Record-breaking $160bn deal sees Pfizer buy Allergan

BY Fraser Tennant

In a deal believed to be the largest in healthcare history, biopharmaceutical giant Pfizer Inc. has announced that it is to acquire speciality pharmaceutical company Allergan plc – a transaction that will create a new global leader in biopharma business and innovation.

Under the terms of the definitive merger agreement, Pfizer will combine with Allergan in a stock transaction currently valued at $363.63 per Allergan share, for a total enterprise value of approximately $160bn (based on the closing price of Pfizer common stock of $32.18).

Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares.

“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” said Ian Read, chairman and chief executive of Pfizer. “Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth. Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States.”

Under the terms of the transaction, unanimously approved by their boards of directors, the businesses of Pfizer and Allergan will be renamed ‘Pfizer plc'. The new entity’s board is expected to consist of 15 directors and will be led by Mr Read (continuing his previous role) and Brent Saunders (currently Allergan’s chief executive) as president and chief operating officer.

“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better,” said Mr Saunders. “This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale.”

Upon closing, the combined company is expected to maintain Allergan’s Irish legal domicile – a move which has seen the US-based Pfizer accused of corporate tax avoidance (i.e., tax inversion) by president Obama, among others. 

Nevertheless, subject to certain conditions, including receipt of regulatory approval in certain jurisdictions such as the US and EU, and the receipt of necessary approvals from Pfizer and Allergan shareholders, the transaction is expected to complete in the second half of 2016.

News: Pfizer to buy Allergan in $160 billion deal

Hausfeld agrees $120m Libor settlement with Barclays

BY Fraser Tennant

Following four years of complex private litigation, global claimants’ law firm Hausfeld has announced a $120m settlement with Barclays Bank plc regarding Libor (London Interbank Offered Rate) fraud claims made by Over-The-Counter (OTC) investors.

Barclays, along with 15 other global financial institutions, had been accused of manipulating Libor – the mechanism used to set the cost of borrowing on mortgages, credit cards, loans and derivatives worth more than $450 trillion (£288 trillion) globally – so that its traders could make big profits on derivatives pegged to the base rate.

It is believed that Barclays first manipulated Libor during the global economic upswing of 2005–2007 before coming under suspicion from a number of regulatory authorities (based in the US, Canada, Japan, Switzerland, and the UK, among others). This particular litigation stretches back to 2011 when the City of Baltimore and other purchasers filed lawsuits against Barclays and other international banks alleging that they conspired to artificially suppress the US dollar LIBOR rate during the financial crisis.

Barclays previously admitted to manipulating LIBOR (in the run up to the financial crisis and in its aftermath) during settlements with US and UK regulators - the US Commodity Futures and Trading Commission and the FSA, respectively - in June 2012. In this instance, the bank was fined £290m and chief executive Bob Diamond resigned amid the fallout.

In addition to the monetary compensation agreed this week, Barclays, which only last month agreed to pay $94m in a separate litigation involving manipulation of Libor's euro-denominated equivalent, Euribor, has also committed to assisting the OTC plaintiffs in their continuing litigation against the other bank defendants .

The settlement with the OTC plaintiffs was achieved shortly before the Second Circuit Court of Appeals heard arguments on whether the plaintiffs’ antitrust claims should be reinstated after they were dismissed by the trial court.

“The settlement with Barclays, which comes over four years after the case was first filed, not only represents an important breakthrough in resolving this long-running litigation, it also provides significant monetary recovery and cooperation that will benefit the victims of the banks’ conduct," said Michael D. Hausfeld, chairman of Hausfeld.

Hilary Scherrer, a partner at Hausfeld LLP, called the settlement with Barclays an “icebreaker that could open up this litigation to future settlements".

News: Barclays to pay $120 million in U.S. Libor litigation - lawyers

Marriott and Starwood agree $12.2bn merger

BY Richard Summerfield

US hotel chain Marriott International has agreed to acquire its rival Starwood Hotels & Resorts Worldwide, Inc for around $12.2bn. The deal, once completed, will create the world’s largest hotel chain.

Marriott will pay $11.9bn in stock and the rest in cash. The deal is expected to close in mid-2016.

Under the terms of the deal, Starwood’s shareholders will get 0.92 shares of Marriott and $2 in cash for each share of Starwood common stock held. Separately, they will also get $7.80 per Starwood share upon completion of a spin-off of the company's timeshare business to Interval Leisure Group. The total valuation of each Starwood share is around $72.08, a premium of roughly 19 percent on the company’s share price before rumours of the deal began to appear.

Both boards have unanimously agreed to the merger, although the deal is still contingent on shareholders approval, as well as regulatory approval and other customary closing conditions.

In a joint statement announcing the deal, Arne Sorenson, president and chief executive of Marriott International, said: “The driving force behind this transaction is growth. This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace.  This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.  Today is the start of an incredible journey for our two companies.  We expect to benefit from the best talent from both companies as we position ourselves for the future”.

