>>> What to look at this Week End ( 13th & 14th of Dec. )


Macro :
- OPEC El-Badri: OPEC has no set price for oil; Failure by members to invest may push the prices back above $100/brl again 
- Abe Faces Policy Balancing Act After Commanding Election Victory
- United Kingdom Affirmed at AA+ By Fitch
- ECB Poised to Move to QE in Early 2015, S&P Economists Reiterate
- Greece Close to Exiting Bailout Program: Samaras in Real News
- ECB's Weidmann (Germany): Risk of spiralling deflation is very low; Current falling prices due to energy-cost decrease
- Qatar Stocks Enter Bear Market as Dubai Erases 2014 Gains on Oil

Keep an eye on :
- AIR FP : Airbus to Hand Over First A350 to Qatar on Dec. 22, Cos. Say
- ALV GY : Manulife & Allianz to Co-Invest Up to $1b in U.S. Real Estate
- ALO FP : Alstom’s Kron Seen as Possible Candidate for Sanofi Top Job: JDD
- O2C GY : C.A.T. Oil Says Bid Document Contains Errors
- CGG FP : Technip Doesn’t Intend to File a Tender Offer for CGG
- CBK GY : Commerzbank to Raise Prices for Corporate Clients: Handelsblatt
- GET FP : Eurostar attracts offers from CIC and GIC
- ICAD FP : Icade sells 36 Mr. Bricolage stores to Tikehau Capital for EUR 126m
- KER FP : Kering appoints Marco Bizzarri as CEO of Gucci; seeks new creative director
- LHA GY : Lufthansa Board Split on Future of Core Business, Spiegel Says
- POM FP : Plastic Omnium’s 2014 Profitability Should Beat Last Year’s 7.7%
- SGO FP : Saint Gobain Wants Sika Mgmt to Stay, Haelg Tells SchweizAmS
- SAN FP : Alstom’s Kron Seen as Possible Candidate for Sanofi Top Job: JDD
- SIK VX : Saint Gobain Wants Sika Mgmt to Stay, Haelg Tells SchweizAmS
- SYNN VX : Syngenta Expects China Approval for MIR 162 Corn in Near Future
- TEC FP Technip Doesn’t Intend to File a Tender Offer for CGG
- TEF SM : Telefonica Aims to Improve German Network Quality: Handelsblatt
- TSCO LN : Tesco Planning Disposal of Unused Properties: Sunday Telegraph

(BN) Risk Is Back for Hedge Funds Chasing Glut of Mergers: Real M&A

Risk Is Back for Hedge Funds Chasing Glut of Mergers: Real M&A
2014-12-14 17:00:01.0 GMT


(for a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Tara Lachapelle, Angus Whitley and Brett Foley
(Bloomberg) -- Merger-arbitrage traders didn’t have enough
risk last year. This year, they got more than their share -- and
it’s not going away.
Companies announced $2.8 trillion of acquisitions, making
2014 the busiest year since before the financial crisis.
Unprecedented amounts of money were spent in some industries,
such as pharmaceuticals, and the transactions skewed larger than
at any other time this century, according to data compiled by
Bloomberg. The slew of deals gave merger-arbitrage traders
plenty to wager on, after last year’s scarcity of profit
opportunities.
The explosion of megamergers brought volatility back to the
investing strategy. The deals have been fraught with challenges,
from regulatory scrutiny to the plummeting price of oil and the
government’s attempt to deter tax inversions. Betting on them
didn’t always pay off. More than $100 billion of potential
takeovers unexpectedly blew up, like when drugmaker AbbVie Inc.
called off its $55 billion purchase of Shire Plc. That burned
merger-arbitrage funds, some of which will end the year at a
loss even as stocks around the world surge.
“Drought conditions turned into basically flood conditions
this year,” Louis Meyer, a New York-based event-driven analyst
for Oscar Gruss & Son Inc., said in a phone interview.
“Volatility is good, but it can be a double-edged sword. The
positive aspect is you do have deals and the trend seems to be
continuing. On the other hand, you’ve had real risk emerge and
portfolio managers can no longer work on cruise control.”

