AI to drive GDP growth – PwC

BY Richard Summerfield

Across a wide spectrum of industries there is burgeoning excitement around the implementation and applications of artificial intelligence (AI). While there will be myriad challenges with properly leveraging AI, a new report from PwC suggests that global GDP could be up to 14 percent higher in 2030 as a result of AI – the equivalent of adding an additional $15.7 trillion to the global economy.

Though AI is, in some respects, a mystery for many organisations, in terms of how it will impact them and alter their business models, it is important for companies to embrace AI where possible. AI can enhance many different areas of organisations’ businesses, according to PwC, which, in turn, will drive economic gains.

Productivity will be boosted by companies automating processes using robots and autonomous vehicles. Companies will also be able to augment their existing labour forces by installing AI technologies, including assisted and augmented intelligence. Consumer demand will also be altered by AI. Personalised and higher-quality AI-enhanced products and services will drive consumer activity.

The report notes that all regions of the global economy will experience benefits from AI, including North America, China, Europe and developed Asia. China will see GDP grow by 26 percent to 2030, and North America will receive a 14.5 percent boost. However, emerging markets will see more modest growth in the coming years, at less than 6 percent of GDP, due to lower AI adoption rates forecast for Latin America and Africa.

According to the report: “The ultimate commercial potential of AI is doing things that have never been done before, rather than simply automating or accelerating existing capabilities. Some of the strategic options that emerge won’t match past experience or gut feelings. As a business leader, you may therefore have to take a leap of faith. The prize is being far more capable, in a far more relevant way, than your business could ever be without the infinite possibilities of AI.”

On a sectoral basis, the industries most likely to benefit from the emergence of AI will be retail, financial services and healthcare, thanks to improvements in productivity, product value and consumption.

Report: PwC’s Global Artificial Intelligence Study: Exploiting the AI Revolution

Gilead builds cell therapy franchise with $11.9bn acquisition of Kite Pharma

BY Fraser Tennant

As part of its efforts to build an industry-leading cell therapy franchise, Gilead Sciences, Inc. has announced the acquisition of biopharmaceutical company Kite Pharma, Inc. in a deal worth approximately $11.9bn.

Under the terms of the definitive agreement, a wholly-owned subsidiary of Gilead will commence a tender offer to acquire all of the outstanding shares of Kite’s common stock at a price of $180 per share in cash. Following successful completion, Gilead will acquire all remaining shares not tendered in the offer through a second step merger at the same price as in the tender offer.

“The acquisition of Kite establishes Gilead as a leader in cellular therapy and provides a foundation from which to drive continued innovation for people with advanced cancers,” said John F. Milligan, Gilead’s president and chief executive. “The field of cell therapy has advanced very quickly, to the point where the science and technology have opened a clear path toward a potential cure for patients. We are greatly impressed with the Kite team and what they have accomplished, and share their belief that cell therapy will be the cornerstone of treating cancer.”

An industry leader in the emerging field of cell therapy, Kite uses a patient’s own immune cells to fight cancer. Following completion of the transaction, Kite’s research and development, commercialisation operations and product manufacturing will remain based in California.

“We are excited that Gilead, one of the most innovative companies in the industry, recognised the talent that is unique to Kite and shares our passion for developing cutting-edge and potentially curative therapies for patients,” said Arie Belldegrun, chairman, president and chief executive of Kite. “With Gilead’s expertise and support, we hope to rapidly accelerate our next-generation research and manufacturing technologies for the benefit of patients around the world.”

Acting as financial advisers to Gilead are BofA Merrill Lynch and Lazard, while Centerview Partners is acting as exclusive financial adviser to Kite. Further advice to Kite was provided by Jefferies LLC and Cowen and Company. Serving as legal counsel to Gilead is Skadden, Arps, Slate, Meagher & Flom. Sullivan & Cromwell LLP and Cooley LLP are serving as legal counsel to Kite.

Unanimously approved by both the Gilead and Kite boards of directors, the Gilead/Kite transaction is expected to close in the fourth quarter of 2017.

Mr Milligan concluded: “Gilead’s and Kite’s similar cultures and histories of driving rapid innovation in order to bring more effective and safer products to as many patients as possible make this an excellent strategic fit.”

News: Gilead to Buy Kite, Maker of Cancer Treatments, for $11.9 Billion

Shortfall in private cyber defences

BY Richard Summerfield

Given the increasing sophistication of cyber criminals and the potential risks faced by companies that fall victim to attack, cyber security has become a hot topic in recent years. According to a new report from the President’s National Infrastructure Advisory Council (NIAC), however, cyber defences in the US are not currently fit for purpose.

The report, 'Securing Cyber Assets: Addressing Urgent Cyber Threats to Critical Infrastructure', was based on reviewing hundreds of previous studies plus interviews with 38 cyber experts, who were mostly in the financial services and electricity sectors.

The NIAC, which was created in the aftermath of the 11 September 2001 attacks in the US, is charged with the task of advising the Department of Homeland Security on the security of US critical infrastructure against any form of attack, be it physical or cyber based. It believes that cyber security provisions in the US are currently experiencing a pre-9/11 moment. According to the report, if more is not done to protect the country’s critical infrastructure, such as the financial system or electric grids in the US, both the government and private industries run the risk of missing a “narrow and fleeting window of opportunity before a watershed, 9/11-level cyber attack".