Combined, the new company will operate around 5500 hotels worldwide and more than one million rooms. By comparison, Hilton Worldwide, the next largest hotel company, has around 4400 properties and approximately 720,000 rooms.

Bruce Duncan, chairman of Starwood, said: “During our comprehensive review of strategic and financial alternatives, it was clear that our talented people, world-class brands, global leadership and spirit of innovation were much admired and key drivers of our value. Our board concluded that a combination with Marriott provides the greatest long-term value for our shareholders and the strongest and most certain path forward for our company.  Starwood shareholders will benefit from ownership in one of the world’s most respected companies, with vast growth potential further enhanced by cost synergies. Starwood’s shareholders will also receive the value of the previously announced sale of our vacation ownership business to Interval Leisure Group, which is not part of this transaction.”

Following completion of the merger, Marriott’s board will increase from 11 to 14 following the addition of three members of Starwood’s board. Marriott expects to deliver annual synergies of at least $200m in the second full year after the transaction closes.

News: Marriott to buy Starwood to create world's biggest hotel chain

NYC banking regulator reveals cyber security guidelines

BY Richard Summerfield

Unless you have been living under a rock for the last few years, it will not have escaped your attention that instances of cyber crime have become increasingly prevalent in the business community. It seems not a week goes by without a cyber breach grabbing the headlines – along with a swathe of sensitive data.

Various regulatory bodies have taken steps to guide firms through the minefield of cyber security. This week, New York’s leading banking regulator – the New York Financial Department of Services (NYDFS) – became the latest to follow suit. The NYDFS felt motivated to act as, in its own words, it "considers cyber security to be among the most critical issues facing the financial world today".

In a letter to other state and federal regulators, including the US Office of the Comptroller of the Currency and Federal Reserve Board of Governors, the NYDFS revealed details about its potential new cyber security regulations for the banks and insurance companies which fall under its jurisdiction. These regulations could include a requirement for institutions to notify companies of data breaches. "It is our hope that this letter will help spark additional dialogue, collaboration and, ultimately, regulatory convergence among our agencies on new, strong cyber security standards for financial institutions," wrote Anthony Albanese, NYDFS’ acting superintendent.

Organisations would also be obliged to ensure that contracts with third parties included a set of rules designed to keep sensitive data safe, including the use of multi-factor authentication, both internally and on customer log-on pages, and data encryption. Two step authentication is becoming increasingly popular online. Social media giants like Facebook and Twitter, services such as Gmail, and even online video games now offer multistep authentication. As such, it seems only logical that financial institutions embrace the technology.

Firms would also be required to appoint a chief information security officer if they do not already have one. The CISO would be responsible for overseeing policy, while cyber security staff would be required to undergo mandatory training.

Under potential new regulations, third party vendors – such as law firms, data processors and auditors – would also be required to achieve compliance moving forward.

News: NY banking regulator unveils details on planned cyber security rule

Phenomenon of 'too big to fail' banks at an end following regulatory action by FSB

BY Fraser Tennant

In a move that brings about the end of the phenomenon of banks being ‘too big to fail', the  Financial Stability Board (FSB) has this week unveiled its final Total Loss-Absorbing Capacity (TLAC) standard for global systemically important banks (G-SIBs).

The TLAC standard issued by the FSB, the body that coordinates regulation across the Group of 20 economies (G20), is essentially a buffer that will allow a big bank to fail whilst ensuring that no economic disorder ensues, as it did at the height of the 2007-09 financial crisis.

To do this, failing G-SIBs will be given access to sufficient loss-absorbing and recapitalisation capacity available for authorities to implement a resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss.

Furthermore, the TLAC standard states a minimum requirement for G-SIBs bail-in but does not limit authorities’ powers to expose other liabilities to loss through bail-in or the application of resolution tools other than the TLAC. G-SIBs will also need to meet the TLAC requirement alongside the minimum regulatory requirements outlined in the Basel III framework (a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (BCBS)).

The existence of the TLAC tool follows on from the G20’s request in the wake of the financial crisis for the FSB to undertake a program of reforms such as increasing bank capital requirements, making derivatives markets more transparent and keeping a tighter rein on bankers' bonuses.

“The FSB has agreed a robust global standard so that G-SIBs can fail without placing the rest of the financial system or public funds at risk of loss," said Mark Carney, chair of the FSB. “This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks. The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs.”

The FSB’s consultation period on a proposed standard on TLAC began in November 2014 in consultation with the BCBS; the final standard (November 2015) features numerous changes made following the consultation and impact assessment studies (also published this week).

In a letter to G20 leaders ahead of next week’s summit in Turkey (15 to 16 November), Mr Carney said that "countries must now put in place the legislative and regulatory frameworks for these tools (the TLAC standard) to be used."

News: G20 finalizes tools for ending 'too big to fail' banks