Merger Spreads

This is how merger arbitrage is supposed to work: Company A
announces that it’s buying Company B. Over the time that it
takes for the deal to close, the target’s stock should rise to
the same price as the acquirer’s offer. Traders take positions
to capture that spread and reap a profit when the deal is
completed.
There was too much investor money chasing too few
transactions in 2013, so spreads were very tight and profits
were small. Acquisitions that were pending completion around
this time last year had a median spread of just 1.7 percent,
compared with 4 percent now, data compiled by Bloomberg show.
In the U.S., the largest deals have some of the widest
spreads. Oilfield-services provider Baker Hughes Inc. is trading
about 11 percent below Halliburton Co.’s $38 billion offer as
oil prices have continued to slump. Regulatory risk has left
gaps of more than 5 percent in other big deals including the $26
billion merger of cigarette makers Reynolds American Inc. and
Lorillard Inc., AT&T Inc.’s $66 billion purchase of DirecTV, and
Comcast Corp.’s $68 billion takeover of Time Warner Cable Inc.,
the biggest transaction of the year.

Deal Blowups

All the activity is good for investors who speculate on
deals, unless of course the situations unravel. Two days this
year dealt huge blows to traders. On Aug. 6, Sprint Corp. ended
talks to buy T-Mobile US Inc., and Twenty-First Century Fox Inc.
withdrew its bid for Time Warner Inc. Then in October, AbbVie
got cold feet over its Shire deal, which would have been the
largest tax inversion on record. Shire’s stock plunged 28
percent in two days.
“There have been an unusually large number of deal
cancellations recently making it very difficult to generate
positive returns,” Keith Moore, an analyst for MKM Partners,
said in a note to clients after AbbVie-Shire broke down. This
week, describing the risk-arbitrage environment, he said “a lot
of comments come to mind: difficult, volatile, surprising,
unpredictable or the ultimate roller-coaster ride.”
The Bloomberg Global Merger Arbitrage Hedge Funds Index was
climbing in the first half of 2014, but is now down 1 percent
for the year. The Standard & Poor’s 500 Index has gained 8.3
percent.

Going Global

Deals are on the rise in other parts of the world, too,
with a 31 percent jump in European takeovers and a 33 percent
increase in Asia. Europe hasn’t seen as many large transactions
stumble, with the exception of Pfizer Inc.’s failed cross-border
pursuit of London-based AstraZeneca Plc. Spreads also haven’t
been as wide in Europe as in North America and Asia, though
European deal activity probably will pick up next year.
In Asia, the perils have often outweighed the potential
rewards. Investors have attached more risk to Australian deals
than those in any other Asian market, according to data compiled
by Bloomberg. The chances of picking the final outcome may be
too slim, even for traders who specialize in betting on
potential takeovers, said Tristan K’Nell, Sydney-based head of
trading at Quay Equities.
“Definitely you want to see some upside, but just in the
short term, we’re probably seeing a little too much risk to
actually put the deals together,” he said by phone.

Iron Slump

The price of iron ore, Australia’s biggest export, has
plummeted about 49 percent this year and investors are concerned
about an economic slowdown in China, the world’s biggest buyer
of the commodity and Australia’s largest trading partner.
Economic growth in Australia unexpectedly slowed for a second
straight quarter in the three months ended September.
Goodman Fielder Ltd., Australia’s largest baker, is trading
8.1 percent below the value of a bid from palm oil producer
Wilmar International Ltd. and Hong Kong investment group First
Pacific Co. That offer had already been cut after the suitors
studied Goodman’s accounts and the deal still needs Chinese
regulatory approval.
Bradken Ltd., an Australian supplier of mining equipment,
is trading 12 percent shy of a reduced A$872 million offer from
Bain Capital Asia and Pacific Equity Partners. Transfield
Services Ltd., the builder of Melbourne’s Gateway Bridge, is 13
percent under the value of an initial A$1 billion bid from
Ferrovial SA.

