIO.L) for about $14.3 billion, Dealogic said.

Buying small stakes can give activist investors a foothold in a company and some leverage to agitate for change.

Kerkorian, a long-time activist shareholder in auto companies, now has targeted Ford Motor Co and aims to buy 5.6 percent stake of the company through his investment vehicle Tracinda Corp.

Tracinda said on Monday it already holds 100 million Ford shares, or about 4.7 percent, and plans a cash tender offer to acquire 20 million more shares, or nearly 1 percent of the stock, at $8.50 per share.

Kerkorian has a long record as an activist investor in automakers, though he made a failed bid for Chrysler LLC last year. He previously owned a nearly 10 percent stake in General Motors Corp GM.N and his adviser, Jerry York, served on GM's board.

Analysts had speculated that Kerkorian would push Ford to shed more assets, in addition to its recent agreement to sell Jaguar Land Rover to Tata Motors Ltd (TAMO.BO)

York, however, told The New York Times that Tracinda had no plans to seek control of Ford, which has strong anti-takeover protection since the Ford family controls 40 percent of the voting rights at the company.

"It's a recognition that the poison pill is an obstacle but maybe you can exert some influence as a minority stake holder and wait it out and keep pressing for change," said Columbia University Law School Professor John Coffee.

"There's an increasing number of shares being held by a smaller number of hands, so you may be able to have four or five like-minded minority holders exerting influence to bend a CEO's ear without having to buy the company."

Of course, the eight-month upswing in minority investments may stop if the credit markets free up more cash and make larger deals more feasible, analysts said.

"Nothing is permanent. Variety is the spice of life. Each cycle brings new products and new creative ways of investing," Kennedy said.

(Reporting by Jessica Hall, editing by Dave Zimmerman)

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