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Slim’s Assets Offer Suitors Rare Opening in Mexico: Real M&A 2014-07-11 18:48:20.787 GMT

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

By Patricia Laya and Caitlin McCabe July 11 (Bloomberg) -- America Movil SAB’s plan to break up its dominant Mexican phone unit opens the door for another international telecommunications giant to succeed where many, from Verizon Communications Inc. to NII Holdings Inc., have failed -- becoming a major competitor in Mexico. Majority owner Carlos Slim announced earlier this week that America Movil, the country’s biggest mobile and landline carrier, is seeking to sell assets to reduce its market share there below 50 percent. Potential buyers must have experience running a network and the financial wherewithal to invest, Slim’s company said. That puts at least 19 million mobile and landline subscribers up for grabs to companies that fit America Movil’s parameters, whether it’s a U.S. powerhouse like AT&T Inc., which is showing new interest in Latin America, or a multinational operator such as Vodafone Group Plc, which has experience in the developing world. “There’s a lot of space to grow in Mexico’s mobile market,” said Carlos de Legarreta, an analyst at Corporativo GBM SAB in Mexico City. “Whoever is willing to enter is going to look for an integrated operation, more than someone who just wants to offer one or two services. It presents an interesting opportunity, no doubt.” The surging demand in Mexico for mobile data and video may be more alluring now that America Movil’s market power will be diminished. An America Movil press official didn’t immediately respond to requests for comment. Slim doesn’t plan to sell America Movil’s wireless towers in Mexico, instead renting them to competitors, he told Reuters yesterday. In an interview with Bloomberg News earlier this week, he said he remains bullish on Mexico.

One Requirement

America Movil is still determining which assets it will sell, and the only requirement it’s outlined is that they shrink the company’s subscriber base, which includes 70 percent of Mexico’s wireless accounts and 80 percent of its landlines. The interested parties will depend largely on the assets the company chooses to sell, such as customers or network infrastructure, said Manuel Jimenez, an analyst at Grupo Financiero Banorte SAB, in a phone interview. Entering Latin America would thrust an outsider into competition with America Movil’s three largest rivals: Telefonica SA, Grupo Iusacell SA and NII’s Nextel. “America Movil said it wants to sell to a strong operator, with experience, that can surpass the investment obstacles of its competitors,” Jimenez said.

Landline Option

One option would be to split off America Movil’s Mexican landline network, along with some of home-phone and wireless customers, to create a new business, said Gregorio Tomassi, an analyst at Banco Itau BBA. To get regulatory backing, the new company would offer all competitors access to its landline network, while Slim’s carrier would share its mobile infrastructure, he said. The two Mexican companies resulting from such a split would be similarly sized, he said. “Slim is not thinking about selling the bad part and keeping the good -- he’s going to try to maximize the value of America Movil while selling something that is attractive,” Tomassi said. “It’s a big opportunity because the two companies that would result are even bigger than the ones that already exist in the market.” America Movil can sell sections of its valuable fiber-optic cables that extend throughout Mexico’s largest cities, where a new operator could potentially offer phone, Internet and TV services.

AT&T Candidate?

Slim’s carrier has to persuade regulators to sign off on its breakup plan, so it must find a single strong, viable buyer that can make the market more competitive, Arturo Elias, a vice president at America Movil, said in a Mexico City radio interview this week. AT&T, which parted ways this year with Slim by selling its stake in America Movil after 24 years, is a viable candidate for buying the assets, said David Heger, an analyst at Edward Jones & Co. with a buy rating on AT&T stock. The U.S. company sold its 8.3 percent stake in Slim’s carrier for $5.6 billion last month because it’s acquiring DirecTV, which competes with Mexico City-based America Movil for TV customers in South and Central America. DirecTV also has a minority stake in Sky Mexico, the nation’s largest satellite-TV company, giving AT&T a new investment in Mexico that it could seek to expand.