‘Zero Tolerance’

Some deals in Australia have fizzled before terms have been
set. Private equity suitors including KKR & Co. failed to follow
through with initial offers of A$3.4 billion for Treasury Wine
Estates Ltd., the maker of Penfolds Grange wine. And an
indicative bid of as much as A$1.1 billion for Australian
standards company SAI Global Ltd. from Pacific Equity Partners
also never led to a final offer.
“There is zero tolerance” regarding transactions where an
agreement hasn’t yet been reached, James Santo, a special
situations trader at Aviate Global in Sydney, said by
phone.“Even in the event of a binding agreement, you want to
see low regulatory risk and a high chance of completion.”
As a rule, traders would prefer an environment with more
deals, even if it means more volatility. That said, it takes a
lot of work and a broad set of skills to navigate the risks and
still make money.
Arbitrage “requires a full tool belt just to compete,”
Meyer at Oscar Gruss said. “We’re back in an environment where
all of a sudden, all the tools need to be taken out of the belt
because they’re all going to be needed.”

For Related News and Information:
Merger Speculators Taking $20 Billion Bath as Deals Come Asunder
Day of $100 Billion in Deals Evokes Exxon-Mobil Merger: Real M&A
John Paulson Leads Deal Magicians Amid Tighter Spreads: Real M&A
Live Merger-Arbitrage Spreads: MARB <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>

To contact the reporters on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net;
Angus Whitley in Sydney at +61-2-9777-8643 or
awhitley1@bloomberg.net;
Brett Foley in Melbourne at +61-3-9228-8721 or
bfoley8@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Mohammed Hadi

FT : Maurice Lévy tries to pick up Publicis after failed deal with Omnicom

Maurice Lévy tries to pick up Publicis after failed deal with Omnicom

The latest phrase to enter Maurice Lévy’s vocabulary is “to be ubered” and the head of Publicis Groupe, one of the world’s largest advertising groups, is using it with alarming frequency.
“Everyone is starting to worry about being ubered,” Mr Lévy tells the Financial Times in an interview, referring to the car-hailing app that is trying to upend the traditional taxi industry. “It’s the idea that you suddenly wake up to find your legacy business gone . . . clients have never been so confused or concerned about their brands or their business model.”

Mr Lévy’s own sector is no exception.
The “digital tsunami”, as he calls it, has caused more upheaval to advertising than at any time since the advent of radio and television. The rise of competitors such as Google and Facebook has changed the way people consume information. This has presented huge challenges to the likes of Publicis, whose brands include Saatchi & Saatchi and Leo Burnett, as well as interactive agencies such as Razorfish.
The failure in May of Publicis’s planned $35bn mega-merger with US rival Omnicom, seen at the time as a logical “size matters” response to the tsunami, has only underscored the scale of the challenge.
So how does Mr Lévy intend to survive and prosper in this brave new world? One answer is that he is doing what every other company is: hiring mathematicians and data scientists to help deliver the specific algorithms clients need to reach specific consumers.
“We employ geeks, techies and gamers,” he says. “Today, advertising campaigns are so highly targeted that they are often not even seen by the general public.”
Another answer came last month when Mr Lévy announced that the group would acquire Sapient, the Boston-based consultancy that specialises in digital but also provides business and technology services to the capital and commodity markets.
At the time the deal was announced, Mr Lévy called Sapient the “crown jewel” in omni-channel commerce and consulting. He told the FT that the all-cash $3.7bn acquisition, which he expects to close in the first quarter of next year, would break down the doors of other sectors just as digital is bringing the advertising world closer to the lucrative realms of consultancy and IT.
“It gives us a full set of services,” he says.
Advertising chart
Publicis certainly needs a lift. The Paris-based group, founded by Marcel Bleustein-Blanchet in 1926, has notched up several quarters of disappointing growth. Sales were €1.75bn between July and the end of September — an organic growth of just 1 per cent compared with a year earlier.
By contrast, US rival Interpublic reported organic growth during the same period of 6.3 per cent. Even more galling, Omnicom grew at a spirited 6.5 per cent.
Mr Lévy says that his group’s poor recent performance is directly related to the failed tie-up. “We involved our people more than they [Omnicom] did, we believed more in the merger, we invested more time and passion,” he says. “We were pregnant with the idea of the merger and so have suffered while they enjoyed good growth.”
Mr Lévy says Publicis is reverting to maximising organic growth. Last week, he restated medium-term targets, promising shareholders that revenue would grow two percentage points, on average, higher than the rest of the industry in coming years. He also promised to increase operating margins — 16.2 per cent this year before including Sapient — by between 200 and 400 basis points.
But in a world in which most people agree that size matters, analysts are sceptical that Publicis’s planned acquisition of Sapient provides the necessary boost in scale. Sapient’s $1.26bn in revenues last year are small compared with Publicis’s €6.95bn, for example. Contrast all of that with the now-shattered dream of bonding with Omnicom’s roughly $14.6bn in annual revenues.
Advertising chart
Moreover, Sapient’s business may be mainly digital — boosting Publicis’s overall revenues from digital to more than 50 per cent of the total well before its 2018 target — but it is also highly concentrated in the US. That will do little to expand the group’s footprint in emerging markets, which last year accounted for less than a quarter of the Paris-based group’s overall revenue.
Analysts also question whether the convergence opportunities in consulting and technology that Mr Lévy has signalled will materialise. Bernstein Research, for example, recently argued that consulting companies tend to be highly specialised and their deep knowledge of their sector already allows them to provide the value-added services Mr Lévy has identified.
The report, entitled “Christmas came early . . . to Sapient”, a reference to the 19.5 times earnings before interest, taxes, depreciation and amortisation at which Publicis’s offer values the company, concluded: “The crossover between financial services and digital marketing is not natural or convincing.”

