>>> US Close Dow-0,89% S&P-1,03% Nasdaq -0,87%

Closing Market Summary: Stocks Slide to End 2014

The stock market ended the last session of 2014 on a lower note. The S&P 500 lost 1.0%, but that did not stop the benchmark index from gaining 11.4% over the course of 2014. Meanwhile, the tech-heavy Nasdaq ended the session (-0.9%) and the year (+13.4%) ahead of the S&P 500.

Before we delve into the details of today's trading day, it is important to note that trading volume at the NYSE was among the lowest of the year (650 million), suggesting few carbon-based life forms took part in the final affair of the year.

All ten sectors settled in the red with utilities (-1.9%) ending at the bottom of the leaderboard. In all likelihood, today's selling was a function of profit taking after the countercyclical sector led the 2014 market rally with a gain of 24.3%.

The remaining groups did not fare much better. The top-weighted technology sector (-1.2%) was among the early leaders, but began fading from its high not long before noon ET, dragging the broader market down with it. Apple (AAPL 110.38, -2.14) began the day with a slim gain, but found itself in the red within the first 45 minutes of the session. The largest sector component continued retreating throughout the day while other large cap tech names followed suit. Shares of Apple fell 1.9% today, but still soared nearly 38.0% in 2014. Chipmakers, meanwhile, outperformed with the PHLX Semiconductor Index losing 0.6%.

The outperformance of chipmakers helped the Nasdaq exhibit some relative strength, but the index also received a helping hand from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 303.35, -1.27) shed 0.4% while the health care sector (-1.0%) could not stay out of the red, narrowing its 2014 advance to 23.3%.

Elsewhere among cyclical groups, financials (-1.2%) lagged while the energy sector lost 0.8% to widen its 2014 decline to 10.0% amid another volatile day in oil trading pits. WTI crude dipped below the $52.60/bbl mark ahead of the close, but rocketed back to its session high to end the day lower by 1.0% at $53.49/bbl.

Also of note, the consumer discretionary sector (-0.4%) ended ahead of other groups. Homebuilders and retailers were responsible for the outperformance as iShares Dow Jones US Home Construction (ITB 25.88, +0.20) gained 0.8% while SPDR S&P Retail ETF (XRT 96.01, -0.28) slipped 0.3%.

Treasuries capped a strong year with another rally. As a result, the benchmark 10-yr yield fell two basis points to 2.17%, finishing 87 basis points below its close from December 31, 2014. On a somewhat related note, the Dollar Index (90.27, +0.28) climbed 0.3% to end the year at its best level since early 2006.

Economic data included Initial Claims, Chicago PMI, and Pending Home Sales:

* The initial claims level increased to 298,000 for the week ending December 27 from an upwardly revised 281,000 (from 280,000) while the consensus expected an increase to 290,000 

* The Department of Labor reported that there were no special factors driving the increase in unemployment insurance filings; however, it is possible that the Christmas holiday played at least a small part in the increase  * The continuing claims level fell to 2.353 million from an upwardly revised 2.406 million (from 2.403 million) while the consensus expected a decline to 2.375 million 

* After four consecutive months above 60, the Chicago PMI fell from 60.8 in November to 58.3 in December while the consensus expected a decline to 60.0  * Pending home sales for November rose 0.8%, which was in-line with the consensus 

Friday's data will be limited to the ISM Index for December (consensus 57.5) and the November Construction Spending report (consensus 0.1%). Both reports will be released at 10:00 ET.

* Nasdaq Composite +13.4% YTD  * S&P 500 +11.4% YTD  * Dow Jones Industrial Average +7.5% YTD  * Russell 2000 +3.6% YTD

Reuters - Biological bad luck blamed in two-thirds of cancer

Biological bad luck blamed in two-thirds of cancer cases

WASHINGTON, Jan 1 (Reuters) - Plain old bad luck plays a major role in determining who gets cancer and who does not, according to researchers who found that two-thirds of cancer incidence of various types can be blamed on random mutations and not heredity or risky habits like smoking.

The researchers said on Thursday random DNA mutations accumulating in various parts of the body during ordinary cell division are the prime culprits behind many cancer types.

They looked at 31 cancer types and found that 22 of them, including leukemia and pancreatic, bone, testicular, ovarian and brain cancer, could be explained largely by these random mutations - essentially biological bad luck.

The other nine types, including colorectal cancer, skin cancer known as basal cell carcinoma and smoking-related lung cancer, were more heavily influenced by heredity and environmental factors like risky behavior or exposure to carcinogens.

Overall, they attributed 65 percent of cancer incidence to random mutations in genes that can drive cancer growth.

"When someone gets cancer, immediately people want to know why," said oncologist Dr. Bert Vogelstein of the Johns Hopkins University School of Medicine in Baltimore, who conducted the study published in the journal Science with Johns Hopkins biomathematician Cristian Tomasetti.

"They like to believe there's a reason. And the real reason in many cases is not because you didn't behave well or were exposed to some bad environmental influence, it's just because that person was unlucky. It's losing the lottery."

Tomasetti said harmful mutations occur for "no particular reason other than randomness" as the body's master cells, called stem cells, divide in various tissues.

Tomasetti said the study indicates that changing one's lifestyle and habits like smoking to avoid cancer risks may help prevent certain cancers, but may not be as effective for others.

"Thus, we should focus more research and resources on finding ways to detect such cancers at early, curable stages," Tomasetti added.

The researchers charted the cumulative number of lifetime divisions in the stem cells of a given tissue - for example, lungs or colon - and compared that to the lifetime cancer risk in that tissue.

Generally speaking, tissues that undergo more divisions - thus increasing the probability of random mutations - were more prone to tumors.

The study did not cover all cancer types. Breast and prostate cancer were excluded because the researchers were unable to ascertain reliable stem cell division rates.

WSJ : Volkswagen’s Rally Is on Wobbly Wheels

Volkswagen’s Rally Is on Wobbly Wheels

Volkswagen has mapped out its route to a better future, but the road conditions look treacherous.

