Tuesday's Headlines: M&As challenged on market woes

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The recent market slump and downgrade of the United State's credit rating has investors who bet on mergers and acquisitions scrambling, as agreed-upon prices are no longer valid, according to Reuters. The news service quoted one merger arbritrageur saying that the spreads of "anything with risk and financing is widening out more. The guys doing LBOs -- if any merger agreement has any hint of a crack in it with regards to financing, those deals are really widening out."

Examples include:

Ralcorp, which rejected a $4.9 billion bid from ConAgra Foods earlier this year, and in the past three days saw its shares drop by 15% below the bid price.

Temple Inland's $3.3 billion hostile bid from International Paper has seen its shares drop 14% over the last week.

Varian Semiconductor Equipment agreed in May to be bought by Applied Materials for $4.9 billion, but its market cap has dropped by 8% to $4.5 billion.

Other news:

HSBC is in talks with Capital One to sell its U.S. credit card business. [NY Times]

Reinsurer Transalantic Holdings hopes to begin merger negotiations with Berkshire Hathaway, though the $3.25 billion bid competes with offers from allied World Assurance and a hostile takeover bid by Validus Holdings. [DealBook]

Citigroup has been hit by thieves for second time in three months, losing the personal information of more than 92,000 credit card clients to fraudsters in Japan. [WSJ]

Citi reveals details of its gross exposure to Greece, Italy, Portugal, Spain and Ireland which was $31.7 billion - higher than the $22 billion net exposure previously reported. [Bloomberg]

Apollo Q2 profit more than quintupled to $139.6 million in its second quarterly earnings release since going public in March. [DealBook]

British investment bank Evolution agreed to take over BNP Paribas Private Investment Management in a $2.95 billion deal. [Reuters]

Hedge fund Varde will buy British homebuilder Crest Nicholson in a debt-for-equity swap worth $600 million. [Bloomberg]

E*Trade created a special committee to evaluate the company's strategic options and hired Goldman Sachs to advise following pressure from Citadel, the online broker's biggest shareholder. [NY Times]

BofA's shares tumbled by 20.3% to its lowest point in two years on renewed fears over its financial health. [DealBook]

Bank of Whitman in Washington and Bank of Shorewood in Illinois were closed by their respective state financial regulators. Columbia State Bank will take over Bank of Whitman and Heartland Bank & Trust will take over Shorewood. [WSJ]

Goldman Sachs said American International, Fannie Mae and Freddie Mac are among companies that have threatened to take legal action against the firm over mortgage-related securities. [BusinessWeek]

British private equity firm Cinven is negotiating a deal to buy Guardian life insurance from the Dutch firm Aegon for more than $410 million. [FT]

Banks in emerging markets are starting to tighten credit after years of rapid expansion, offering new evidence of a potential slowdown in global growth. [WSJ]

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