Low Penetration

“They might be able to come into the market and be creative and aggressive in pricing options, and may have a better ability to finance an operation than America Movil’s prior competitors,” Heger said about the Dallas-based company valued at $185 billion. Latin America trails the developed world in the percentage of households that use pay-TV and high-speed broadband services, Heger said, making it an attractive target. An acquisition would help bolster the Latin American presence that AT&T is gaining with the DirecTV deal without breaking the bank, said Thomas Lieu, a Dallas-based fund manager at Westwood Holdings Group Inc. “It shouldn’t stretch their balance sheet too much,” Lieu, whose firm overseas about $19 billion including AT&T shares, said in a phone interview. Combining the America Movil assets with DirecTV’s operations “makes some sense. They could leverage the two to help each other as an international strategy,” he said.

Vodafone Experience

AT&T had $3.6 billion in cash and equivalents and $80 billion in total debt at the end of March, according to data compiled by Bloomberg. It’s financing the $48.5 billion DirecTV acquisition with cash on hand, debt and funds from asset sales, including the America Movil stake. Brad Burns, an AT&T spokesman, declined to comment. Among other companies that fit America Movil’s description of potential buyers, Vodafone has experience in emerging markets such as India and enough leeway to explore acquisitions after its $130 billion sale of its Verizon Wireless stake, GBM’s Legarreta said. On the other hand, the Newbury, England-based company is focused on Europe right now, which would limit its interest in Latin America, he said. Ben Padovan, a Vodafone spokesman, declined to comment. Vodafone and most other international operators would be new entrants to Mexico with few opportunities for cost savings, Credit Suisse analyst Andrew Campbell said in a note this week. They would only consider it under highly favorable terms, he said.

Telefonica’s Struggles

Telefonica, based in Madrid, has sought for years to expand its market share in Mexico above 20 percent, to no avail. The Spanish company has complained that regulators hurt smaller competitors by requiring industrywide fee cuts instead of singling out America Movil. A law passed by Congress this week would address those complaints, requiring Slim’s company to eliminate some fees while competitors can still charge them. A Telefonica press official, who can’t be named under corporate policy, declined to comment on the company’s possible interest in the Slim assets. Iusacell is co-owned by Grupo Televisa SAB, which is also the majority owner of Sky Mexico -- meaning it will soon be partners with AT&T after the DirecTV deal closes. Billionaire Ricardo Salinas owns the other half of Iusacell.

Bitter Rivals

When Slim entered the phone business in 1990, Iusacell was the largest mobile-phone provider in Mexico’s nascent wireless market. It struggled to keep up with America Movil’s growth, even when Verizon and Vodafone took control of the business for a brief period a decade ago. Televisa, which acquired its 50 percent stake in Iusacell in 2012, said this month it would like to use mergers to make the wireless company bigger and more competitive in Mexico. Still, Televisa and America Movil compete bitterly for Internet and phone customers in Mexico, making it difficult to envision Slim selling America Movil’s assets to one of his fiercest rivals. While Slim aims to keep the wireless towers, he may try putting them into a real estate investment trust, said Itau’s Tomassi. “The tower business is intimately tied to real estate and the properties and agreements over the sites they’re on,” he said. “Slim likely has these towers on a real estate footprint that he controls, and no one will have the competitive advantage he has over controlling that real estate.”

For Related News and Information: Slim Confronts Transition in Mexico as No. 2 Richest Person NSN N8IRC16K50YI<GO> Slim Empire Breakup Seen Spurring Up to $20 Billion in Deals NSN N8I5HZ6JTSER<GO> Carlos Slim’s America Movil Jumps After Mexico Breakup Plan NSN N8GOFD6JTSED<GO>

--With assistance from Brooke Sutherland and Scott Moritz in New York, Amy Thomson in London and Rodrigo Orihuela in Madrid.

To contact the reporters on this story: Patricia Laya in Mexico City at +52-55-5242-9262 or playa2@bloomberg.net; Caitlin McCabe in New York at +1-212-617-0277 or cmccabe11@bloomberg.net To contact the editors responsible for this story: Sarah Rabil at +1-212-617-5992 or srabil@bloomberg.net Crayton Harrison, John Lear

Shire Gets Revised AbbVie Takeover Proposal

Deal Could be Valued at Over $53 Billion

Shire said it would be willing to recommend a takeover at the revised level. Bloomberg News LONDON— Shire SHPG +4.38% PLC said Monday it has received a new takeover proposal from AbbVie Inc. ABBV -0.74% valued at more than $53 billion, which it would be willing to recommend to shareholders.

