EBA confirms “no exemption” approach to banker bonuses

BY Fraser Tennant

Every bank is to be subject to the same staff bonus cap according to new guidelines published by the European Banking Authority (EBA) this week.

The regulator’s guidelines, its final statement on remuneration policy, are designed to ensure that financial institutions correctly and consistently calculate the bonus cap by mapping remuneration components into either fixed or variable pay, as well as detailing allowances, sign-on bonuses, retention bonuses and severance pay.

The EBA does, however, recommend exemptions from certain aspects of the EU's latest Capital Requirements Directive (CRD IV) remuneration rules for smaller banks and operators, such as asset management firms.

To this end, the EBA is of the opinion that legislative action is required in order to clarify and ensure that the CRD remuneration requirements are applied consistently across the EU. At present there are a number of national rules regarding the application of proportionality, including the waiving of requirements, which has led to an uneven playing field between institutions across the EU.

“While smaller asset managers and banks will be relieved that the EBA believes the deferral rule should not apply to them, for larger asset managers the situation is particularly concerning," asserts Jon Terry, a reward partner at PwC. “The EBA appears to be suggesting that they should no longer be able to avoid remuneration requirements on deferral and payment in instruments.”

However, the EBA’s attitude does not constitute a legal basis and the guidelines are essentially “neutral” on this particular aspect. For the moment, the CRD general principle of proportionality determines how waivers are applied – a scenario very much subject to change.

"Many assets managers and smaller banks will be very concerned that the EBA is proposing changes to the Directive that would require that all firms, regardless of size, will be subject to the bonus cap. It appears current practices will apply for 2016, and the guidelines have simply provided a stay of execution until 2017. Although the situation is not yet certain - changes will need to go through the European legislative process, which can be lengthy.”

The EBA Guidelines, based on the so-called ‘comply or explain’ principle meaning that Competent Authorities have two months to state whether or not they will comply with them, are due to come into force across the EU on 1 January 2017.

Report: EBA guidelines on sound remuneration policies

Qihoo 360 to go private in $9.3bn deal

BY Richard Summerfield

Chinese internet company Qihoo 360 Technology Co. Ltd has announced that it has agreed a $9.3bn all cash deal to be taken private by a group of investors led by the firm’s chairman Hongyi Zhou. The deal for the company, which is expected to close in H1 2016, includes around $1.6bn worth of debt. The investor’s offer for the company has already won the approval of Qihoo’s board of directors; however the transaction is still subject to the customary closing conditions.

The company will become the latest in a number of US listed Chinese tech firms to have been taken private, which has become a feature of 2015. Indeed, as of mid November 2015 around 33 mainland Chinese companies listed on US exchanges had announced more than $40bn worth of privatisation and de-listing deals. Chinese firms including Shanda Games Ltd and medical R&D services provider WuXi PharmaTech have been among those de-listing in the US. For Chinese executives and investors it is considerably easier to target US listed companies as they tend to be cheaper than Chinese traded businesses.

The deal was first mooted in June 2015 by Mr Zhou and will see an investor group including Citic Guoan Group, Golden Brick Silk Road Capital, Sequoia Capital China, Taikang Life Insurance, the Ping An Insurance Group, Sunshine Insurance, New China Capital, Huatai Ruilian, and Huasheng Capital take control of the company.

Under the terms of the offer each class A and class B share in China will be exchanged for $1.33 in cash, and each American depositary share will be exchanged for $77. The price offered for the company represents a 16.6 percent premium on the closing price of Qihoo’s American depositary shares and a 32.7 percent premium to the average closing price of the company’s depository shares in the 30 days before the proposal.

The consortium has announced that it intends to finance the deal using contributions from the investors, as well as a committed term loan of up to $3bn, as well as a bridge loan of $400m. For the investor group to have raised the cash that it has, the Chinese economy is a particularly impressive feat. Stock market volatility has been considerable in 2015.

However Qihoo’s brand in China is strong, and for the investor group the company’s is an extremely attractive proposition. Over the course of the last eight quarters the company has met or exceeded each of its revenue and earnings estimates. Equally Qihoo’s stock has climbed 27.5 percent throughout 2015.

NEWS: Qihoo 360 to be taken private in $9.3bn deal

SOURCE: http://in.reuters.com/article/qihoo-360-ma-idINL3N1473SM20151218

Newell Rubbermaid and Jarden combine to create $16bn consumer goods giant

BY Fraser Tennant

Consumer goods giants Newell Rubbermaid Inc. and Jarden Corporation have announced their intention to join forces to create a new $16bn company: Newell Brands.

Newell Rubbermaid, an S&P 500 company, is a global marketer of consumer and commercial products with 2014 sales of $5.7bn and a strong portfolio of leading brands. Jarden Corporation, a diversified, global consumer products company, has an extensive portfolio of over 120 trusted and authentic brands.