Publicis shares fell on the day it announced the acquisition. The stock is down about 11 per cent since the start of the year. Meanwhile, Omnicom shares are up 4.2 per cent over the same period. Shares in Havas, Publicis’s much smaller Paris rival, are up 13.6 per cent. Of Publicis’ main rivals, only UK-based WPP has seen its shares fall this year — though only by 4.4 per cent.
With the verdict still unclear on the Sapient acquisition, there is nevertheless one thing on which everyone agrees: the deal does nothing to resolve the puzzle of succession.
A tie-up with Omnicom would have provided the 72-year-old Mr Lévy with an elegant solution, crowning his 27 years at the top of Publicis with the biggest merger in advertising history and gradually handing over the reins to John Wren, his counterpart at Omnicom.
As things stand, Mr Lévy has had to buy time to find the right replacement by extending his original retirement date by 18 months until the group’s annual general meeting in May 2017.
Sitting in his office, connected by a door to the impeccably preserved room — complete with Picassos and a Giacometti — from which Bleustein-Blanchet used to run things, Mr Lévy says that choosing his successor is a job for Publicis’s board.
And it is one that he insists will begin at the end of next year. In the meantime, he says, his responsibility is to ensure that there is an internal candidate ready in time.
Has he already started that process?
“I have never stopped,” he replies.
Digital tsunami blurs the lines
The “digital tsunami”, as Maurice Lévy calls it, has blurred the razor-sharp lines that once separated IT from advertising, forcing the world’s biggest marketing groups to partner with software companies.
In September, Publicis announced an alliance with Adobe, the US technology group, to offer a range of digital marketing tools.
The “Always-On Platform”, as Publicis calls it, will help clients manage their campaigns across devices as well as to measure their effectiveness. The company says it will also help them to target potential customers more effectively.
In the same month, Omnicom announced a strategic alliance with Salesforce.com, the San Francisco-based cloud computing company, to provide customers with a range of customer relations management tools.
The alliances do not involve any equity, sending a clear message to investors in the advertising groups that the companies do not intend to sink money into acquiring IT companies.
But they illustrate the growing importance of providing digital tools to support the growing demand for targeted, online campaigns. The days of the blockbuster television advertising campaign are not yet over. But it seems clear that the era of digital campaigns that are highly targeted to specific people are here to stay.

