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Inversion-Deal Express Slows as Obama Condemns CEOs: Real M&A 2014-08-24 23:00:00.8 GMT

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

By Matthew Campbell, Manuel Baigorri and David Welch Aug. 25 (Bloomberg) -- President Barack Obama’s full- throated denunciation of overseas mergers that lower U.S. companies’ taxes is throwing cold water on potential deals. On July 24 Obama referred to companies looking to shift their domicile as “corporate deserters” and aides pledged to curtail the practice with or without Congressional approval. Since then, no companies have announced any of these deals -- known as inversions -- and it’s no coincidence, according to lawyers and investment bankers. The presidential rhetoric has caused several companies exploring inversions to put on the brakes to see what emerges from the political debate, people familiar with the preparations said. The new caution was seen earlier this month when Walgreen Co., the largest U.S. drugstore, passed on the opportunity to move its domicile to low-tax Switzerland when it bought Alliance Boots GmbH. Pfizer Inc., which is on the hunt for inversion targets in Europe after a failed bid for AstraZeneca Plc, is also treading carefully as its executives try to get a better handle on the political winds before proceeding, two of the people said, asking not to be identified discussing private information. “Tax-inversion deals is a topic that companies are quite worried about because of the political risk,” said Colin Mayer, a professor of management studies at Said Business School at Oxford. “The issue is now much more politically sensitive, especially after Pfizer’s attempt to buy AstraZeneca.”

’Corporate Deserters’

Pfizer, one of the the biggest American drugmakers, in April tried to move its domicile to the U.K. by buying AstraZeneca. It only ended that effort after the London-based company’s board refused to enter talks and the U.K. government opposed it. Between mid-June and late-July, when Obama ramped up his criticism of the deals, at least five large American companies announced plans for inversions, including AbbVie Inc. and Medtronic Inc. Since the start of 2012, 21 U.S. companies have announced or completed such deals, or almost half the total of 51 such transactions in the last three decades. After Obama called for “economic patriotism” from business leaders in July, Treasury Secretary Jack Lew said the agency was examining options for new rules that wouldn’t require Congressional sign-off.

Future Risks

Wary of the risks of U.S. action, some companies are leaving an escape hatch open. Medtronic’s agreement to buy Irish-domiciled Covidien Plc for more than $40 billion can be called off if a law is implemented that would mean the new company could “be treated as a United States domestic corporation” for tax purposes. The increase in criticism from Washington could have an impact on pending deals such as the sale of Nobel Biocare Holding AG. The Swiss maker of dental implants has attracted interest from potential buyers including U.S.-based Danaher Corp. Earlier this year, Monsanto Co., the world’s largest seed company, explored a takeover of rival Syngenta AG that ended without an agreement. Still, few companies are going to choose acquisition targets based solely on tax advantages. There has to be a strategic logic to a deal too, said Ferdinand Mason, a corporate partner in London at law firm Jones Day. “This type of transaction helps price a deal higher due to tax savings, but that’s not the main reason why you pursue such a deal,” Mason said. “Successful deals will always be driven by strategy and strategy alone.”

Treasury’s Options

In the case of Deerfield, Illinois-based Walgreen, gaining a non-U.S. domicile would have required a change to the terms of its 2012 agreement to buy Boots, according to Michael Polzin, a spokesman for Walgreen. Those changes would have to be “commercially driven,” not tax-driven, he said. The Treasury, which answers directly to Obama as an executive branch agency, has a few options for how to make transactions harder. It could try to limit companies’ access to foreign cash to finance overseas acquisitions, and make it harder for them to use accounting moves to reduce taxable U.S. income after a deal closes. “They may be even more aggressive than usual with their regulatory authority because of a perceived need to freeze the market,” said Phil West, a former Treasury lawyer who heads the tax practice at Steptoe & Johnson LLP in Washington. The agency may try to keep its cards hidden by issuing rolling sets of guidance, so that it retains a level of strategic advantage over private-sector tax lawyers who will immediately look for ways to get around its proposals, he added. “They might like the current uncertainty just fine,” West said.

Government Ties

A company’s decision to pursue a deal in the face of political criticism will depend on what business it’s in, said Jonathan Rubin, a partner at Westbury Group LLC, an investment bank in Westport, Connecticut. “Companies that do not have significant business with, or regulatory oversight by, the federal government will face the greatest pressure to pursue them,” Rubin said. Corporations with governmental ties will “have to take the political risk into consideration. The Walgreen uproar highlighted those risks.” Two parallel trends are helping drive the popularity of inversions. European countries, eager to make their economies more competitive, are slashing corporate tax rates, while U.S. companies, with hoards of cash overseas, are seeking those lower tax rates. In the U.S. the rate is 35 percent, though most companies take advantage of various deductions to pay a lower amount.