The company’s preference shares, which are more widely traded than its voting shares, have climbed about 20% since mid-October. Fueling this confidence are luxury brands Audi and Porsche, which together generate about 70% of the company’s automotive earnings before interest and taxes. VW has also benefited more than peers from the growth in China, which is responsible for 45% of Volkswagen brand sales.

Yet further progress on all fronts looks challenging.

Since 2000, car sales in China increased tenfold, but demand appears to be waning, Morgan Stanley says. VW will suffer if there is any further slowdown, with Volkswagen-branded sales in China down about 8% in November, year over year.

VW’s continued growth also rests on another wobbly pillar: a European car-sales recovery. So the company needs to deliver more cars in the U.S. But it faces big challenges there, too, with Volkswagen-brand sales in the U.S. having fallen 11% through November compared with a year earlier.

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Meanwhile, VW’s investment budget, high already, may climb further. Capital expenditures for the next five years are projected by the company to expand slightly compared with prior forecasts, to €85.6 billion ($103.6 billion), including an increase of €2 billion, to €24 billion, for the Audi brand alone. The aim is to surpass rival BMW in terms of car sales. But Audi’s automotive operating margin is on a downward trend, having fallen to about 9.4% in the third quarter from about 10.5% for the same period in 2012. Higher expenditures could exacerbate that.

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If global demand is lower than expected, then VW must cut costs to improve profitability. To investors’ delight, the company said last year that it would shift its focus to sales and profitability versus expensive deal making. As part of the strategic overhaul, VW is targeting about €10 billion in efficiency savings a year across all 12 of its brands, equivalent to about 5% of the company’s operating costs.

This also could prove to be a struggle. Union representation accounts for half of the company’s supervisory board, making it difficult to trim employment costs in Germany, where most of its workforce is based. For example, VW still makes basic components to help keep its German factories running, which gives the company more control of its manufacturing process but at a higher cost. The company says it will improve efficiency elsewhere, but substantial savings remain elusive.

Even after the recent bounce in share prices, VW still trades at roughly a 20% discount to BMW based on multiples of forward earnings estimates. The challenges VW faces in delivering on its promises will make it tough to bridge that gap.

WSJ : Startups Risk a Downer for Investors

Startups Risk a Downer for Investors

Buying a stock, with all its attendant filings, analyst coverage and forecasts, still can be a gamble. So imagine getting excited about one isolated price signal on a private company with all the disclosure of the Air Force’s Area 51.

Yet that is what is setting pulses racing as 2015 dawns. Xiaomi, a closely held Chinese smartphone maker, recently raised $1.1 billion at an implied valuation of more than $46 billion. That puts it ahead of Uber Technologies, the unlisted taxi-booking application developer that got new funding in December valuing it at $41 billion. Both numbers also are higher than the market capitalizations of roughly three-quarters of the S&P 500’s members.

In theory, such startup valuations matter little to anyone but a relative handful of founders, employees and venture capitalists. The average investor doesn’t get a seat at the table or more than an occasional glimpse of what even is on the table.

In practice, news of such amazing, and seemingly unobtainable, investments stoke bullish sentiment, leaving individual investors potentially vulnerable.

Venture capitalists and other insiders usually do extensive due diligence before committing to the likes of Uber. But their basis for valuation differs from the approach of mainstream investors buying stocks, with venture funds also considering exit timelines, the cash needs of a startup to keep expanding and maintaining incentives for management and owners as equity stakes get parceled out. They also can, of course, just get things wrong.

Ordinary investors also must consider the wider context. In a world thirsting for yield amid ultralow interest rates, money has sought riskier corners of the market. Almost $24 billion of new commitments flowed to U.S. venture funds in the first nine months of 2014, according to the latest data from Thomson Reuters and the National Venture Capital Association. That is more than in each of the preceding five years in their entirety and sets up 2014 to have been the biggest year for new venture money since before the financial crisis.

This raises the risk of dollars being deployed into questionable businesses, which then eventually find their way into the wider market via initial public offerings, which are priced off the back of those high startup valuations.

While IPOs allow young companies to raise money for expansion, they also are the means by which early investors cash out. After all, the very valuations placed on companies such as Xiaomi suggest adequate funding can be found without going to the trouble and expense of listing. So while it is in the interests of startup owners to make grandiose claims about supposedly game-changing businesses, ordinary investors should beware when shares finally come up for sale.

Furthermore, individual investors, lacking relationships with Wall Street banks, often don’t get to actually buy a hot new company’s stock at the IPO price, instead having to bid for it on the open market. That can carry a big cost.

Compare the one-year return on new U.S. IPOs if you bought the stock at the starting price or at where it closed on its first day of trading. On average, the investor lucky enough to get in before the open made a full 17.2 percentage points more for IPOs in the years 1995 through 2013, according to data compiled by Dealogic, though the range is wide. For example, in 1998, during the tech bubble, the early bird made a 33% return while the buyer at the end of the first day actually lost money on average.

For 2014, the relative performance is harder to assess as, by definition, any stocks that underwent an IPO haven’t been held for a year yet. But the preliminary data for returns to date don’t augur well. On average, the return calculated off the actual IPO price is about 19%, according to Dealogic. The return from the end of the first day of trading: about 6%.

In part, this reflects the downward jolts often delivered to the share prices of recently listed companies as lockups on insiders such as management expire in the months after the IPO, opening up large slugs of stock for potential sale. The bigger issue: those eye-popping pre-IPO valuations, putting pressure on startups and their banks to achieve big prices out of the gate when they list. Those flashes of value from startup-land are tantalizing, but can ultimately be a mirage for ordinary investors.

(DailyBeast) Newest U.S. Stealth Fighter ‘10 Years Behind’ Older Jets

Newest U.S. Stealth Fighter ‘10 Years Behind’ Older Jets
America’s $400 billion, top-of-the-line aircraft can’t see the battlefield all that well. Which means it’s actually worse than its predecessors at fighting today’s wars.
When the Pentagon’s nearly $400 billion F-35 Joint Strike Fighter finally enters service next year after nearly two decades in development, it won’t be able to support troops on the ground the way older planes can today. Its sensors won’t be able to see the battlefield as well; and what video the F-35 does capture, it won’t be able to transmit to infantrymen in real time.