FT : Abe wins mandate to continue but not all Japanese convinced

Abe wins mandate to continue but not all Japanese convinced

Shinzo Abe did not seem jubilant, or even terribly relieved.
Instead, when Japan’s prime minister spoke on television late on Sunday evening, a couple of hours after exit polls suggested that he had secured another four years at the helm of the world’s third-largest economy, his tone was subdued.

“We have received an endorsement for the last two years of the Abe administration,” he said. “But we must not be conceited.”
A little humility was probably in order. When Mr Abe’s Liberal Democratic party swept to power two years ago, it was with about 1.7m fewer votes in single-member districts than it had won in 2009, when it came up against a resurgent Democratic party. This time, the LDP won even less popular support than it had in 2012, as its voting share looked set to remain stable while turnout dropped to a new record low of about 52 per cent, from 59.3 per cent last time.
After all the rigmarole of a snap election likely to have cost about Y60bn ($505m), the LDP ended up about where it started, with 290 seats in the 475-seat lower house. Together with its coalition partner, Komeito, it has retained the two-thirds majority needed to override the upper house, where opposition parties are stronger.
“Mr Abe has passed a midterm examination,” said Harukata Takenaka, a professor at the National Graduate Institute for Policy Studies in Tokyo. “The final test is yet to come.”
The prime minister had billed the poll as a referendum on his sweeping economic programme, also known as “Abenomics”, which is aimed at ridding Japan of deflation.
Mr Abe is from a wealthy family so he has no idea that ordinary people are feeling bullied. Only big companies and people who own stocks have benefited from ‘Abenomics.’ It is unfair
- Yukio Kanno, 73
Yet even among the people who went out to vote on an unusually cold December day — Tokyo saw its first winter snowfall about three weeks earlier than average — there was broad ambivalence towards the big stimulus efforts. According to exit polls carried out by NHK, the national broadcaster, there was a fairly even split between people who said they valued “Abenomics” (52 per cent) and those who said they did not (46 per cent).
Despite a lot of talk from Mr Abe that his reflationary drive is “the only way” for Japan, large swaths of voters have yet to experience benefits through higher wages. For many, the most obvious effect remains the collapse in the yen, which has boosted companies’ profits but pushed up people’s cost of living — a squeeze exacerbated by April’s increase in the consumption tax from 5 per cent to 8 per cent.
“Mr Abe is from a wealthy family so he has no idea that ordinary people are feeling bullied,” said Yukio Kanno, a 73 year-old pensioner from the western Tokyo district of Matsudo, who cast a vote for the centre-right Japan Innovation Party, formed from a split of other minority groups just three months ago. “Only big companies and people who own stocks have benefited from ‘Abenomics.’ It is unfair.”
Meanwhile, many voters say they are worried that Mr Abe may use an extended mandate not to push for longer-term structural reforms to boost Japan’s competitiveness — the so-called “third arrow” of Abenomics — but to pursue matters closer to his heart, such as redrafting the country’s pacifist constitution.
Rie Yamanaka, a 32 year-old tax accountant who backed the JIP in her central-Tokyo district of Koto on Sunday morning, said that she welcomes Mr Abe’s basic ideas to perk up the economy, but is “scared” by his assertive foreign policy, which has strained Japan’s relations with China and South Korea.
“During the last election campaign, there was not much talk about revising the constitution,” she said, alluding to Mr Abe’s move earlier this year to loosen rules on how Japan’s self-defence forces can be deployed to support allies. “But once the LDP got an overwhelming number of seats, Mr Abe’s behaviour changed. It makes me wonder if the party is really OK.”
The prime minister gave a glimpse of these broader interests on Sunday evening, when he argued that the election had not been merely about Abenomics but was a vote on “which party should govern.”
Reworking Japan’s constitution was the LDP’s “long-held wish,” he said. Over the next few years, he would “work towards deepening public understanding on constitutional revision.”

