Google to become Alphabet following reorganisation

BY Richard Summerfield

Over the course of the last decade or so, Google has played a pivotal role in the lives of billions of people. Though the company began as a mere search engine, today Google has become a global conglomerate offering everything from video hosting to high speed fibre broadband, restaurant reviews to ‘smart’ home heating systems, and self driving cars to venture capital investments.

However, going forward this is all going to change, as Google will soon become a wholly owned subsidiary of a new holding company, Alphabet. “Our company is operating well today, but we think we can make it cleaner and more accountable. So we are creating a new company called Alphabet,” said Google chief executive Larry Page in a blog post on the company’s website.

In creating Alphabet, the company caught many analysts and investors off guard. But it is important to note that there will be no material change for consumers or investors going forward. Google’s fundamental businesses – and its experimental ‘Google X’ division – will remain the same under the Alphabet banner.

Indeed, Google's core units – search, YouTube, Android and maps – which account for almost all of the company’s annual revenue of around $66bn and its $460bn stock market capitalisation – will remain within the Google subsidiary. However, Google itself will have a new chief executive, Sundar Pichai, who had been senior vice president in charge of products. Mr Page and Google co-founder Sergey Brin will run Alphabet, Google’s new parent company. Other subsidiary  companies including Nest and Calico will sit alongside Google.

Though the move was unexpected, it has been heralded as a positive step. The reorganisation of the sprawling and diffuse Google business marks the first time that any of the major Silicon Valley powerhouses has attempted to streamline their units. Companies such as Amazon and Facebook, which themselves have acquired a litany of tech start ups in recent years, will surely watch Google's reorganisation with interest.

Investors have almost universally supported the realignment of Google's business. Shares of Google Class C stock rose more than 4 percent on Tuesday morning, the day after the announcement was made. The move is expected to bring greater balance-sheet accountability and reduce Google's spending on speculative endeavours. As Mr Page noted, “We plan to implement segment reporting for our Q4 results, where Google financials will be provided separately than those for the rest of Alphabet businesses as a whole.”

How the reorganisation will affect Google’s antitrust battles in Europe remains to be seen, however.

News: Google morphs into Alphabet; investors cheer clarity

Analysing the trillion-dollar alternative assets arena

BY Fraser Tennant

A comprehensive analysis of the alternative assets industry, including an examination of performance, routes to market and consultant recommendations, is to be found within the pages of a new report by data and intelligence provider Preqin.

Aimed exclusively at institutional investors, the ‘2015 Preqin Investor Network Global Alternatives Report’ features a wide range of topics underpinned by the latest alternatives data and expert analysis.

“The very term ‘alternative assets’ is questionable today," states Mark O’Hare, founder and CEO of Preqin. “With AUM of $7 trillion worldwide and projected to reach $12 trillion by 2020, alternatives have become core for investors.”

The report contains in-depth analysis of: (i) the evolution of alternative assets and the importance of alternatives in investors' portfolios; (ii) methods of accessing alternatives, including separate accounts, co-investments, direct investments, secondaries and funds of funds; (iii) investment consultant recommendations for the year ahead; (iv) investor fund searches, including strategic and geographic preferences; (v) performance across alternative assets; (vi) fund terms and alignment of interests; and (vii) investor attitudes toward alternatives and plans for 2015.

The reasons behind the upsurge in alternatives as a core investment are simple and powerful, claims Mr O’Hare. He says: “Private equity-style investments have demonstrably delivered superior returns to investors over the long term; and hedge fund investments occupy an attractive position on the risk-return frontier (even if the headline returns have disappointed recently).

“Add in infrastructure, private debt, real estate and natural resources opportunities – all with their distinct growth dynamics – and you have a fundamental trend of growth”, he believes.

Elsewhere in the report, Preqin analysts highlight a notable shift in the proportion of investors targeting unlisted infrastructure funds in favour of direct investments in assets. As of December 2014, 65 percent now target funds and 56 percent target direct investments.

Additionally, the report reveals that hedge funds fared worst when examining overall investor sentiment: 35 percent felt that their hedge fund investments fell short of expectations throughout 2014. In terms of private equity, Preqin found that 50 percent of investment consultants are now recommending that their clients invest more capital in small to mid-market buyout funds in 2015 compared to last year.

Mr O’Hare concludes: “As investors come to place greater reliance on alternatives to meet their investment objectives, so their need for reliable information grows. Alternatives are now simply too important to delegate solely to external advisors.”

Report: ‘2015 Preqin Investor Network Global Alternatives Report’

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