Cash Stockpiles

Since the global financial crisis, large U.S. companies with growing international operations have built up huge cash balances they hold in offshore accounts, since bringing the money back to the U.S. would mean paying tax on it. The U.S. is one of a handful of countries that tax all of companies’ -- and individuals’ -- worldwide income. Medtronic has nearly $14 billion offshore, while Pfizer has more than $30 billion in offshore cash and investments. Moving to an overseas legal address means that money can be used for dividend payments or share buybacks with a smaller tax penalty. “Taking advantage of a tax inversion merger to reduce a company’s corporate tax rate puts more profit into the pockets of shareholders,” said Rubin. “Companies which resist that opportunity run the risk that investors will punish its stock price.”

For Related News and Information: Obama Says Tax Law Must Change to Stop ‘Corporate Deserters’ NSN N98L7R6JIJV9 <GO> Offshore Cash of $2 Trillion Sparks Hunt for Tax-Friendly Deals NSN N7A6BS6S972E <GO> Cash No Longer King as Buyers Use Stock to Fund Takeovers NSN N80Y6K6VDKHS <GO> Top Stories: TOP <GO> Top Deal News: DTOP <GO> --With assistance from Richard Rubin in Washington and Zachary R. Mider in New York.

To contact the reporters on this story: Matthew Campbell in London at +44-20-3525-8684 or mcampbell39@bloomberg.net; Manuel Baigorri in London at +44-20-3525-4457 or mbaigorri@bloomberg.net; David Welch in New York at +1-212-617-2788 or dwelch12@bloomberg.net To contact the editors responsible for this story: Mohammed Hadi at +1-212-617-2914 or mhadi1@bloomberg.net; Aaron Kirchfeld at +44-20-3525-8830 or akirchfeld@bloomberg.net Larry Reibstein, Whitney Kisling

Market watchdog issues cyber attack warning

A global watchdog has sounded the alarm about the growing danger of cyber attacks, on financial markets, warning that firms and regulators around the world need to address the "uneven" response to the threat of online assaults. Greg Medcraft, chairman of the board of the International Organisation of Securities Commissions (Iosco), predicted that the next major financial shock – or "black swan event" – will come from cyber space, following a succession of attacks on financial players. He warned that there needed to be a more concerted effort to tackle cyber threats around the world as current approaches varied widely. "The feedback we have had from industry in discussions is that there is not a consistency in approach," he said. Recent big hacking attacks against US retailer Target, which had the credit card data of up to 40m shoppers stolen, and eBay – as well as the "Heartbleed" bug discovered in software used to secure two-thirds of the web – have exposed the vulnerability of websites to attack. Regulators are looking at producing a global "toolbox" next year to assess whether firms are sufficiently robust and managing their risks adequately. The idea is to identify risk management standards for detecting and responding to cyber-incursions, Mr Medcraft said, building on work pioneered in the US. "The issue of cyber resilience is a bit of a sleeper issue, and one that we have to be proactive [about] in terms of making sure the risk management approach is robust," Mr Medcraft said in an interview with the Financial Times. "Cyber crime has a huge potential impact on markets." The US Securities and Exchange Commission in April said it would examine the cyber resilience of more than 50 broker-dealers and investment advisers. SEC chairman Mary Jo White has said cyber threats were of "extraordinary and long-term seriousness" and called for the public and private sectors to be "riveted, in lockstep, in addressing these threats". Mr Medcraft, who is also chairman of the Australian Securities & Investments Commission, said: "The starting point is to look at what the Americans have done . . . and look at those risk-management principles and see how they could translate globally." The focus is on firms including broker dealers, fund managers, companies listed on stock markets and the stock markets themselves. He added: "The next black swan event will come from cyber space. It is important that we pay attention." Richard Horne, cyber security partner at PwC, the accountants, said: "Financial markets are globally interconnected and dependent and the financial system is only as strong as its weakest link. "As things stand the regulatory approach around the world is very patchy, so we need more co-ordination and consistency. Iosco’s move on this is a welcome step forward." Iosco, an umbrella body whose members include more than 120 securities regulators, has been highlighting cyber risks after last year releasing a report showing that more than half of securities exchanges had been on the receiving end of an attack. Some 89 per cent of the exchanges it surveyed said they viewed cyber crime as a potential systemic risk, citing the danger of major financial or reputational damage and the threat of a catastrophic loss of confidence. Forty-six securities exchanges responded to the survey, which was conducted with the World Federation of Exchanges. Concern about a possible state-sponsored attack on financial systems has been heightened after last year’s hacking of computer systems at South Korean banks and broadcasters, which originated from a Chinese internet address and was blamed by Seoul on North Korea. In Britain, the Bank of England has been overseeing a programme of "ethical hacking" aimed at assessing the ability of leading players including banks and insurers to fend off cyber assaults. That follows the country’s so-called Waking Shark II process, when City institutions conducted a simulated war game to check where vulnerabilities lay.