Versions of the new single-engine stealth fighter are set to replace almost every type of fighter in the U.S. Air Force, Navy and Marine Corps inventory—including aircraft specifically designed to support ground troops like the A-10 Warthog. That will leave troops in a lurch when the F-35 eventually becomes the only game in town.

“The F-35 will, in my opinion, be 10 years behind legacy fighters when it achieves [initial operational capability],” said one Air Force official affiliated with the F-35 program. “When the F-35 achieves [initial operational capability], it will not have the weapons or sensor capability, with respect to the CAS [close air support] mission set, that legacy multi-role fighters had by the mid-2000s.”

The problem stems from the fact that the technology found on one of the stealth fighter’s primary air-to-ground sensors—its nose-mounted Electro-Optical Targeting System (EOTS)—is more than a decade old and hopelessly obsolete. The EOTS, which is similar in concept to a large high-resolution infrared and television camera, is used to visually identify and monitor ground targets. The system can also mark targets for laser-guided bombs.

“EOTS is a big step backwards. The technology is 10-plus years old, hasn’t been able to take advantage of all the pod upgrades in the meantime, and there were some performance tradeoffs to accommodate space and stealth,” said another Air Force official familiar with the F-35 program. “I think it’s one area where the guys are going to be disappointed in the avionics.”

Ironically, older jets currently in service with the Air Force, Navy and Marine Corps can carry the latest generation of sensor pods, which are far more advanced than the EOTS sensor carried by the F-35. The latest generation pods—the Lockheed Martin Sniper ATP-SE and Northrop Grumman LITENING-SE—display far clearer high-definition video imagery in both in the infrared and optical spectrum—and from greater distances. Further, both pods have the ability to beam those full-motion video feeds to ground troops, which provides those forces with vital intelligence information.

The end result is that when the F-35 finally becomes operational after its myriad technical problems, cost overruns, and massive delays, in some ways it will be less capable than current fighters in the Pentagon’s inventory.
Both pods also incorporate the ability to mark targets with an infrared laser beam—which the EOTS lacks—that helps pilots and ground controllers coordinate their attacks. Some pilots consider the infrared marker to be crucial to the close air-support mission to support ground troops. The F-35 EOTS, which is an integral component of the new stealth fighter, was envisioned as a replacement for targeting pods altogether to preserve the JSF’s stealth frame. (Targeting pods can bulge out a bit, and leak out unwanted signals.) But along with the stealth came performance compromises that also hinder the ability to upgrade the system—the specifications of which were set more that 15 years ago—far before anyone imagined a jet would be providing video imagery to ground forces.

When the Pentagon had initially drawn up the Joint Strike Fighter program’s specifications during the later half of the 1990s, the EOTS would have been bleeding-edge technology. However, in the 14 years that have passed since the Pentagon awarded Lockheed the contract to develop the F-35, technology has evolved—and the services have gained experience from over a decade of war.

“It was an awesome system when the F-35 specs were drawn-up in the late ’90s—LANTIRN [targeting pod] was the most advanced pod at that time,” said the first Air Force official affiliated with the F-35 program. “But we’re now a couple of generations beyond that spec with the targeting pods. EOTS is about a [1990s-era Northrop Grumman AN/AAQ-28(V)] LITENING II-equivalent targeting pod.”

That means that the EOTS camera does not have the range or high-resolution capability that would be found on the current targeting pods carried by American fighters flying over Iraq, Syria, and Afghanistan. It also means that future F-35 pilots won’t be able to see their quarry in the same kind of detail that they can on current U.S. jets.


The Air Force is currently using the advanced LITENING-SE on many of its fighters like the F-16, which is about two generations newer than the old 1990s-vintage LITENING II-pod. Meanwhile, Lockheed Martin is delivering the new Sniper Advanced Targeting Pod-Sensor Enhancement (ATP-SE) to the Air Force—which is, ironically, an advanced version of the original Sniper XR pod that the F-35’s EOTS sensor was based on.

More damningly, the F-35 won’t be able to send even its already lower-quality live video down to those soldiers on the ground because its specifications were set before the wars in Iraq and Afghanistan started. Back then, no one ever imagined needing to beam live video to ground troops from a fighter jet. Nor are there any current plans to add that capability to the F-35.

“At no point is F-35 fragged to have VDL [video down-link] unless it carries a targeting pod and the F-35 EOTS does not have and will not get an IR [infrared] marker,” the first F-35 official said. “It won’t fit in the space available.”

The lack of an infrared pointer is a huge problem, according to multiple Air Force pilots with experience flying combat missions in support of ground forces. In aircraft like the A-10, F-15E or F/A-18 Hornet, when ground troops pass target coordinates—or if the pilot spots enemy forces shooting—that pilot can turn on the infrared pointer to highlight the target. If the ground controller—known as a Joint Terminal Attack Controller—sees the “sparkle” from the infrared pointer, he can confirm that the pilot is illuminating the correct target.

Further, if a pilot sees something of interest, he or she can use the infrared pointer to draw the attention of the ground controller, who can then confirm if the target is hostile or not. “F-35s will never have this,” the first F-35 official said. “It also helps pilots orientate themselves during weapons delivery passes.”

Officials at JSF-maker Lockheed Martin couldn’t respond to queries by press time, but the F-35 program does not appear to have a plan to rectify the problem.

One Air Force official said that with enough time and more money, the EOTS could be fixed. “Because in five years when the USAF [US Air Force] comes to Lockheed Martin and says we absolutely need an upgraded EOTS with an infrared pointer and [video down-link], Lockheed Martin says... OK no sweat, that’ll be $5 million per jet,” the Air Force official said. “Thus lies the problem in the U.S. military industrial complex. They purposefully build products that require mass amounts of money to ‘upgrade’ when in fact, they could have planned ahead and built an easily upgradable ship / aircraft / radio / weapon system.”

One of the JSF officials agreed that the EOTS does not speak well for the Pentagon’s ability to buy new weapons. “EOTS is a poster child for one of the ills of the acquisition process,” the official said. “Because all of the subsystems depend on each other, requirements aren’t allowed to change after the design is ‘finalized.’ It’s not a big deal, unless it takes 20 years to field the jet… then it’s a problem.”

