Teva to buy Allergan Generics in $40.5bn deal

BY Fraser Tennant

Teva Pharmaceutical Industries Ltd has announced that it has signed a definitive agreement to acquire Allergan Generics in a $40.5bn transaction.

The acquisition - which some analysts are describing as the largest carried out by an Israeli company - brings together two leading generics businesses with complementary strengths, brands and cultures, and will provide patients with greater access to affordable, quality medicines.

Once the acquisition is complete, Teva, which reported net revenues of $20.3bn in 2014, will become one of the largest drug manufacturers in the world.

To be financed through a combination of new equity, debt financing and cash on hand, upon closing, Allergan will receive $33.75bn in cash and shares of Teva valued today at $6.75bn – an estimated under 10 percent ownership stake in Teva.

“This transaction delivers on Teva’s strategic objectives in both generics and specialty,” said Erez Vigodman, president and CEO of Teva. “Through our acquisition of Allergan Generics, we will establish a strong foundation for long-term, sustainable growth, anchored by leading generics capabilities and a world-class late-stage pipeline that will accelerate our ability to build an exceptional portfolio of products – both in generics and specialty as well as the intersection of the two."

In sharing a commitment to patient safety and quality, Teva and Allergan aim to create a company which will transform the global generics space all over the world.

"This transaction will accelerate Allergan's evolution into a branded Growth Pharma leader, enable a sharpened focus on expanding and enhancing our global branded pharmaceutical business and strengthen our financial position to build on our proven track-record of value creation led by effective capital deployment," said Brent Saunders, CEO and President of the Dublin-based Allergan.

“We will have the potential to add scale in existing therapeutic areas, expand into new therapeutic areas and geographies and evaluate strategic transformational deals as we continue to build on our position as the most dynamic branded growth pharma company.”

The financial advisers for Teva during the transaction were Barclays and Greenhill & Co, while Sullivan & Cromwell LLP and Tulchinsky Stern Marciano Cohen Levitski & Co served as legal counsel. For Allergen, J.P. Morgan is acting as sole financial adviser and Latham & Watkins LLP is serving as lead legal adviser.

The Teva/Allergan transaction has been unanimously approved by the board of directors of both companies and is expected to close in the first quarter of 2016.

Mr Vigodman concluded: “We look forward to delivering the benefits of this transaction to our stockholders, and better serving patients, customers and healthcare systems throughout the world.”

News: Teva to buy Allergan generic business for $40.5 billion, drops Mylan bid

FCA benchmarks review urges FI’s to better manage the risks they face

BY Fraser Tennant

Financial institutions must improve how they identify and manage their benchmark activities and associated risks, according to a new Financial Conduct Authority (FCA) review of oversight and control of financial benchmarks.

The FCA’s review discovered that although there had been some progress made in terms of improving the oversight and controls around benchmarks, the application of the lessons learned from the LIBOR, Forex and Gold cases to other benchmarks had been uneven across the industry and "often lacked the urgency" required given the extent of the failings.

"We have seen widespread historic misconduct in relation to benchmarks,” said Tracey McDermott, director of supervision – investment, wholesale and specialists at the FCA. “It is now critical that firms act to restore trust and confidence in the system. Firms should have in place systems to manage the risks posed by benchmark activities and to address the weaknesses that have previously been identified.”

Additionally, the FCA found that firms were failing to identify a wide enough scope of benchmark activities by interpreting the International Organization of Securities Commissions (IOSCO) definition too narrowly. 

Ms McDermott continued: “We recognise that this is a significant task and firms had made some improvements, but the consistency of implementation and speed at which these changes have been taking place is disappointing.  Firms should take our findings on board and consider further steps to improve their oversight."

Key FCA recommendations found in the review include the need for firms to: (i) continue to strengthen governance and oversight of benchmark activity; (ii) continue to identify and manage conflicts of interest; (iii) fully identify their benchmark activities across all business areas; (iv) establish oversight and controls for any in-house benchmarks where they have not done so; and (v) implement appropriate training programmes.

Responding to the FCA’s thematic review, PwC's UK banking and capital markets leader Simon Hunt said:  “The identification of a complete population of benchmarks subject to the IOSCO definition is a significant challenge that firms have been grappling with.

“Firms that have introduced centralised governance and an oversight body for these benchmarks have been able to strengthen significantly the control infrastructure and understand and manage the risks that they face as an organisation.”

As a follow-up, the FCA has confirmed that it will write to all of the firms involved in the review to offer individual feedback as part of its regular supervision program.

Report: Financial Benchmarks: Thematic review of oversight and controls

US corporate bankruptcies down

BY Richard Summerfield               

According to a report from BankruptcyData.Com, a division of New Generation Research, the number of firms falling down the slippery slope to bankruptcy in the US has dwindled over the last two quarters.

Business bankruptcies in the first half of 2015 were 19.2 percent lower than the first six months of last year and  68 percent lower than the first six months of 2010.

Despite the trend, public companies are still struggling. The report indicates that the number of Chapter 11 filings by public companies in H1 2015 reached its highest midyear level since 2011, and the total assets of companies entering bankruptcy, with the exception of financial companies, are at their highest levels since 2009. Furthermore, the 10 non-financial Chapter 11 filings involving assets above $1bn so far in 2015 is the highest at this point in the year since 2009.