FT : Banks’ losses raise spectre of renewed proprietary trading

Banks’ losses raise spectre of renewed proprietary trading

City of London trading desks at several big investment banks lost money after the collapse of AbbVie’s $54bn takeover offer for Shire, raising fresh questions about whether banks are skirting a ban on making speculative bets with their own funds.
Banks including Citigroup, Credit Suisse, Barclays and Goldman Sachs suffered losses from holding large positions in Shire stock when AbbVie withdrew its offer for the UK drug company in October, sending Shire shares tumbling in value.

While investment banks are permitted under the so-called Volcker rule to hold inventories of shares to sell on to their clients, senior bankers said it was not typical to hold such a large exposure to a single company in a takeover situation solely for market making purposes.
Citi lost in the region of $20m, and Credit Suisse about $6m, people familiar with the positions said. The other banks’ losses were unclear.
“It is difficult to justify this sort of activity as normal market making,” said one senior investment banker in London. Barclays, Credit Suisse, Citi and Goldman Sachs all declined to comment.
Betting on AbbVie’s offer for Shire being completed was one of the largest hedge fund trades of this year. Several of the biggest and most well-resourced hedge funds lost tens of millions of dollars when the deal fell apart amid pressure from the US government over AbbVie’s aim to relocate its tax domicile to the UK.
Citi, Credit Suisse, Goldman Sachs and Barclays are all large market makers in Shire shares, meaning they regularly hold inventory of the company’s shares.
Citi and Goldman Sachs’ corporate finance arms, which are separated from their trading desks by so-called Chinese Walls, were also advising Shire on the approach from AbbVie.
After investment banks relied on government support during the financial crisis, regulators introduced new rules in the US to prevent them from speculating using their own capital, a practice known as proprietary trading.
Many banks have since said they no longer engage in any form of proprietary trading, and have spun off the once-sprawling divisions that used to trade in this way.
The Volcker rule, named after former Federal Reserve chairman Paul Volcker that bans banks from proprietary trading, was one of the centrepieces of the US Dodd-Frank financial reform legislation of 2010 following the collapse of Lehman Brothers two years earlier.
“This is a dirty secret in London,” said one hedge fund manager. “Everyone knows that the trading desks at the banks take positions in these sorts of deals through their market making operations.”
Regulators have jousted with banks over where the line is drawn between legitimate market making, in which they buy and sell securities on behalf of clients, and proprietary trading. Banks argue that overly strict regulation would hinder their ability to serve their clients.
The final version of the Volcker rule, which was delayed by four years as banks lobbied over its wording, gave market makers a greater amount of flexibility on activities that involve buying and selling shares and bonds on behalf of clients.

>>> Cirque du Soleil seeks investors to acquire 30% stake

Cirque du Soleil seeks investors to acquire 30% stake 

Cirque du Soleil is seeking new investment which could give the Montreal, Canada-based circus business a USD 2.5bn valuation, The Sunday Times reported. Financial advisers have been made aware of the prospective disposal of a minority interest by founder Guy Laliberté, according to City sources cited in the report.

Laliberté is looking for new investment in return for a 30% share of the business, the item reported. It noted that profits have fallen during the past few years.

Dubai-controlled companies acquired part of Cirque du Soleil from Laliberté six years ago, the report noted. It suggested the private-equity house Shamrock Capital Advisors and the US-based entertainment groups AEG Live, IMG and Live Nation are likely to be interested in bidding for Cirque du Soleil.
Sunday Times

>>> Eurostar attracts offers from CIC and GIC

Eurostar attracts offers from CIC and GIC 

The UK government’s sale of a 40% stake in Eurostar is believed to have attracted offers from China Investment Corporation (CIC) and GIC of Singapore, The Sunday Telegraph reported. The report did not cite a source for the information but said a bid battle is taking place between the two sovereign wealth funds, as well as a third consortium comprising the French life insurer Predica and the private-equity house 3i.

The UK government appointed UBS to handle its stake in the Anglo-French rail company two months ago and bids of up to GBP 500m (USD 786m) are expected, the report said. It noted that first-round offers were received early last week.


Sunday Telegraph