The end result is that when the F-35 finally becomes operational after its myriad technical problems, cost overruns, and massive delays, in some ways it will be less capable than current fighters in the Pentagon’s inventory.

“Will the F-35 even have parity with those jets in the CAS mission set 10 years from now? I don’t know, dude. It doesn’t look good.”

NY Post : “Mad Men” are turning into Mad Bots.

“Mad Men” are turning into Mad Bots.
More than half the $15 billion expected to be spent in 2015 on US digital display advertising will take place through computers — without any human negotiation, according to a recent report.
Computer-driven advertising sales, called programmatic advertising, will grow to 55 percent of the segment’s ad spend, the report said.
“The technology and infrastructure are all in place,” Lauren Fisher, an analyst with eMarketer and author of the report, told The Post Wednesday.
“And with the grunt work done and the testing behind us, we’ll see programmatic ad spending explode, she said.”
Programmatic advertising uses automated technology systems — or programs — for buying and selling advertising.
As such, it replaces face-to-face negotiations between hard-nosed publishers and media buyers trying to wangle the best advertising rates they can.
It’s enough to turn “Mad Men” ad executive Don Draper into Bot Draper.
It’s particularly suitable for digital-display ads, which is all advertising unrelated to searches and e-mails that appears on mobile phones and tablets, as well as on desktop and laptop computers.
Programmatic is also destined to drive transactions in traditional media like TV, newspapers and magazines, although ad experts are reluctant to predict when this domination will occur.
The growth of digital display ads sold through programmatic advertising is expected to hit 48 percent this year, according to Fisher.
Fisher admitted advertisers were initially drawn to programmatic advertising as a cost-saving tool.
It not only promised a system for cheaply unloading ad inventory that otherwise would have gone unused — remainders, if you will — but rendered obsolete such traditional yet time-consuming details as RFPs [Requests For Proposal], price negotiations and insertion orders.
In programmatic advertising, a media buyer for an advertiser programs a computer with ad-buying instructions — including, perhaps, how much it wants to spend and whom it wants to reach — and the computer, loaded with inventory data, determines if the advertising goal can be met.
Before the computers arrived, humans negotiated these deals.
And let’s not forget the computers are reducing the importance, as well as the expense, of those three-martini business lunches made famous recently by “Mad Men.”
But now, Fisher said, it’s programmatic’s ability to incorporate data into ad-buying decisions that sets it apart.
“The biggest benefits of programmatic are using data to make smarter decisions about where to spend your ad dollars and then being able to reach who you really want to reach,” Fisher said.
“Thanks to cookies and other identifying sources, advertisers learn who viewers are down to the level of a single individual,” she said. “TV isn’t as granular, which means it could soon be caught up in a struggle with programmatic advertisers who insist on having the same digital tools they already use.”

Reuters - IBM turnaround requires atypical activist fix

(Reuters Breakingviews) - IBM requires an atypical activist fix. Big Blue's strategy of cost cuts and debt-fueled buybacks is no longer working - even though the company keeps trying. A tarnished balance sheet, lean staffing and a history of disposals rule out typical activist wheezes. Encouraging Chair and Chief Executive Ginni Rometty to invest in IBM's core businesses could pay off.

For two decades IBM has run the same playbook. It sells low-margin businesses, slashes expenses, buys some profitable software companies, and returns a lot of cash to investors. Over the past four quarters, the $152 billion company has spent more than $23 billion on dividends and buybacks.

The snag is that IBM is investing too little. Big Blue has only spent about $11 billion over the past four quarters in total on R&D, capital expenditure and acquisitions. That's a problem in tech, where old products soon become obsolete. While Google spends about 16 percent of its sales on R&D, IBM spends 6 percent.

The effect is becoming clear on the top line. Revenue has shrunk for 10 quarters in a row. Costs have been cut to the bone, sending customers fleeing to better service providers. In a good year for stocks, IBM shares have fallen more than 15 percent. That means IBM has overpaid on its last three years of buybacks.

That has spurred talk of activists. But what could rabble-rousing shareholders demand? Unlike Yahoo there's no obvious gem to dispose of or cash-laden balance sheet to raid. IBM has been selling off hardware, like last quarter's disposal of the chip division, lessening the appeal of an HP-style breakup. IBM hasn't done any big acquisitions recently, so an activist can't argue it is wasting capital like HP, which wrote off three-quarters of the $12 billion it paid for Autonomy. And year after year of punishing cost cuts leave no obvious fat to cut.

A better idea is to invest more in the business. Assume IBM repurchases $10 billion of stock next year. Bought back at current rates, that would result in a 7 percent increase in earnings per share. Meanwhile, IBM's pre-tax return on its business assets is 22 percent. Diverting that $10 billion into the business could result in more than $2 billion of pre-tax profit. Put this on IBM's low 20 percent tax rate and the result is more than a 12 percent increase in earnings per share.

IBM's focus on financial, rather than product, engineering has caused low employee morale, falling sales and shareholder dissatisfaction. It's time to invest.

CONTEXT NEWS

- IBM's revenue shrank by 4 percent in the third quarter of 2014 compared to the same period a year earlier. That is the 10th consecutive quarter revenue has declined.

FTLex : Bank M&A: small is beautiful

Bank M&A: small is beautiful
Deals should be small and focused, rather than ‘transformational’
This year’s bonus letters have barely been printed, but merger and acquisition bankers will already be thinking about next year’s payouts. And where better to start than their own sector? Pickings have been thin in recent years. In 2007, there were more than 1,000 deals in the global banking sector worth a total of over $443bn, says Dealogic. In 2014, the deal value shrunk to less than $120bn. Europe has been particularly slow — in 2007 it accounted for more than 60 per cent of deals by value. This year that proportion has fallen to just 31 per cent.
But the M&A bankers might do well to target Europe as they set their strategies for 2015. The eurozone’s banks now have a common regulator, the European Central Bank. That, combined with the balance sheet review and stress tests completed in October, make the regulatory backdrop firmer. And the banks need to improve their returns — Morgan Stanley expects Europe’s banking sector to make a return on tangible equity of just 10.5 per cent in 2015. There’s no revenue growth to push that up, so any improvement will have to come from lower costs. Dealmaking is one way to achieve that.