Shire, which specializes in drugs to treat attention-deficit disorder and rare diseases, added that it is now in detailed talks with AbbVie over the terms of the new proposal. The new proposal, valued at £53.2 ($91.05) a share Shire, represents a 4% increase on AbbVie's most recent offer of £51.15 a share.

Under the revised proposal Shire shareholders would get £24.44 in cash and 0.8960 shares of new AbbVie per Shire share, and own 25% of the combined group.

Related Shire, AbbVie Met to Discuss Takeover Proposal (July 11) AbbVie Raises Offer for Shire (July 8) Homeward Bound for Shire? (July 8) U.K. Rules Trip Up AbbVie's CEO (July 9) Shire Stopped 'In Its Tracks' by AbbVie Approach (June 27) AbbVie Willing to Move Quickly to Engage With Shire (June 25) Shire, AbbVie Set Out New Financial Targets (June 23) Inversion Frenzy Rocks Drug Sector (June 20)

The revised proposal, which comes after the two companies met last week, remains subject to the preconditions set by AbbVie on July 8, including due diligence and the recommendation of the board of Shire, which cautioned that there can be no certainty that any firm offer will be made.

Dublin-based Shire previously rejected offers from the U.S. company, saying they undervalued the company's growth prospects.

North Chicago, Ill.-based AbbVie, which was spun off from Abbott Laboratories in early 2013, has until July 18 under U.K. takeover rules to make a firm bid for Shire or walk away.

AbbVie, which makes the blockbuster arthritis drug Humira, first began evaluating Shire as a potential takeover target last fall and made an initial cash-and-stock proposal to Shire in early May.

AbbVie has said it would seek to reincorporate in the U.K. after it bought Shire, a so-called inversion that several American companies have sought in recent months to lower their tax rates.

Investigators Probe the Ways a Swiss Broker Courted Libyan Business U.S., U.K. Look at Tradition Financial Services and Parties Held for Libyan Officials in Marrakesh

At a luxury villa in the Moroccan desert, an international brokerage firm hosted getaways for Libyans connected to the country's oil-rich sovereign-wealth funds. The men spent their days lounging poolside and nights partying at clubs in Marrakesh.

The jaunts were part of a campaign by Tradition Financial Services of Switzerland to win business in Moammar Gadhafi's Libya, an effort that included hiring relatives of senior Libyan officials, according to people who attended and to former employees of the firm.

Now its efforts are under scrutiny in wide-ranging U.S. and British corruption probes that are examining the lengths to which some Western financial firms went to gain a piece of Libya's oil wealth. The firms' access to Libya proved ephemeral when Gadhafi fell in 2011. And some have been left with a transnational headache: multiple investigations of how they obtained that access.

City of London Police pursuing a criminal probe have interviewed former employees of Tradition and are nearing a decision on whether to bring charges, according to people familiar with the matter. The U.S. Securities and Exchange Commission and the Justice Department are examining whether the firm or its employees were part of what authorities believe was a broad pattern in which Western companies used improper means to curry favor with officials in the Gadhafi regime, said people familiar with the investigations.

A spokesman for Tradition, which hasn't been accused of wrongdoing, said it is cooperating with British investigators and isn't aware of U.S. investigations. The spokesman said former employees, not the firm itself, are the subject of the U.K. investigation, and described the firm as a victim of employees who submitted fraudulent expense claims for inappropriate entertainment, most of it unrelated to clients.

Tradition is just one of a number of banks, brokerage houses and investment firms under scrutiny for their efforts to woo Libyans. Others include Goldman Sachs GroupInc., GS +0.84% French bank Société Générale SA, hedge-fund firm Och-Ziff Capital Management Group OZM -0.54% LLC and private-equity firm Blackstone GroupBX +0.03% LP, according to those familiar with the probes. The firms declined to comment.

The U.S. probes are based on the Foreign Corrupt Practices Act, which prohibits giving or offering bribes to foreign officials to gain a business advantage.

Businesses are allowed to provide some hospitality and pay some expenses for foreign officials, the Justice Department and SEC said in a guide to the law published two years ago. But gifts or payments can be considered bribes, the agencies said, if they appear to be given with "corrupt intent," which could be demonstrated by a pattern of gifts that are extravagant or payment for travel that is primarily for enjoyment rather than business. Likewise, the hiring of relatives of foreign officials is permissible if not done for the purpose of winning business.