Unsurprisingly, SMEs accounted for the majority of bankruptcy filings in the first half of the year, although the number of small companies encountering financial difficulty has begun to trend downwards. Seventy-six percent of all business bankruptcies recorded in the first half of 2015 were filed for by companies with $2.5m or less in gross sales revenue; though this figure is still high, it compares favourably with 2013 and 2014 which respectively saw 81 percent and 87 percent of bankruptcy filings stemming for smaller companies .

The bankruptcy filing of Caesars Entertainment, the largest unit of Casino giant Caesars Entertainment Corp, was the largest Chapter 11 filing of the first half of 2015. The company entered bankruptcy protection in January listing assets of $1.5bn.

The service industry was responsible for the most bankruptcy filings in Q2, at 31 percent. However, this figure is down from Q2 2014 and Q2 2013, which saw the service industry generate 37 percent and 43 percent of filings.

Report: Q2 2015 Business Bankruptcy Filing Report

Anthem poised to acquire Cigna in $54.2bn insurance industry megadeal

BY Fraser Tennant

Anthem Inc. and Cigna Corporation have announced that they have entered into a definitive agreement whereby Anthem will acquire all Cigna’s outstanding shares in a transaction valued at $54.2bn - the largest deal ever seen in the history of the insurance industry.

The combined health services company will cover approximately 53 million medical members with well positioned commercial, government, consumer and specialty businesses, along with a market-leading international franchise.

“We are very pleased to announce an agreement that will deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high quality health care experience for consumers," said Joseph Swedish, president and chief executive of Anthem.

Expected to become an industry leader due to enhanced diversification capabilities, the united companies will utilise their complementary strengths, including Anthem’s Blue Cross and Blue Shield footprint in 14 states (and Medicaid footprint via its Amerigroup brand in 19 states) with Cigna’s US and global portfolio of health and protection services.

Mr Swedish continued: “We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve.”

Upon close of the transaction, Mr Swedish will serve as chairman and chief executive of the new entity. David Cordani, currently Cigna’s president and chief executive, will take on the role of president and chief operating officer. Additionally, and effective upon close of the transaction, the Anthem board of directors will be expanded to 14 members with Mr Cordani and four independent directors from Cigna’s current board joining Anthem’s.

“Our companies share proud histories and an even brighter future," said Mr Cordani. “Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system's challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them.”

Cigna’s financial and legal advisers for the transaction are Morgan Stanley and Cravath, Swaine & Moore LLP, respectively. For Anthem, the financial advisers were UBS Investment Bank and Credit Suisse with White & Case LLP serving as legal adviser.

Although the transaction is expected to close in the second half of 2016, regulatory scrutiny may delay consummation of the deal for a year at least. Adding to concerns is Anthem and Cigna’s lower opening on the New York Stock Exchange following the announcement of the transaction - lost ground which both companies may struggle to regain.

News: Anthem to buy Cigna for $54B in mega insurance merger

Trials and tribulations: China's shifting business landscape highlighted in new report

BY Fraser Tennant

The deeper trends reshaping the business and investment environment in China today are the focus of a new report – ‘China 2015: China’s shifting landscape’ – by the boutique investment bank and advisory firm, China First Capital.

As well as highlighting slowing growth and a gyrating stock market as the two most obvious sources of turbulence in China at the midway point of 2015, the report also delves into the deeper trends radically reshaping the country’s overall business environment.

Chief among these trends is the steady erosion in margins and competitiveness among many, if not most, companies operating in China’s industrial and service economy. As the report makes abundantly clear, there are few sectors and few companies enjoying growth and profit expansion to match that seen in previous years.

The China First Capital report, quite simply, paints a none too rosy picture of China’s long-term development prospects.

“China’s consumer market, while healthy overall, is also becoming a more difficult place for businesses to earn decent returns," explains Peter Fuhrman, China First Capital’s chairman and chief executive. “Relentless competition is one part, as are problematic rising costs and inefficient poorly-evolved management systems.” 

“From a producer economy dominated by large SOEs, China is shifting fast to one where consumers enjoy vastly more choice, more pricing leverage and more opportunities to buy better and buy cheaper. Online shopping is one helpful factor, since it allows Chinese to escape from the poor service and high prices that characterise so much of the traditional bricks-and-mortar retail sector. It’s hard to find anything positive to say about either the current state or future prospects for China’s ‘offline economy.’”

Elsewhere in the report there are discussions that provide signals about future growth and profit opportunities in China, including: China’s new rules and rationale for domestic M&A; background on China’s most successful, if little known, recent start-up, mobile phone brand OnePlus; the implications of  shutting out most private sector investment in shale gas; how Nanjing is emerging  as the core of China’s ‘inland economy’; and why the Chinese stock market is currently in such a woeful state. 

“We’re at a fascinating moment in China’s story of 35 years of economic transformation," says Peter Fuhrman. “But it takes more insight and focus to outsmart the competition and succeed.”

Report: China 2015: China’s shifting landscape