All set for a bumper year of deals then? Don’t bank on it. Cross border M&A is likely to be thin. The shadows cast by failed deals from the boom years (ABN Amro, anyone?) are long. Pity the chief executive who tries to pitch a “transformational” deal to investors who have just finished recapitalising their bank. Spain’s Santander, traditionally active in M&A, was quick to squash rumours in November that it might be interested in troubled Italian lender Monte dei Paschi di Siena.
There will be pockets of dealmaking though. In-country consolidation will be one source. It is a must in Italy, and is also possible among the smaller German banks. There may also be more deals in Spain, where last year Caixabank bought much of Barclays’ local business for €800m. And the UK’s challenger banks need scale if they are going to take on the big boys.
Elsewhere, expect infill deals as banks add skills. This month Spain’s BBVA bought Madiva Soluciones, a “big data” specialist. Focused, small deals of this sort, which add capital light businesses or specific skills, should please shareholders, even if they won’t have advisers reaching for the champagne next December.

FT : M&A bid battles face scrutiny in run-up to UK general election

M&A bid battles face scrutiny in run-up to UK general election

The UK general election in May looms large over all British deals this year, with dealmakers braced for heightened political sensitivity and scrutiny of bid battles in the run-up to the vote.
How companies navigate the political landscape with political parties jostling for control of parliament will be an important factor in whether 2015 can outpace the $224bn in UK deals targeted at UK companies last year.
The greatest attention is likely to be paid to transactions involving well-known consumer brands and to those corporates that are big employers in the UK, say dealmakers. At least one big global bank is forecasting that large-cap UK M&A will slow dramatically until after the election.

Roger Barron, corporate partner at Linklaters, says the reason for the greater examination of deals is that since the crisis in 2008 politics and business have become more intertwined. “The flipside is that people are already prepared to work with the scrutiny and are looking to do the right sorts of deals,” he says.
Takeovers in the UK often invoke greater public passion in part because the country has fewer tools than other large economies such as the US or China to block takeovers from overseas bidders and review large M&A deals after they have been agreed.
That pre-emptive force was best seen last year when US drugmaker Pfizer launched a $120bn bid to acquire AstraZeneca, a UK-based rival.
Ian Read, Pfizer’s chief executive, penned a public letter to UK Prime Minister David Cameron and then faced two days of parliamentary hearings to address concerns about the potential deal’s impact on UK jobs, manufacturing and funding for scientific research.
Those promises included keeping at least 20 per cent of the combined group’s total research and development workforce in the UK, and completing the construction of AstraZeneca’s planned research and development hub in Cambridge.
However, shareholders and others questioned whether those promises were binding under the rules governing public takeovers in the UK even after the bid failed.
In depth

UK general election

The UK’s main political parties are facing the prospect of a close and unpredictable national poll on May 7 as they struggle to address the march of the populists

Further reading
In response, Vince Cable, the business secretary, said he would seek new regulations to bind companies to promises made during takeover negotiations. The self-regulatory body that polices UK takeovers subsequently responded by strengthening its rules to distinguish between undertakings and intentions made in deal talks.
Patrick Sarch, M&A partner at Clifford Chance, says: “As we approach the UK general election, any parties considering a major M&A transaction will need to consider the political and media dimensions.”
He adds: “As we have seen in recent years, there can be particular sensitivity to overseas acquisitions of UK household names and bidders have done what they can to address the concerns of politicians, media, employees and customers.”
That could affect a number mooted deals from the beverage industry — where investors are watching closely to see if global beer giant AB InBev makes an approach for London and Johannesburg-listed rival SABMiller — to the pharmaceuticals sector where some analysts believe Pfizer may return for a takeover of AstraZeneca or possibly GlaxoSmithKline.

The tensions surrounding a cross-border deal involving a well-known British company were exemplified by the fallout of Kraft’s takeover of the UK confectioner Cadbury in 2010, just after the last UK election. The US snack foods group faced a backlash from politicians after closing a plant it had pledged to keep open during the deal talks.
Guy Norman, global head of corporate at Clifford Chance, says the prospects of no outright winner in this year’s election could add greater uncertainty for acquirers and lead to a pause in dealmaking until the outcome becomes more clear.
“There is the possibility of a UK exit from the European Union if the Conservatives hold the balance of power; and less business-friendly policies around taxation and investment may be around the corner,” he says.

(DailyBeast) The Dangerous Drug-Funded Secret War Between Iran and Pakistan

The Dangerous Drug-Funded Secret War Between Iran and Pakistan
In the largely forgotten deserts of Baluchistan that straddle the Iran-Pakistan border, covert wars are underway that could have far reaching consequences.
TURBAT, Pakistan—Something fell out of the sky near Arif Saleem’s home at 5:20 a.m. on Nov. 25, 2013. He scrambled outside to find a 25-foot-wide crater just beyond the mud wall surrounding his family compound. The strike was one of three, in quick succession, that morning in the village of Kulahu, in Pakistani Baluchistan, 45 miles east of the Iran border. One of the blasts damaged the local mosque. Pages from the Quran fluttered in the air before landing gently on the rubble.

The next day, Saleem made the 30-mile trip east to Turbat, the administrative center of his small district in southwestern Pakistan. “They refused to register a case, saying the matter is out of their hands,” he told me.

With few legitimate industries or development assistance from the central government, Turbat is a derelict city prickling with militants. Most of the area’s inhabitants grind out a living as subsistence farmers or cross-border smugglers, shuttling everything from cement and diesel to Afghan opium between Pakistan and Iran. There are few paved roads, and at the airport, soldiers outnumber travelers.

It is also the epicenter of a war being waged by the Shiite regime in Iran against a shadowy group of Sunni Baluch jihadis.