At Tradition, "we do not believe that any misconduct amounted to corruption," the firm's spokesman said. "Hospitality offered in accordance with Tradition policy was appropriate."

Gadhafi's death in October 2011 sparked investigations within Libya as well, as the new authorities audited its main sovereign-wealth fund and launched a legal campaign—still in progress—to recover losses suffered in the Gadhafi era. Earlier this year, the Libyan wealth fund sued Goldman and Société Générale in London's High Court overdeals that went sour. The banks have denied wrongdoing in the lawsuits.

Tradition, based in Lausanne, Switzerland, has operations in 28 countries. It specializes in matching buyers and sellers of financial products such as derivatives and large blocks of stock outside of public exchanges. The firm is majority-owned byViel & Cie, VIL.FR -1.81% a French investment company.

Former employees describe a rambunctious culture at Tradition. One said if he walked away for a few minutes, colleagues would sometimes send raunchy messages from his computer to colleagues or clients. The firm had an "eat what you kill" mentality in which brokers' pay was determined by revenue they brought in.

A decade ago, Tradition launched an equity-brokerage department and to run it recruited Robert Bailey, an American who had worked at Knight Capital Group.KCG -0.44% Mr. Bailey, 45 years old, has since been questioned by British investigators, and the U.S. SEC has also sought to interview him, said people familiar with the inquiries. Mr. Bailey, whom authorities haven't accused of any wrongdoing, didn't respond to emails, phone calls and a letter seeking comment.

A period of rapid expansion got under way at Tradition around the time of Mr. Bailey's arrival. From 2005 to 2009, its revenue nearly doubled and its profit more than doubled.

Some of that success stemmed from Libya, former employees say.

The Gadhafi government's first sovereign-wealth fund, known as the Libyan Arab Foreign Investment Co., or Lafico, dated back to 1981. The fund later assigned responsibility for part of its securities trading to a government-controlled firm calledArab Banking Corp. ABCO.AJ +0.98%

The lifting of international sanctions against Libya in 2003 and 2004, after Gadhafi agreed to forswear weapons of mass destruction, ignited a gold rush among Western financial institutions.

By 2005, an Arab Banking Corp. ABC.BH +0.70% portfolio manager, Mahmoud Zewam, had handed Tradition responsibility for handling trades in a Lafico stock portfolio.

Libya formed a new sovereign-wealth fund, the Libyan Investment Authority, in 2007, placing the older Lafico fund under its auspices. The new fund soon became a heavyweight global investor. Estimates of its assets topped $60 billion. Arab Banking Corp. was responsible for managing large portions of the fortune.

The Libyan fund's holdings included a modern, rose-colored building in London that housed Tradition's offices, according to U.K. records.

Mr. Bailey's mission was to protect and expand this business relationship in the face of competition. His ambitious Libyan growth strategy stirred excitement among Tradition executives, who viewed Mr. Bailey as an excellent broker.

In 2008, according to past and current Tradition employees, Mr. Bailey's initiatives included hiring Sakher Koussa, who was a son of Gadhafi's longtime spy chief, Moussa Koussa, and was a veteran of Arab Banking Corp.

The next year Mr. Bailey hired Haitem Zarti, whose older brother Mustafa was the deputy chief of the Libyan Investment Authority and a college friend of one of Gadhafi's sons, Seif al-Islam Gadhafi. Haitem Zarti had previously worked as a paid intern at Goldman.

Mr. Bailey's team in London began a campaign to impress important Libyans, according to former employees. Mr. Bailey gave Seif Gadhafi a gift of a $1,900 AppleAAPL +0.19% laptop in New York in November 2008, Mr. Bailey later told British investigators, said people familiar with the inquiry.

Seif Gadhafi, now jailed in Libya, couldn't be reached for comment. Sakher Koussa and Haitem Zarti also couldn't be reached. Records in Bahrain list those two as owners of a consulting firm there; a lawyer for that firm didn't respond to requests for comment.