The report notes: “Cyber is the sole arena where private companies are the front line of defence in a nation-state attack on US infrastructure. When a cyber attack can deliver the same damage or consequences as a kinetic attack, it requires national leadership and close coordination of our collective resources, capabilities, and authorities."

The NIAC has proposed 11 specific recommendations to shore up the country’s cyber security defences. Chief among these is establishing specific network paths designated for the most critical networks, which would include dark fibre networks for critical control system traffic and reserved spectrum for backup communications during emergencies. The NIAC also recommended private organisations and government bodies improve their threat information sharing. In addition, the government should provide incentives for any hardware upgrades performed, as well as establish a centre of excellence which will showcase best-in-class tools across the industry and provide a test bed environment for companies to test and evaluate new software, among others.

“We believe the US government and private sector collectively have the tremendous cyber capabilities and resources needed to defend critical private systems from aggressive cyber attacks – provided they are properly organized, harnessed, and focused. Today, we’re falling short”, the report suggests.

Report: Securing Cyber Assets: Addressing Urgent Cyber Threats to Critical Infrastructure

PE investment into CEE reached €1.6bn in 2016, reveals new data

BY Fraser Tennant

A vibrant market typified by strong interest from GPs and LPs, Central and Eastern Europe (CEE) companies saw private equity (PE) and venture capital investments totalling €1.6bn in 2016 – the highest since 2009 – according to new data.

In its ‘Central and Eastern Europe Private Equity Statistics 2016’ report, Invest Europe reveals that the CEE region’s total PE fundraising amount rose 62 percent year-on-year to €621m in 2016, as larger fund managers returned to the market, and in line with a Europe-wide increase in fundraising for the asset class.

In addition, European investors from outside the CEE region provided 58 percent of the total capital raised, while funding from investors outside of Europe grew nearly nine-fold, particularly from the US. Long-term private investors contributed 43 percent of the overall fundraising amount, with funds-of-funds the largest source of capital, accounting for 27 percent, followed by pension funds with 16 percent.

In terms of investment capital, 2016 was mostly focused on Poland, followed by the Czech Republic, Lithuania, Romania and Hungary respectively. The most targeted sector was consumer goods and services, which attracted 23 percent of the investment value, while information and communication technology (ICT) followed on 22 percent.

“PE activity in Central and Eastern Europe was strong in all key areas last year,” said Robert Manz, managing partner at Poland’s Enterprise Investors and chairman of Invest Europe’s CEE Task Force. “Investments, divestments and fundraising all demonstrated a vibrant market with robust interest from GPs and LPs.

The report also notes that the total number of companies divested in CEE increased to a record high of 112 in 2016, mainly driven by exits of venture-backed companies. Furthermore, sale to another PE house – the secondary market – became 2016’s most utilised exit route in terms of amount, accounting for €476m of value at historical investment cost and 46 percent of the region’s total divestment value.

Finally, trade sale remained the most common route in terms of the number of companies divested at 37. Poland was the largest market in the region for exits, at 35 percent of divested amount at cost, followed by the Czech Republic, while ICT was the region’s most important sector for divestments, including two out of the four largest exits last year.

Mr Manz concluded: “The region’s fund managers are hard at work maximising buying and selling opportunities, while institutional investors are showing renewed appetite for the region.”

­­­­Report: Central and Eastern Europe Private Equity Statistics 2016

Sempra and Oncor agree merger

BY Richard Summerfield

Sempra Energy is to acquire Oncor Electric Delivery Co for $18.8bn, including existing, outstanding debt of around $9.45bn, the companies have announced in a statement.

Sempra will pay cash for the company and the deal is expected to be financed by a combination of Sempra's own debt and equity, third-party equity and $3bn of expected investment-grade debt.

"Both Sempra Energy and Oncor share more than 100 years of experience operating utilities that deliver safe, reliable energy to millions of customers," said Debra L. Reed, chairman, president and CEO of Sempra Energy. "With its strong management team and long, distinguished history as Texas' leading electric provider, Oncor is an excellent strategic fit for our portfolio of utility and energy infrastructure businesses. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's nearly 4000 employees."

Elliott Management is the largest creditor of bankrupt Energy Future Holdings, the majority owner of Oncor, and Elliott have backed Sempra’s bid to take over the company, spurning a rival takeover attempt by Warren Buffett. In July, Mr Buffett’s Berkshire Hathaway made a rival $18bn offer for Oncor which was rejected by the company, as well as Elliott, who argued that the offer was too low and not in creditors’ interest. 

Under the terms of the deal, Sempra Energy has committed to support Oncor's plan to invest $7.5bn of capital over a five-year period to expand and reinforce its transmission and distribution network.

Once the deal has been completed, Bob Shapard, Oncor's CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, will succeed Mr Shapard as Oncor's CEO. Both are set to serve on the Oncor board, which will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.

Elliott had tried to put together its own $9.3bn bid to buy Oncor but ultimately decided to back the Sempra deal, which a spokesman said "provides substantially greater recoveries to all creditors of Energy Future than the proposed Berkshire transaction." Elliott acquired a specific class of debt worth about $60m from Fidelity Investments that gave it the power to block Berkshire’s offer.

News: Sempra Energy to buy Oncor for $9.45 billion in blow to Berkshire

Source: http://www.reuters.com/article/us-oncor-m-a-sempraenergy-idUSKCN1B1041