Petrobras to settle corruption case for $2.95bn

BY Fraser Tennant

Dogged by allegations of corruption going back several years, Petrobras has announced its agreement to pay $2.95bn to settle the securities class action lawsuit brought on behalf of investors harmed by a huge corruption scandal at the Brazilian state oil giant.

Filed in the United States District Court for the Southern District of New York, the agreement, which is subject to approval by the court, is intended to resolve all pending and prospective claims by purchasers of Petrobras securities in the US and by purchasers of Petrobras securities that are listed for trading in the US.  

The agreement eliminates the risk of an adverse judgment which, as Petrobras has previously stated, could have a material adverse effect on the company and its financial situation, and puts an end to the uncertainties, burdens and costs of protracted litigation.

Under the proposed settlement, Petrobras has agreed to pay $2.95bn to resolve claims in two instalments – one $983m and another of $984m. The first instalment will be paid within 10 days of preliminary approval of the settlement by the court. The second instalment will be paid within 10 days of final approval of the settlement. It has also been agreed that a third instalment will be paid six months after final approval.

The court has stated that the total settlement amount will be recognised in the fourth quarter of 2017.

In a statement, Petrobras said that the agreement is in “the company’s best interest and that of its shareholders, given the risks of a verdict advised by a jury, particularities of US procedure and securities laws, as well its assessment of the status of the class action and the nature of such litigation in the US”.

In the US, only approximately 0.3 percent of securities-related class actions proceed to trial.

The agreement is scheduled to be submitted to the district court in New York for review. If preliminary approval is granted, the court will notify the members of the class of the terms of the proposed settlement. After considering any objections and a hearing on the fairness of the proposed settlement, the court will decide whether to grant final approval.

As a result of the agreement, the parties will ask the US Supreme Court to defer consideration of Petrobras’s petition for a writ of certiorari – which was scheduled for 5 January 2018 – pending final approval of the proposed settlement.

News: Petrobras to pay $2.95 billion to settle U.S. corruption lawsuit

UnitedHealth to acquire Banmédica

BY Richard Summerfield

After signing a non-binding agreement in September, US healthcare company UnitedHealth Group has agreed to acquire Chilean private health insurance company Empresas Banmédica for $2.8bn.

According to an SEC regulatory filing, UnitedHealth will pay 2150 Chilean pesos per share to acquire the company. Banmédica’s two controlling shareholders have confirmed that they will tender their combined 57 percent ownership. The transaction is expected to close in the first quarter of 2018, pending the usual closing terms and conditions.

The acquisition will greatly increase UnitedHealth’s presence in the Latin American market going forward. UnitedHealth already owns Brazil’s largest healthcare company, Amil, which serves more than 4 million people. Through Amil, the company offers both health insurance and medical care services to Brazilian customers and UnitedHealth is expected to offer similar services through Banmédica in a number of Latin American countries, including Chile, Colombia and Peru.

UnitedHealth has identified opportunities to grow in emerging and established global healthcare markets by utilising its expertise as both an insurer and a provider of medical care. It has been steadily growing its insurance and data services businesses, and in 2013 acquired Amil Participações, a large provider and health insurer in Brazil. While UnitedHealth has enjoyed $200bn in annual revenue, largely from the US, it is looking to developing markets for additional growth. Banmédica generated around $2.1bn in revenues in 2016.

“Combining with UnitedHealth Group will enable Empresas Banmédica to leverage UnitedHealth Group’s clinical expertise, advanced technology, and data and health information capabilities to better meet the health needs of people in Chile, Colombia and Peru,” the companies said in a statement. “UnitedHealth Group will benefit from Empresas Banmédica’s substantial expertise in care delivery and health benefits across its three markets.”

UnitedHealth’s acquisition of Banmédica was the company’s second deal in a number of weeks, following the announcement of UnitedHealth’s $4.9bn acquisition of the DaVita Medical Group for $4.9bn in early December.

News: UnitedHealth to buy Chile's Banmedica for $2.8 billion

IPOs on the up

BY Richard Summerfield

2017 has been a bumper year for global IPO activity. According to a new report from EY, by deal number, 2017 was the most active year for IPOs globally since 2007.

The report, 'Global IPO trends: Q4 2017', notes that to December there were 1624 IPOs with $188.8bn raised – an increase of 49 percent by number of deals and 40 percent by capital raised, compared with 2016.

IPO activity in all regions has seen double digit growth, with the Asia-Pacific region dominating. There was an increase of 44 percent in Asia-Pacific in 2017 with 935 IPOs completed. The bulk of the activity in the region was completed in the first half of the year.

Q4 was the weakest period with only 240 deals – a 4 percent year-on-year decline. Proceeds in 2017, at $73.2bn, were only 0.2 percent higher than in 2016, indicative of a decline in average deal sizes.

Exchanges based in Asia-Pacific took the top three rankings globally by deal number. Greater China exchanges saw 582 new listings in 2017 – a 68 percent increase on 2016.

IPOs in the US also saw a notable increase in 2017, with 174 raising $39.5bn, an increase of 84 percent in proceeds and 55 percent by volume compared with 2016. According to EY, the Americas were responsible for 13 percent of global deals and 27 percent of global IPO proceeds in 2017.