A particular focus for Tradition was Arab Banking Corp.'s Mr. Zewam, who had joined the board of the Libyan Investment Authority. He regularly visited Tradition's London office, where Mr. Bailey escorted him to meetings with Tradition's top European executive, Michael Leibowitz, according to a person familiar with the visits. Mr. Zewam came across as a family man, often talking about his wife and children, said past and present Tradition employees.

Tradition organized luxury vacations in Marrakesh in 2009 and 2010. Mr. Bailey's team rented a large villa and invited Mr. Zewam, other officials of Arab Banking Corp. and the Libyan Investment Authority and bank traders, according to people who attended and to electronic-chat and email transcripts obtained by U.S. and British investigators.

The transcripts, reviewed by The Wall Street Journal, show crude banter between Tradition brokers and Arab Banking Corp. officials, interspersed with snippets about trades and financial news. Mr. Bailey dubbed the group "Team Morocco."

In an April 2009 email to Mr. Bailey, according to the transcripts, Mr. Zewam referred to a coming Marrakesh trip as "a week [of] joy in the NSL zone." That stood for "no sperm left," according to people familiar with the expression. A message from a Tradition employee referred to procuring "organic Viagra."

Mr. Bailey's team also entertained Mr. Zewam and his colleagues in London, at tamer events. For one, Mr. Bailey invited Mr. Zewam to a private Fashion Week lingerie-modeling party in February 2010.

In September 2008 Mr. Zewam asked Mr. Bailey about whether he could help him get a Cartier watch with a sapphire-crowned winding mechanism, specifying that he preferred the gold version with no diamonds, according to an electronic-chat transcript. British investigators interpreted that as a request for Mr. Bailey to buy him the watch. It isn't clear whether Mr. Bailey did so. The spokesman for Tradition said it has no knowledge of such a watch being purchased.

Tradition appears to have paid for much of Mr. Zewam's travel to Marrakesh, as well as his airfare and hotel stays in London and Dubai, based on a spreadsheet of expenses compiled by British regulators and reviewed by the Journal.

On some of the London and Dubai trips, Sakher Koussa accompanied Mr. Zewam, according to the spreadsheet. It identified more than £72,000 (roughly $108,000) of expenses from late 2007 through April 2010, although it noted that Mr. Zewam or Arab Banking Corp. covered several thousand pounds of them.

Mr. Zewam, now Arab Banking Corp.'s head of asset management, declined to comment. A spokesman for the firm didn't respond to requests for comment.

Tradition charged it commissions that were sometimes three times—and up to 20 times—what Tradition would often get from other clients, according to former employees and others familiar with the relationship. The U.K. financial regulator estimated Tradition collected £8.9 million ($15 million at the time) in Libyan commissions in 2008 and 2009, said a person familiar with the matter.

The Tradition spokesman disputed the estimate but didn't provide another figure. He said the firm charged "a variety of rates dependent upon the circumstances of each trade."

Tradition also set up Libyan officials with hedge-fund managers and bank traders. Two London-based traders at Bank of America Corp. BAC -0.39% were introduced to Libyans at Marrakesh parties. Bank of America later fired them. Reached by phone, they declined to comment.

U.S. investigators have also looked into the Libyan activities of a hedge-fund manager,Philip Falcone of Harbinger Capital Management, according to people familiar with the probe.

In early 2009 he was seeking to raise money from sovereign-wealth funds. A Tradition broker in New York asked Mr. Bailey to set up a meeting for Mr. Falcone with Libyan officials, according to electronic-chat transcripts. The broker messaged Mr. Bailey about Mr. Falcone, saying, "I told his trader to show u some love." Harbinger began using Tradition's London office for more trades around that time, according to a former Tradition employee.

Mr. Falcone later met with Arab Banking Corp. and Libyan Investment Authority officials about potential investments, but none resulted, said people familiar with the meetings. Mr. Falcone hasn't been accused of any wrongdoing. It is unclear whether authorities are still looking at his activities.

In a matter unrelated to Libya, Mr. Falcone's firm currently is fulfilling investor redemption requests under the settlement of a civil case in which the SEC accused him of improperly borrowing from one of his hedge funds to pay his taxes. He admitted wrongdoing and agreed to a fine and five-year ban from the securities industry. He now is involved in acquisitions as chairman of Harbinger Group. Tradition declined to comment on the Harbinger relationship.

