Pfizer seals $14bn Medivation deal

BY Richard Summerfield

In its largest deal since its $152bn merger with Allergan was terminated in April, pharmaceutical powerhouse Pfizer Inc has announced that it will acquire US drug manufacturer Medivation Inc – producer of the best selling cancer drug Xtandi – in a deal worth $14bn.

The transaction, according to a statement released by the firms, will see Pfizer pay around $81.50 a share in cash for the company which had been the subject of furious takeover speculation of late. Indeed, a number of other pharmaceutical companies made offers for Medivation in an auction after it rebuffed an offer of $9.3bn by French drug maker Sanofi. Rival US firms Merck & Co and Celgene are also believed to have pursued deals for Medivation since Sanofi’s offer proved unsuccessful; however, it was Pfizer that was able to clinch the deal.

Speculation around a potential deal for the company helped to double Medivation’s share price over the last few months. In February, its stock was trading at less than $30 per share. Although Medivation’s stock price has climbed recently, the agreed deal price will still see Pfizer pay a 21 percent premium on Medivation’s share price on Friday, the last trading day before the deal was announced.

Oncology related drugs have proved to be a popular deal driver in recent years and the success of Xtandi has also helped to send Medivation’s stock price soaring. Xtandi is the leading novel hormone therapy available in the US today and generated approximately $2.2bn in worldwide net sales over the past four quarters. Furthermore the drug is expected to generate $5.7bn in sales by 2020.

“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive of Pfizer. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”

Though Xtandi is Medivation’s only marketed product, the company has a strong pipeline of other cancer drugs in late-stage clinical development. Potential breast cancer treatment talazoparib and a potential lymphoma drug will sit alongside Xtandi and a number of other oncology related products offered by the newly merged Pfizer who were slow out of the gates when it comes to cancer treatments. The company has been playing catch up in the oncology field and the deal for Medivation will go a long way toward closing the gap.

News: Pfizer boosts cancer drug roster with $14 billion Medivation deal

AIG to divest mortgage unit for $3.4bn

BY Richard Summerfield

American International Group Inc. (AIG), the largest commercial insurer in the United States and Canada, has announced that it has agreed a deal to sell its mortgage-guarantee unit to Arch Capital in a deal worth around $3.4bn, pending customary regulatory approvals. The deal is expected to close in either Q4 2016 or Q1 2017.

Under the terms of the deal, AIG will receive around $2.2bn in cash from the sale, $250m in Arch Capital's perpetual preferred stock and $975m in non-voting common-equivalent preferred stock from the sale of United Guaranty Corp (UGC).

The sale of the mortgage unit comes as AIG increases its efforts to return cash to its increasingly agitated shareholders. The company has come under considerable pressure from activist shareholder Carl Icahn, and as a result had agreed to pursue the sale of the mortgage unit, cut a number of jobs and sell its broker-dealer network. Mr Icahn had proposed splitting AIG into three distinct smaller companies.

According to a statement announcing the sale, the combination of Arch’s existing mortgage insurance business with UGC’s established business will create the largest private mortgage insurer in the world, based on insurance in-force, with a global footprint.

Constantine Iordanou, chairman and chief executive of Arch, noted: “We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty. Our mortgage insurance segment expands and complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global, diversified operations.”

The company will retain some aspects of its mortgage-insurance business under an existing agreement between UGC and AIG subsidiaries covering 2014 to 2016, and will therefore retain some of the earnings from the unit. UGC had been one of AIG’s most profitable units in recent years, and generated $350m in pretax operating income in the first half of 2016. AIG’s company-wide pretax income was around $2.57bn.

“We are excited about this deal and what it means to AIG and the talented professionals at UGC. It further streamlines AIG into a more focused insurer and enhances our capital position, in keeping with commitments AIG made to the market in early 2015 and restated earlier this year,” said Peter Hancock, president and chief executive of AIG. “The transaction also maintains AIG’s presence in a profitable market through a stake in a market leader that shares our focus on risk-based pricing and analytics as the foundation for our industry’s future. We are leaving UGC in the good hands of a forward looking management team.”

News: AIG to sell unit to Arch Capital for $3.4 billion

Steinhoff and Mattress Firm get into bed together

BY Richard Summerfield

South African retailer Steinhoff International Holdings has taken its first tentative steps into the US market following the announcement that it will acquire Mattress Firm Holding Corp in a deal worth $3.8bn including debt.

Steinhoff has agreed to pay Mattress Firm shareholders $64.00 per share in cash for a total equity value of approximately $2.4bn, The company’s existing debt will see Steinhoff pay an enterprise value for Mattress Firm of approximately $3.8bn. The acquisition price represents a premium of 115 percent on Mattress Firm’s closing price of $29.74 per share at the close of trading on 5 August.

The deal is expected to close in the third quarter of 2016, the companies said. The transaction has been unanimously approved by the board of directors of Mattress Firm and the management and supervisory boards of Steinhoff.

Markus Jooste, CEO of Steinhoff said: “The boards of Steinhoff and its management team are enthusiastic about the opportunities this transaction creates. This transaction will allow Steinhoff to not only enter the U.S. market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses. The Mattress Firm brand and speciality retail concept are a strong complement to the Steinhoff group retail brand portfolio in the many geographies where the group operates.”