Already involved in the fight against the Islamic State in Syria and neighboring Iraq, Iran is now increasingly worried about the threat from Sunni militants on its eastern border with Pakistan, who get backing, it claims, from the United States and Saudi Arabia. Although rarely mentioned in public, persuading Iran to budge on issues like its nuclear program may well depend on addressing what it now sees as a multi-faceted, global attack on it by Sunni jihadis.

On Sept. 9, those jihadists detonated a massive car bomb at an Iranian military base near the border, clearing a path for 70 fighters to stream in. According to a statement from the Iranian Revolutionary Guard, reinforcements had to be helicoptered to the scene to end a three-and-a-half-hour gun battle, and the fighters fled across the border into Pakistan. A few weeks later, the militants carried out a series of raids on border posts, killing five Iranian policemen. The attacks were the latest in a long campaign of roadside explosions, suicide bombings at mosques, and gun attacks on security posts that have killed more than 600 Iranians, mostly civilians, since 2005.

Across the entrance to the only functioning hotel in Turbat, the proprietor has strung a thick rope to slow down gunmen who may want to attack his patrons. The carpeting is worn, the furniture is falling apart, and the electricity is out for most of the day. Here, in a dilapidated room, Saleem recounts the November blast. “Some buildings collapsed. Luckily, none of the kids were inside those.”

Clean-shaven and balding, Saleem is in his forties and walks with a limp. He speaks in a whisper, flanked by the two locals who set up the meeting. They eye the door anxiously, convinced that at any moment, a Pakistani or Iranian intelligence officer will come barging in.

“The blast was so strong,” he said, “we thought the world was ending.” Saleem believes that the strike came from a nearby airbase across the Iranian border. Others, he recalls, heard the buzzing of Iranian drones.

He hesitates when I ask him about the target of the other missiles. “I don’t even want to name him, he's not even from our area—but the missiles hit his homes.”

The man whose name Saleem is reluctant to utter is “Mullah Omar” (not to be confused with the Afghan Taliban leader of the same name). A senior Iranian official in Pakistan later confirmed the strike took place, declining to elaborate.

An ethnic Baluch from Iran, this Mullah Omar helps lead a shadowy outfit called Jaish ul Adl, or the Army of Justice, whose fighters number fewer than 500. He wasn’t on the premises when the strike hit, but it killed his 3-year-old grandniece, and injured other family members. Just a month earlier, Mullah Omar’s fighters had crossed into Iran and killed 16 Iranian soldiers.

The Kulahu strike was part of a widening covert war being waged by Iran inside Pakistan. In the weeks following the Sept. 9, car bombing at the Iranian base, Iran raided a village in the Pakistani district of Chagai. According to Pakistani officials, Iranian soldiers, sometimes in helicopters and convoys, have chased militants deep into Pakistan on an almost weekly basis over the last year, sparking firefights and occasionally killing Pakistani soldiers.

Iran says the jihadis enjoy support not only from Saudi Arabia and the U.S. Central Intelligence Agency, but also from the Inter-Services Intelligence branch of the Pakistani military.

Pakistani officials say they are overwhelmed by internal security problems, and securing the border with Iran is not a top priority.

Perhaps most importantly, the Sunni jihadists attacking Iran have deep ties with politically connected opium smugglers, men flush with billions of dollars who despise the Iranians for their own reasons.

Before it was split between Iran, Pakistan, and Afghanistan, Baluchistan spread over an area slightly larger than California. The 650-mile Iran-Pakistan border drawn by the British in 1871 starts at the Arabian Sea, cutting through rugged mountains and dry riverbeds, into open desert at a point where the frontiers of Afghanistan, Iran, and Pakistan touch.

The Baluch in Iran do not speak Farsi but Baluchi, just like the Baluch in Pakistan, and in Iran they are a Sunni minority. Instead of the Western-style men’s apparel popular in Tehran, the Baluch in Iran’s Sistan-Baluchistan province dress in shalwar kameez like their counterparts in Pakistan. Many still have family on both sides of the border, and culture is not the only thing they have in common: The Baluch in Iran and Pakistan share a troubled, often violent, relationship with their rulers.

Iran says the jihadis enjoy support not only from Saudi Arabia and the CIA, but from Pakistan’s ISI.
Pakistan’s province of Baluchistan, which accounts for nearly half of the country by area, is its poorest, least educated, and least developed region. Sistan-Baluchistan, where most of Iran’s Baluch live, lags behind the rest of Iran in almost every measure. Around half the Baluch in the province are unemployed, a result, say rights groups, of longstanding marginalization by Tehran.

Under the shah, Iranian Baluch children were banned from wearing shalwar kameez to school, and Baluchi language publications were blacklisted. After the Iranian Revolution, discrimination took on a sectarian flavor. Riots broke out in 1994, after Iranian authorities replaced a Sunni mosque in Mashad with a development project. Within a few years, Iran had jailed or driven from the country more than 60 Sunni clerics. Many of those clerics were welcomed into Saudi Arabia and Kuwait, where some now regularly appear on Arabic television networks, blasting the Shiite regime in Tehran. By the late 1990s, some Iranian Baluch had turned to militancy, couching their insurgency in a narrative of Sunnis fighting religious and ethnic discrimination at the hands of a Shiite theocracy.

In the midst of this religious and political turmoil, drug trafficking thrives. More than 70 percent of the world’s opium flows across the same border the jihadis do, and from the start, the traffickers and Baluch jihadis targeting Iran have cultivated a cozy relationship.

The Iranian strike in Kulahu in November 2013, which is one of the best documented in this secretive war, was partly aimed at a compound in the village that has hosted jihadis since the 1990s, when an Iranian banker named Maula Bux Darakhshan formed Sipah-e-Rasul (or the Army of the Prophet). Maula Bux (as he is called) mixed with the Afghan Taliban, and financed most of his work by trafficking poppy, according to a Salafi cleric who knew him personally. Local journalists recall watching his fighters parade blindfolded Iranian soldiers through the streets of Kulahu in the back of Toyota Hilux pickup trucks.


Mullah Omar, the Jaish ul Adl leader, got his start with Sipah-e-Rasul, where he and other fighters doubled as muscle for the trafficker, breaking associates out of Turbat’s fortress-like prison.