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BN 08/24 19:02 *ROCHE SAID TO STRIKE INTERMUNE DEAL INSTEAD OF BID FOR CHUGAI BN 08/24 19:02 *ROCHE SAID TO HAVE CONSIDERED BIDDING FOR ALMOST 40% OF CHUGAI BN 08/24 19:02 *CHUGAI MGMT SAID TO HAVE SIGNALED OPPOSITION TO ROCHE BID BFW 08/24 19:02 *ROCHE SAID TO HAVE DECIDED AGAINST BID FOR REST OF CHUGAI

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Roche Said to Have Decided Against Bid for Rest of Chugai 2014-08-24 19:08:10.286 GMT

By Brad Skillman Aug. 24 (Bloomberg) -- Chugai said to have signaled opposition to Roche bid * Roche said to have considered bidding for almost 40% of Chugai stake it didn’t own, struck Intermune deal instead * NOTE: Roche to Buy Intermune for $74/Shr, 63% Premium From 8/12 {NSN NATMZE6KLVR5<Go>} * Related story: {NSN NATS8X6K50XT<Go>}

Link to Company News:{4519 JP <Equity> CN <GO>} Link to Company News:{ITMN US <Equity> CN <GO>} Link to Company News:{ROG VX <Equity> CN <GO>}

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To contact the editor responsible for this story: Brad Skillman at +1-212-617-2763 or bskillman1@bloomberg.net

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Draghi Jackson Hole Speech Marks Turning Point in Rhetoric: Barc 2014-08-24 20:15:49.477 GMT

By Madeleine Lim Aug. 24 (Bloomberg) -- Draghi emphasis on need for stimulus both on supply and demand side probably marks first time ECB president has argued for boost to aggregate demand, Barclays economist Philippe Gudin wrote in note. * Major breakthrough with 1st time reference to “overall fiscal stance of euro area,” implicit recognition that some countries, particularly Germany, could run expansionary policy * Draghi sided with France, Italy, which have argued for more flexibility rather than Germany * Favors euro area budget for large public investment program * Explicit mention of medium-term inflation expectations, in part. 5y5y inflation swap rate below 2%, as cause of concern for ECB signals potential for more near-term action * Chances for outright QE as next step have increased, though still not expected before year-end

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Madeleine Lim in New York at +1-212-617-2296 or mlim131@bloomberg.net To contact the editor responsible for this story: Madeleine Lim at +1-212-617-2296 or mlim131@bloomberg.net

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BN 08/24 17:11 Jackson Hole Message Is Labor Markets Don’t Justify Higher Rates

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Jackson Hole Message Is Labor Markets Don’t Justify Higher Rates 2014-08-24 19:58:13.732 GMT

By Jeff Kearns and Simon Kennedy Aug. 25 (Bloomberg) -- Global central bankers led by Federal Reserve Chair Janet Yellen said labor markets still have further to heal before economies can weather higher interest rates. * Signaled international monetary policies are set to diverge as economic recoveries increasingly differ, while placing jobs at center of decision-making by saying stronger hiring and wages are still needed to drive demand * Focus on jobs suggests Fed, BOE to tighten policy within a year as their economies show signs of strengthening; in contrast ECB President Mario Draghi, BOJ Governor Haruhiko Kuroda acknowledged they may be forced to deploy fresh stimulus * Story Link:NSN NATMFK6JIJUP<GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Madeleine Lim in New York at +1-212-617-2296 or mlim131@bloomberg.net To contact the editors responsible for this story: Madeleine Lim at +1-212-617-2296 or mlim131@bloomberg.net

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Less Dovish Fed Speak Heightens Risk of Market Shock: G+ Econ 2014-08-24 20:25:27.427 GMT

By Madeleine Lim Aug. 24 (Bloomberg) -- Investors will begin to price out financial repression by raising risk premiums on front-end UST yields, exiting global EM carry trade, G+ Economics chief economist Lena Komileva writes in note. * Yellen signaled in Jackson Hole speech Friday that fighting “labor deflation” no longer a policy concern, which means Fed’s room for extended monetary stimulus is diminishing * Dilutes “considerable time” commitment for keeping rates low; shift toward policy normalization means end to Fed’s low-vol policy framework, in which markets still remain highly invested * Even small shifts in Fed language in more hawkish direction may have large ripple effects on global markets

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Madeleine Lim in New York at +1-212-617-2296 or mlim131@bloomberg.net To contact the editor responsible for this story: Madeleine Lim at +1-212-617-2296 or mlim131@bloomberg.net