The combination of the two companies’ portfolios is expected to accelerate existing business plans in food & beverage, baby products, commercial products, kitchenware & appliances across large, growing and unconsolidated global markets that exceed $100bn.

Under the terms of the agreement, Jarden shareholders will receive $21 in cash for each Jarden share and 0.862 of a share in Newell Rubbermaid stock at closing. Once the transaction is complete, Newell Rubbermaid shareholders will own approximately 55 percent of the company.

Additionally, Newell Rubbermaid anticipates incremental annualised cost synergies of approximately $500m over four years, driven by efficiencies of scale and new efficiencies in procurement, cost to serve and infrastructure.

 “The combination of these two great companies creates a $16bn consumer goods company with incredible potential to grow and create value,” said Michael B. Polk, current president and chief executive of Newell Rubbermaid, who will lead Newell Brands upon the closing of the transaction. “The scale of our combined businesses in key categories, channels and geographies creates a much broader canvas on which to leverage our advantaged set of brand development and commercial capabilities for accelerated growth and margin expansion.”

The transaction, expected to close in the second quarter of 2016, is subject to approval by shareholders of both Newell Rubbermaid and Jarden, receipt of regulatory approvals and other customary closing conditions.

“I am delighted that we are to play a part in bringing together these two winning companies," said Martin E. Franklin, executive chairman and founder of Jarden. “The combination offers significant value for our shareholders and the opportunity to participate in the combined company’s long-term value creation potential as shareholders in Newell Brands.”

Eyeing the opportunities ahead, Mr Polk said: “I look forward to working with Martin as we drive the new Newell Brands towards its aspiration of becoming one of the preeminent consumer goods companies in the world.”

News: Newell Rubbermaid to Acquire Jarden for $15 Billion

RiskMap 2016: navigating the ‘contours of risk and opportunity’ in a volatile world

BY Fraser Tennant

“Risk is a necessary precondition for opportunity”, according to a new report – ‘RiskMap 2016’ – which examines the key risks, opportunities and trends that businesses are likely to face in 2016.

The report, compiled annually by Control Risks, forecasts that 2016 will be a challenging year for businesses as they are forced to navigate escalating security and political risks.

Among the risks highlighted in the report, which claims that the security and political risk outlook appears worse than at any point in the past 10 years, are concerns pertaining to terrorism, Middle Eastern instability, cyber risk, a Chinese economy in transition, and European financial and political uncertainties.

 All in all, RiskMap 2016 paints a picture of a more volatile world in 2016.

Yet the report does make clear that there are causes for optimism including: (i) the possibility of further successes of multilateral diplomacy following the landmark Iranian nuclear deal and the restoration of US ties with Cuba; (ii) stable growth in most western economies; (iii) the possibility of a gradual rise in commodity prices as the decade continues; and (iv) indications by governments that they are willing to cooperate on environmental issues.

“These risks - and many others - will continue to threaten unprepared businesses”, says Richard Fenning, CEO of Control Risks. “Whether it is the see-sawing balance of economic power between the East and the West, uncertainty about the future of commodities prices, the disconcerting metastasis of IS, the ramifications of China’s adjustment to its new economic reality, or an explosion in the frequency and severity of criminal cyber-attacks, successful businesses will need to prepare themselves to face tough challenges on a number of fronts.”

Furthermore, believes Fenning, these political and security concerns need not translate into major obstacles for businesses as he expects the relative political stability of Western democracies to give their economies a “renewed competitive advantage” over developing economies that are faced with stagnant growth and political unrest (such as China and India).

Continued Mr Fenning: “It would be easy to think the world has never been more unsettled, or unpredictable, than now. But businesses and investors would do well to remember that, despite the many risks and challenges that 2016 will present, the world has always been a shifting and unpredictable place.”

Report: RiskMap Report 2016

A year in PE review

BY Richard Summerfield

Preqin's 'Private Equity Spotlight' report, released in December, highlights a number of the biggest trends in the PE space over the last 12 months.

One of the most notable features of the last year has been the drop in average holding periods for portfolio companies, from 5.9 years in 2014 to 5.5 this year. Back in 2008 it was 4.1 years. The year-on-year reduction in holding periods reflects the favourable exit conditions which have evolved.  To date, there have been 1595 PE exits valued at $426bn, compared to $457bn in 2014, a record year for PE exits.

The alternative assets space has become a prominent sector in recent years. The industry had around $7.1 trillion worth of assets under management in Q1 2015, up from $5.5 trillion in 2012. Given its increased size and importance, it is essential that investors and fund managers understand industry trends, according to Preqin. as a result, key metric analysis is a vital tool.

Sovereign wealth funds have also grown over the last 12 months. In March, Preqin reported that their global AUM had risen more than $900bn to reach $6.3 trillion. This stunning level of growth has come in spite of increasing volatility in the oil and commodity sectors.

Report: Private Equity Spotlight: 2015 in Review