Maula Bux himself was killed in 2006, after being lured across the border by Iranian forces on the pretext of a drug deal. But another, more powerful jihadi group already was emerging in Iran.

On Dec. 14, 2005, gunmen ambushed the lead car in a motorcade carrying Iranian President Mahmoud Ahmadinejad on a tour of Sistan-Baluchistan, killing the driver and a bodyguard. Ahmadinejad escaped alive, but Tehran was rattled.

The attack was orchestrated by Abdelmalek Rigi, then age 22. Rigi’s boyish, grinning face became the defining image of Baluch jihad in Iran. As a teenager, the Iranian-born Rigi had come across one of Iran’s notorious public executions—eight young Baluch men strung up by cranes in public view—and he dated his militancy, in part, from that moment. In 2007, he told Western media (PDF) that his group aimed not to topple the Iranian regime, but to increase autonomy for Sistan-Baluchistan and shield minorities from Tehran’s “despotic religious rule like Fascism, [or] like Nazism.” Within six months of the attempt on Ahmadinejad, Rigi’s group, Jundullah, pulled off several more brazen attacks on highways near the border, killing dozens of non-Baluch and taking Iranian Republican Guard officers hostage.

By the end of 2009, Jundullah suicide bombings had killed scores of Shiite worshippers at mosques in southeastern Iran and 42 people in Pishin, including the deputy commander of Iran’s Revolutionary Guard ground forces. Fuming Iranian officials blamed the United States and United Kingdom for backing the militants, and Pakistan for inaction. A dozen Revolutionary Guards were caught deep inside Pakistan, tracking Rigi. In public, Pakistan denied Rigi was on its soil, but in private, authorities quickly moved to help the Iranians find him, focusing on the border near Turbat.

A 2008 Pakistani raid near Turbat turned up Abdolhamid Rigi, the brother of Abdelmalek Rigi. “Whatever used to happen in Iran, they would say it was because of Pakistan. But we did a lot, and the proof of that is that we handed over Abdolhamid Rigi,” said the then-Pakistani Interior Minister Rehman Malik. During two years in Iranian custody, Abdolhamid provided crucial details of how Jundullah operated. On Feb. 23, 2010, when Abdelmalek Rigi boarded a Kyrgyzstani passenger plane from Dubai to Bishkek, Iran had the flight diverted to Sharjah’s airport, where the head of Jundullah was arrested.
Before executing Rigi in June 2010, Iranian television aired his “confession,” detailing how the West and Pakistan had supported Jundullah. In his statement, Rigi named Naser Boledi as a main mediator between him and representatives of NATO. Rigi said he met American handlers at bases in Afghanistan on trips arranged by Boledi and Yasin Ahwazi, an Iranian-Arab who lives in Europe. Both Boledi and Ahwazi have been prominent critics of Tehran for decades. Boledi, who lives in Sweden, laughs heartily when I call him to ask about his connections to Jundullah. He denies any link.

Outside of Iran, Rigi's “confession” seemed like another in the long tradition of statements extracted from prisoners there. There was, however, some evidence the American intelligence community had sources inside Rigi’s group, and some knew of Jundullah’s intention to carry out attacks in Iran.

Part of a $400 million budget request for the CIA in 2007 included a recommendation to build ties with armed anti-Tehran groups like Jundullah. Some in the intelligence community seem to have followed through on that plan. According to an investigation by The New York Times, Thomas McHale, a detective with the Port Authority of New York and New Jersey, cultivated extensive contacts with Jundullah, starting in 2007. McHale was assigned to the Newark, New Jersey, Joint Terrorism Task Force, which includes several state and federal agencies and is supervised by the FBI. McHale passed his intelligence on to the CIA, the FBI, and the Pentagon, and his reports suggested he had known of Jundullah’s intention to carry out attacks in Iran in advance, but it is unclear if he knew the details. When the CIA began to suspect he was too close to Jundullah, it cut ties with McHale, but the FBI, and later the Pentagon, still sponsored half a dozen trips to Pakistan and Afghanistan where he met Jundullah members. The relationship continued until late 2013, long after Jundullah was declared a terrorist organization by the State Department in 2010.

Shrubs and small trees dot a parched landscape along the road from Turbat to the border. Dust devils as tall as skyscrapers appear in the distance. Occasionally, green orchards of date palms emerge from the bleak horizon, a reminder of the region’s once famous export.

Rugged, unmarked roads branch off, leading northwest through the Zamuran Hills to the Iranian frontier district of Sarawan, where Jaish ul Adl attacked the army base in September 2014. Nestled in the hills are small market towns like Buleda, dominated by Baluch who make a living smuggling diesel and drugs. Three years ago, Republican Guard soldiers came into the hills and killed a cleric accused of hosting Jundullah fighters.

“Iranian forces have long-term grievances with the people in the Pakistani border areas,” said Zahoor Buledi, a former provincial minister. “They are always blaming us for abetting Jundullah, because Jundullah usually does its operations near these areas... Bombing and shelling are routine matters.”

Hundreds of families have left Zamuran because of the shelling, settling in places like Turbat, only to have the war follow them there too.

“Iran knows who lives in each and every house here,” one man in a Turbat mosque tells me. “They could come here, even to Turbat city, and take any of us and our government wouldn’t do anything.”

In a one-room home on the outskirts of town, a man named Abdullah speaks in a hushed voice as he recounts the disappearance of his 26-year-old son, Tanveer, in a Pakistani border town. On Jan. 11, 2013, four plainclothes soldiers in two Iranian trucks posed as diesel merchants and lured the young man into one of their vehicles. “When Tanveer realized what was happening, he jumped out of the truck, but the Iranians shot him,” Abdullah says. “We got the body two weeks later. They said they had the wrong Tanveer.”

At the Iranian consulate in Quetta, ringed by multiple layers of giant sand bags to deter would-be suicide bombers, Syed Hasan Yehyavi offers tea, Turkish delight, and diplomatic words. “We have full confidence in the goodwill of Pakistan, our brothers and neighbors,” said the consul general, “but we expect more help from Pakistani officials.” He follows up with the now official line from Tehran, that Jaish ul Adl is being backed by the CIA, Saudi Arabia and “regional” powers—a nod to the ISI.