Dr Martin Steinbach, EY Global and EY EMEIA IPO leader, said: “2017 will close with more IPOs than any year since 2007. With this great momentum, IPO candidates are lining up for 2018. The outlook appears bright, driven by lower volatility across regions, high valuation levels and a renewed appetite for cross-border IPOs, particularly in the US, Hong Kong and London. A healthy global pipeline across a broad range of sectors and markets suggests IPO activity levels will be up with more megadeals, thereby increasing the global proceeds in 2018.”

2018 is also expected to be a notable year for IPO activity, with many mega-deals said to be on the horizon. Emerging markets contributed strongly to 2017’s IPO activity, and the EY report notes that a number of state-owned enterprise IPOs are expected across the Middle East and North Africa next year, with exchanges in the US, Greater China and the UK also likely to feature heavily.

Report: EY Global IPO trends: Q4 2017

Financial reporting set for shake-up as new revenue recognition standard looms

BY Fraser Tennant

Major developments likely to affect a company’s accounting and financial reporting – among them the imminent International Financial Reporting Standards (IFRS) revenue recognition standard – are the focus of a new report by KPMG.

In its ‘Quarterly Outlook December 2017’, KPMG advises companies to prioritise the implementation of the new standard and ensure their audit committees and external auditors are engaged when making their significant accounting judgments before the standard becomes effective on 1 January 2018.

The aim of the revenue recognition standard is to improve comparability by implementing a single revenue recognition model across industries and across the globe. Moreover, the new standard eliminates industry-specific accounting for revenue under US Generally Accepted Accounting Principles (GAAP) and introduces a principles-based approach that more closely aligns with IFR standards.

Originally set to be introduced two years ago, the Financial Accounting Standards Board (FASB) took the decision to defer the date of adoption in order to give companies more time to complete their implementation activities.

“Less than two weeks remain before the revenue recognition standard is effective for public companies with calendar year-ends,” states the report. “Companies need to prioritise their revenue implementation efforts before the adoption date.”

While the importance of the standard is beyond question and companies need to focus on dedicating their attention and resources to its implementation, KPMG is keen to stress that companies should not lose sight of the importance of other standards that are also due to become effective in 2018.

These additional standards include the recognition and measurement guidance for financial instruments, and the leases standard which becomes effective in 2019. With these standards also intended to clarify or simplify accounting requirements, the KPMG report suggests that companies should begin their implementation efforts now to increase implementation quality.

That said, it has been reported that many companies have been slow to prepare for the new standard. Indeed, recent analysis by Deloitte of a sample of Fortune 1000 companies found only a small number were “substantially complete” with their implementation activities.

“We found that really only 15 percent of the companies that we analysed in our sample population indicated in their disclosures that they were substantially complete,” said Eric Knachel, a senior consultation partner at Deloitte. “If only 15 percent say they are substantially complete, obviously that means that 85 percent are not.”

Report: Quarterly Outlook December 2017

New era for retail as $25bn deal sees Unibail-Rodamco acquire Westfield

BY Fraser Tennant

In a deal that kicks off a new era for retail, French property group Unibail-Rodamco SE is to acquire Australia’s Westfield Corporation, owner of Westfield Shopping Centres, in a deal valued at $24.7bn.

Under the terms of the agreement, Westfield securityholders will receive a combination of cash and shares in Unibail-Rodamco, valuing each Westfield security at $7.55. The proposed transaction has been unanimously recommended by Westfield’s board of directors and Unibail-Rodamco’s supervisory board.

Westfield group owns and operates 35 shopping centres in the US and UK, encompassing approximately 6400 retail outlets and total assets under management of $32bn.

“The acquisition of Westfield is a natural extension of Unibail-Rodamco’s strategy of concentration, differentiation and innovation,” said Christophe Cuvillier, chairman of the management board and chief executive of Unibail-Rodamco. “It adds a number of new attractive retail markets in London and the wealthiest catchment areas in the US. It provides a unique platform of superior quality shopping destinations supported by experienced professionals of both Unibail-Rodamco and Westfield. We look forward to welcoming Westfield’s securityholders as shareholders in the new Group and continuing to create significant value for our existing and new shareholders.”

Following the completion of the transaction, Christophe Cuvillier will be the group chief executive and Colin Dyer will be group chairman of the supervisory board. Furthermore, a newly created advisory board, to be chaired by Sir Frank Lowy, will provide independent advice from outside experts on strategy.

“This transaction is the culmination of the strategic journey Westfield has been on since its 2014 restructure,” said Sir Frank Lowy, chairman of the Westfield board of directors. “We see this transaction as highly compelling for Westfield’s securityholders and Unibail-Rodamco’s shareholders alike. Unibail-Rodamco’s track record makes it the natural home for the legacy of Westfield’s brand and business. We look forward to seeing Westfield continue to grow as part of the world’s premier owner of flagship shopping destinations.”

The transaction is conditional upon the satisfaction of customary conditions, including Australian court approval and the approval of Unibail-Rodamco shareholders and Westfield securityholders, and is expected to close in the first half of 2018.

Mr Cuvillier concluded: “We believe that this transaction represents a compelling opportunity for both companies to realise benefits not available to each company on a standalone basis, and creates a strong and attractive platform for future growth.”

News: Westfield shopping centres bought in $25bn deal