Steinhoff’s move for Mattress Firm is the latest in a series of deals completed by the company (in July, it agreed to pay nearly $800m for British discount chain Poundland), and will give the firm a footing in the US, with Steinhoff controlling around 25 percent of the country’s retail market for specialty mattresses. The company is already the world’s largest bed retailer. In Europe, Steinhoff already owns European home furnishings retailers Bensons for Beds and Conforama, a significant US operation of franchised and operated stores in 48 states. Mattress Firm has over 3500 retail outlets across the US as well as 75 distribution centres. The company generated $3.5bn in pro-forma sales last year.

In February, Mattress Firm reinforced its position as a leader in the US mattress retail market by completing a $780m merger with HMK Mattress Holdings LLC, the holding company of Sleepy's. Sleepy's was the second largest specialty mattress retailer in the US with over 1050 stores.

News: Steinhoff to buy Mattress Firm for $3.8 billion including debt

Didi Chuxing to acquire Uber China in $35bn deal

BY Fraser Tennant

In a move that will bring to an end an intense rivalry in the ride-hailing market in China, transportation company Didi Chuxing is to acquire the business of taxi-booking app firm Uber Technology Inc in a $35bn deal.   

Once the transaction is complete, Uber China (owned by US-based Uber and the Chinese web services company Baidu Inc) will hold a 20 percent stake in the new company.  

Although the two firms have been rivals in the ride-hailing market for years, Didi Chuxing, which has the backing of Chinese internet giants Tencent and Alibaba, is the dominant force, with an 87 percent market share in China (around 14 million journeys every day).  

Beijing-based Didi Chuxing also has the backing of Apple, which invested $1bn in the firm in May 2016.

Conversely, and despite the support provided by internet giant Baidu, Uber China has been less successful, having failed to make a profit since its launch in 2014. Indeed, Uber revealed in February 2016 that it has been losing $1bn a year on account of its operations in China.  

"Funding their China dreams was becoming too expensive for Uber,” said Duncan Clark, chairman of Beijing-based consultancy BDA, in an interview with the BBC. “One thing to watch carefully is how quickly consumers feel the impact as subsidies are withdrawn."

The subsidies referred to by Clark, which are believed to be considerable, are a product of the rivalry between the two firms. Now that the acquisition has been announced, these subsidies are likely to be much less prevalent.

Coincidentally, the Didi Chuxing/Uber deal comes just days after the introduction of a new legal framework in China for taxi-ordering apps. Welcomed by both ride-hailing firms, the decision seeks to address a grey area which saw the business of normal taxi operators undermined due to the popularity of taxi-booking apps.  

The new rules, expected to take effect on 1 November 2016, are also likely to prevent ride-hailing firms operating below cost and to restrict the extent of the aforementioned subsidies.

Despite Uber’s decision to merge its China operations with Didi Chuxing, the firm has aggressive plans for expansion elsewhere, including a $500m investment in developing its own mapping system and the launch of its UberEats project in Australia and London.

News: Uber to Sell China Business to Rival Didi After Losing Billions

Analog Devices buys Linear Technology in $14.8bn deal

BY Fraser Tennant

In a move which will result in the creation of a major analogue technology company, Analog Devices Inc has announced that it is to buy Linear Technology Corporation in a deal valued at $14.8bn.

Under the terms of the definitive agreement, Analog Devices will acquire Linear Technology in a cash and stock transaction that will see Linear Technology shareholders receive $46.00 per share in cash and 0.2321 of a share of Analog Devices common stock for each share of Linear Technology common stock.

Analog Devices intends to fund the transaction with approximately 58 million new shares of Analog Devices common stock, approximately $7.3bn of new long-term debt and the remainder from the combined company’s balance sheet cash.

Upon completion of the acquisition (expected by the end of the first half of calendar year 2017), Analog Devices will be an industry leader across data converters, power management, amplifiers, interface and RF and microwave products.

“The combination of Analog Devices and Linear Technology brings together two of the strongest business and technology franchises in the semiconductor industry,” said Vincent Roche, president and chief executive of Analog Devices. “Our shared focus on engineering excellence and our highly complementary portfolios of industry-leading products will enable us to solve our customers’ biggest and most complex challenges at the intersection of the physical and digital worlds.”

The combined company will use the name Analog Devices, Inc.  and both Analog Devices and Linear Technology anticipate a combined company leadership team, with strong representation from both companies across all functions.

“For 35 years, Linear Technology has had great success by growing its business organically,” said Bob Swanson, executive chairman and co-founder of Linear Technology. “However, this combination of Linear Technology and Analog Devices has the potential to create a combination where one plus one truly exceeds two. As a result, the Linear Technology Board concluded that this is a compelling transaction that delivers substantial value to our shareholders, and the opportunity for additional upside through stock in the combined company.”

The transaction has been unanimously approved by the boards of directors of both companies and is subject to regulatory approvals in various jurisdictions, the approval of Linear Technology’s shareholders, and other customary closing conditions.

Mr Roche concluded: “I have no doubt that the combination of our two companies will create a trusted leader in our industry, capable of generating tremendous value for all of our stakeholders."

News: Semiconductor Industry Shrinks Some More With Latest Deal