Mosques and madrassas run by Salafi Baluch, some of whom are financed and have studied in Saudi Arabia and other Gulf countries, have sprung up in the region surrounding Turbat in the last decade, leading some to believe funding might be channeled through them to groups like Jaish ul Adl.

Pakistani security officials offer a more nuanced explanation. Khan Wasey, the spokesman for the Frontier Corps, a Pakistani paramilitary force tasked with securing the border, claims there are no real Jaish ul Adl bases in Baluchistan. He says his troops work to stop smugglers and jihadists, “but there are other forces at play.”

Indeed, more than 55,000 Pakistani troops are in Baluchistan waging a war of their own. For the last nine years, they have battled secular Baluch nationalists who would like to see an independent Baluchistan. The Baluch militants blame a Punjabi-dominated military for profiting from the extensive natural gas, gold, and copper deposits that should have made the province the wealthiest in the country. The fighting goes on along the same dusty back roads used by Jaish ul Adl militants moving into Iran, but it’s apparent that they’re not the main enemy for those Pakistani government troops, and they exploit the disorder for their own ends.

The Jaish ul Adl compound in Kulahu sits on a route where three Baluch separatist groups and at least one alleged government-backed death-squad have set up their own checkpoints; bribes ease the flow of diesel and opium here, even though Iran has constructed hundreds of kilometers of walls and trenches along the border.

Local police officials like Bashir Brohi, Turbat’s soft-spoken, well-manicured police chief, think Jaish ul Adl is probably able to fund its activities through drug smuggling and conceded “the government’s writ basically ends at the city lines” of Turbat.

His latest target has been Hajji Hassan, a Baluch drug lord who fled Iran and settled in Turbat in 2000. Hajji Hassan is legendary here. Back in Iran, he once got word that the Iranians were going to raid a village where his men were stationed. “When the soldiers entered a valley, Hajji Hassan’s men opened fire, killing more than 50 of them,” one of the kingpin’s neighbors tells me. “After that, he had to leave Iran.”

Hajji Hassan lives in Turbat’s Overseas Colony, a hamlet for the city’s elite whose imposing mansions covered in glazed tiles strike a jarring contrast with the traditional mud-walled homes in the city. Many of the bosses living here, who dominate a multibillion-dollar-a-year drug trafficking industry along the border, are Iranian Baluch in exile, and thought to finance groups like Jaish ul Adl. Locals close to Hajji Hassan say he has hosted Jundullah’s leadership, including Abdelmalek Rigi, in the past, and may be hosting Mullah Omar’s fighters as well.

That sort of reputation seems to have tipped the Iranians to ask Police Chief Brohi and the Frontier Corps to search in the Overseas Colony for five soldiers Jaish ul Adl kidnapped in February 2013 in the Overseas Colony. A series of raids this year turned up dozens of Tanzanians, Nigerians, and Yemenis, and Iranians, too, kept as human collateral in global drug deals, but no soldiers. Four of the five soldiers Jaish ul Adl kidnapped were eventually found in Iran, near the Zamuran hills, and released after the mediation of an Iranian Baluch cleric.

Pakistani officials point to that exchange as proof Jaish ul Adl has no presence in their country, but some are still convinced the ISI is grooming the militants indirectly, by supporting the drug kingpins who finance them.

For officials like Brohi, pursuing the drug traffickers in Turbat would mean crossing a political minefield. One of the drug world’s most notorious traffickers also hails from Turbat, and enjoys the support of the ruling provincial party. Imam Bheel, as locals call him, was added to a list of worldwide traffickers subject to U.S. sanctions in 2009. His son, Yaqoob Bizenjo, served as a member of the National Assembly until 2013.

With all the internal security problems plaguing this corner of Baluchistan, it seems unlikely Pakistan will crack down on groups like Jaish ul Adl, or the drug kingpins funding them, any time soon.

Rigi used to couch Jundullah’s aims in terms of an ethnic minority fighting for autonomy within a federalized Iranian state. Mullah Omar and his other successors, by contrast, have relied on the kind of polemical Shiite-Sunni rhetoric used by the self-proclaimed Islamic State, or ISIS, in Syria and Iraq.

When Jaish ul Adl took five Iranian border guards hostage in February 2013, its demand in exchange for their release included the freeing of 300 Sunni prisoners, some of whom it claimed were being held in Syria. An attack last year that killed 16 Iranian soldiers was publicized as a “response to crimes of the Revolutionary Guards in Syria.”

The group puts out most of its statements—on its Twitter feed, or its numerous websites—in Arabic, as opposed to Baluchi or Farsi. The outlets giving these pronouncements the most airtime are Arabic news stations in the Gulf. The group also has admirers in Pakistan.

“In Iran, Sunnis are not allowed to build mosques; their mosques are destroyed, their rights are taken away,” says Ramzan Mengal, provincial head of the Ahle Sunnah Wa Al Jamah party, which has been accused of targeting Shiites in Pakistan for decades. Two policemen guard the door to his rundown madrassa on the outskirts of Quetta, protection provided to him, he says, because “Iranian agents” have gunned down eleven Sunni clerics in the city. Jundullah and Jaish ul Adl sprang up “in reaction to that kind of oppression,” he said. “They started as small groups that are big thorns in Iran's side now.”

“The Syrian war is having its effects here as well,” said Yehyavi, the Iranian consul general in Quetta. “People want to paint this as a [global] sectarian war.” Yehyavi and other Iranian officials worry Jaish ul Adl might become a globally-connected group, drawing support from the same forces backing the Islamic State in Syria.

Rights activists like Boledi, the Iranian Baluch dissident living in Sweden, harbor some of the same concerns. As a well-known advocate for Baluch rights in Iran, young Iranians reach out to him for advice. “I've had the same cellphone number for 15 years, so occasionally I do get calls from these militants,” he said. “I tell them, we are Muslims, but we are not looking for some new Islamic government. I tell them you are not what the Baluch want.”

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