Drugmaker Orexigen plans assets sale through Chapter 11

BY Fraser Tennant

Following years of battling to bring its finances into the black, biopharmaceutical company Orexigen Therapeutics, well-known for its focus on the treatment of obesity, has filed a voluntary petition under Chapter 11 of the US Bankruptcy Code.

In addition to the Chapter 11 filing, Orexigen also intends to file a motion seeking authorisation to pursue an auction and sale process. The proposed bidding procedures, if approved by the court, would require interested parties to submit binding offers to acquire substantially all of Orexigen's assets, which would be purchased free and clear of the company's debt. 

According to Orexigen, bids from strategic and financial buyers are expected to be submitted by 21 May 2018, with a structured auction targeted to commence no later than 24 May 2018 and a sale to be concluded by 2 July 2018.

"The board and management team have thoroughly assessed all of our strategic options and believe that this process represents the best possible solution for Orexigen, taking into account our financial needs," said Michael Narachi, president and chief executive of Orexigen. "While we have been working closely with our noteholders and have the support of a controlling number of senior secured noteholders, our debt covenant requirements and near-term cash flow needs have necessitated the protection afforded by a court-driven process."

Focused on the treatment of weight loss and obesity, Orexigen’s first product, Contrave, was approved in the US in September 2014 and has since become the number one prescribed weight loss brand in the US. However, Orexigen has struggled to market the obesity drug (known as Mysimba in Europe), resulting in weak sales and massive debt. 

Orexigen is seeking to continue normal operations throughout the Chapter 11 process and has the support of a controlling number of its senior secured noteholders, who have made a $35m financing commitment in order to fund the process (including the sale of assets), and meet its operational and financial obligations.

Mr Narachi concluded: “Orexigen’s mission is to help improve the health and lives of patients struggling to lose weight. Since the launch of Contrave, nearly 800,000 patients in the US have benefited, and through a successful transaction process, we intend that this growing patient demand will continue to be served." 

News: U.S. drugmaker Orexigen files for Chapter 11 bankruptcy

The UK and EU – counting the cost of a no-deal Brexit

BY Richard Summerfield

Companies in the UK and European Union could face additional annual costs of £58bn if the UK’s divorce from the bloc results in a ‘no-deal’ Brexit, according to a new report from Oliver Wyman and Clifford Chance.

The financial services industry in the UK would be the hardest hit sector, according to the report. In the EU, the automotive, agriculture and food and drinks, chemicals and plastics, consumer goods and industrials industries would be the most impacted.

'The "Red Tape" Cost of Brexit' report estimates that the direct costs will total around £31bn for EU exporters and around £27bn for UK exporters, with non-tariff barriers accounting for more of the effect than tariffs. The report focuses only on the direct impacts of the UK’s exit from the EU which are of immediate importance to companies for Brexit planning. It does not model additional impacts such as migration, pricing changes or third-country free trade agreements, which are likely to increase the overall impact.

In the absence of an agreement by the end of the transitional period, which is due to begin in March 2019, after the official Brexit deadline, Britain’s relationship with the EU would revert to World Trade Organisation rules.

Just five sectors – finance, automotive, agriculture, food and drink, and consumer goods – would bear 70 percent of the burden of additional costs resulting from this scenario, according to the report.

Kumar Iyer, a partner at Oliver Wyman, says: “There will be both winners and losers from Brexit. In order to navigate the uncertainty companies should be thinking about impacts under different scenarios both operationally and strategically. We see the best prepared firms taking hedges now based on the direct impacts on themselves, their supply chains, customers and competitors. Unfortunately we see that small firms are least able to take these steps at present.”

However, if the UK were to remain in a comprehensive customs union with the EU that provides market access, the costs arising from tariffs would be avoided and some of the border costs reduced.

Yet the chances of the UK opting for a customs union appear slim. In February, UK prime minister Thereasa May reiterated that remaining within a customs union would “betray the vote of the people”. Furthermore, membership of a customs union would prevent the country from striking its own trade deals with emerging economies, including China and India.

Report: The Red Tape Cost of Brexit

Broadcom bid for Qualcomm could be quashed

BY Richard Summerfield

According to the Committee on Foreign Investment in the United States (CFIUS), Singapore-based Broadcom Ltd’s $117bn bid for Qualcomm is a national security risk which requires a full investigation.

The decision, which was communicated in a letter to the lawyers representing the two companies from a senior US Treasury official, has complicated, and potentially jeopardised, an already contentious deal. Sending the letter is an unusual move for CFIUS, which normally opines about a transaction once it has been completed.

However, CFIUS’ recent activity reflects wider concerns over the role of Chinese acquirers in important sectors, including the technology space. The letter noted that it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the US telecommunications infrastructure". Any loss of that competitiveness, the letter said, “would significantly impact US national security".

CFIUS also expressed concerns about the national security implications for the US if Chinese companies were able to dominate the nascent 5G market. Broadcom pledged that it would keep the US at the forefront of the 5G market in an attempt to allay the government’s concerns.

Furthermore, CFIUS believe that the merger would alter Broadcom’s relationships with foreign entities and weaken “Qualcomm’s technological leadership", which would allow Chinese companies, such as Huawei, to steal a march on their US counterparts.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” said Aimen Mir, Treasury Deputy Assistant Secretary for Investment Security in the letter.

CFIUS also identified a number of other concerns surrounding the transaction, such as Broadcom’s reputation for cutting research spending and potential national security risks that could arise from exploiting or compromising Qualcomm’s assets through arrangements with “third party foreign entities”.

Despite CFIUS’ concerns, Broadcom remains optimistic that a deal can still be reached in time for a Qualcomm shareholder meeting due to be held later this month. Typically, CFIUS does not offer opinions involving purely domestic transactions. In November, Broadcom filed to redomicile to the US and is looking at ways to expedite the process.

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” Broadcom said in a statement. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end. Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests”.

News: U.S. sees national security risk from Broadcom's Qualcomm deal

Power and utilities M&A hit $200bn in 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) in the power and utilities sector reached an eight-year high in 2017, seeing 516 deals with a total value of $200.2bn, according to a new report by EY.

In its ‘Power transactions and trends: 2017 review and 2018 outlook’, EY reveals that 2017 saw a 57 percent year-on-year rise in renewables deal value to $42.8b globally, with the US particularly strong – up 71 percent compared to 2016.

Indeed, renewable energy tops the growth agenda in the Americas, with US deal value reaching $102.2bn – the highest recorded level of global investment. Furthermore, networks represented $29.4bn of total Americas deal value, while $28.4bn was attributable to integrated assets, $24bn to generation and $14.2bn to renewables.

“In the Americas, 2017 was marked by three investment themes,” said Matt Rennie, EY global power & utilities transactions leader. “Network assets continued to be highly attractive to investors seeking yield in a low interest rate environment, renewable energy investment activity remained strong, driven in part by ongoing support at state level and investments in energy technology start-ups continued to gain prominence – particularly on the west coast of the US.”

The EY report also notes that investors are continuing to look to yield investments for long-term, stable returns amid low interest rates and excess capital.

“2017 was a formative year in power and utilities transactional activity,” continues Mr Rennie. “Investments in the conventional energy sector were dominated by the changing generation mix, as renewable energy continued to account for an increasing proportion of the system, and low interest rates again drove yield capital toward regulated networks.”

According to EY, last year also saw a resurgence in M&A involving independent power producers (IPP), particularly in Europe and the US, where IPP deals more than doubled in value – from $15.2bn to $33bn year-on-year. In addition, over the last two years, new energy-focused start-ups raised $746m of funding (series A and B), of which $253m was focused on energy services.

In terms of European deal value, 2017 was similar to 2016 levels, an 11 percent increase in volume to 213 deals. Renewables contributed 30 percent of total deal value, with networks accounting for 27 percent and generation 26 percent. In Asia-Pacific, renewables deal value grew 72 percent year-on-year to $13.5bn.

Mr Rennie concludes: “We also saw the new energy market continue to grow in both scale and importance. As technology companies increasingly become a mainstream contingent within the electricity system, we expect them to focus on arbitraging network peaks and to focus on the long-term needs of a decentralised future energy market.”

Report: Power transactions and trends: 2017 review and 2018 outlook

Standard Life Aberdeen sells insurance business to Phoenix in £3.2bn transaction

BY Fraser Tennant

In a significant expansion of their existing long-term strategic partnership, Standard Life Aberdeen plc has sold its capital-intensive insurance business to Phoenix Group Holdings in a transaction valued at £3.2bn. 

The sale involves the disposal of Standard Life Assurance Limited (SLAL), with Standard Life Aberdeen retaining its UK retail platforms and financial advice business. The businesses transferring to Phoenix as part of the sale include the UK mature retail and spread/risk books and the Europe, UK retail and workplace businesses.

Founded in 1825, SLAL is one of the UK’s oldest life and pensions businesses. Primarily based in the UK and with operations in Ireland and Germany, SLAL is a leading provider of long-term savings and investment propositions, serving around 4.5 million customers and clients.

“This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business and the merger last year between Standard Life and Aberdeen Asset Management,” said Sir Gerry Grimstone, chairman of Standard Life Aberdeen. “This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix, a longstanding partner of the firm.”

In addition, subject to normal commercial and governance constraints, Phoenix has committed to review further investment management mandates not currently managed by Aberdeen Standard Investments, which will be its preferred asset management partner for insurance investment solutions, as well as future consolidation opportunities.

“This is a compelling transaction for Phoenix, consistent with its stated strategy and acquisition criteria,” said Clive Bannister, Phoenix’s chief executive. “The acquisition establishes Phoenix as the pre-eminent closed life fund consolidator in Europe with more than 10 million policyholders and supports a significant increase in Phoenix’s cash generation. The reinforced strategic partnership with Standard Life Aberdeen allows both companies to focus on their key strategic strengths while generating future value.”

Conditional upon the approval of Standard Life Aberdeen’s shareholders and upon relevant regulatory approvals, including from the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA), the sale is expected to complete in the third quarter of 2018. 

Martin Gilbert and Keith Skeoch, co-chief executives of Standard Life Aberdeen, concluded: “With the foundations of a world-class investment company in place we look forward to capitalising on the opportunities that we see ahead of us whilst continuing to deliver for our shareholders.”

News: ‘Standard Life Aberdeen sells insurance business for over £3bn’