Tradition's practices, including its entertainment of Libyan officials, made some employees uncomfortable. Employees on at least two occasions expressed concerns to the firm's Mr. Leibowitz, said two ex-members of Mr. Bailey's team and a person familiar with the U.K. investigation. Later, in April 2010, Mr. Bailey and some of his team left Tradition, U.K. records show.

When questioned by British investigators, Mr. Bailey said what he did with regard to Libyans was known to Mr. Leibowitz and other Tradition executives, according to a person who was present. The Tradition spokesman denied that Mr. Leibowitz knew about Mr. Bailey's tactics or that any member of Mr. Bailey's team complained.

In recent weeks, British authorities have summoned some former Tradition employees for additional questioning, according to people familiar with those meetings.

Mr. Bailey's wife, Maria, said her husband's alleged actions were being blown out of proportion.

"It's just a big stink," she said, standing outside their large white house, named Greensleeves, in London's northern exurbs.

Told that Tradition describes itself as a victim of misdeeds by Mr. Bailey and other employees, she shook her head and said: "It's the big guy pointing the finger at the little guy."

Softbank, Deutsche Telekom agree on Softbank's planned acquisition of T-Mobile; banks to set up loans up to USD 39.4bn

Softbank Corp. [TYO: 9984], Japan’s third-largest mobile phone service operator, and Deutsche Telekom[ETR: DTE], the largest shareholder of T-Mobile US, have agreed on Softbank’s planned purchase of the US company, the Nihon Keizai Shimbun reported, without citing sources.

Softbank plans to acquire more than 50% stake in T-Mobile from Deutsche Telekom, which currently owns 67% stake in the US fourth-largest mobile phone operator, via a combination of cash payment and a share swap deal, the Japanese-language newspaper said.

The deal is estimated to exceed JPY 1.7tn (USD 16.8bn), the newspaper reported. For financing the acquisition, three Japanese banks and five foreign banks, including Mizuho Financial Group [TYO: 8411],Mitsubishi UFJ Financial Group [TYO: 8306], Sumitimo Mitsui Financial Group [TYO: 8316],JPMorgan Chase [NYSE: JPM], and Deutsche Bank [ETR: DB1], will set loans up to JPY 4tn, the report added.

The purchase cost will be funded first by a short-term bridging loan to Softbank, and then the debt will be shifted to long-term bonds issued by Sprint [NYSE: S], the US third-largest mobile phone service operator that Softbank acquired in July last year, according to the report.

Softbank purchased Sprint for about JPY 1.8tn, and the US company is losing money and subscribers. The Japanese company and Deutsche Telekom have agreed that it is necessary to combine Sprint and T-Mobile to strengthen competition in the US mobile phone industry, the Japanese newspaper said.

The combination of the two US companies will bring 100 million subscribers, comparable with that of bigger rivals, Verizon [NYSE: VZ] and AT&T [NYSE: T], the item noted.

To complete the acquisition, Softbank needs to gain approvals from the US Federal Communications Commission, and the US Department of Justice, which may take a year or two from announcement, the newspaper reported.

Source Nihon Keizai Shimbun

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GE-Safran’s CFM Has About $25b in Engine Orders This Year 2014-07-13 20:41:09.27 GMT

By Joe Sabo July 13 (Bloomberg) -- Co. has orders for total of 2,071 engines through June, including 1,017 CFM56 engines (commercial, military and spares) and 1,054 LEAP models, CFM says in e-mail statement. * Orders to date valued at about $25b at list price * Co. record, set in ’13, was for 2,723 engines, valued at more than $31b at list price * CFM delivered 1,502 CFM56 engines in ’13, on track to deliver 1,550 by yr-end: statement * Orders include: Delta: 15 CFM56-5B-powered Airbus A321ceos; Flydubai: 75 LEAP-1B-powered Boeing 737 MAX 8s; Lufthansa: 40 LEAP-1A-powered Airbus A320neos * CFM is venture between Fairfield, CT-based GE, France’s Safran

Link to Company News:{BA US <Equity> CN <GO>} Link to Company News:{15742Z US <Equity> CN <GO>} Link to Company News:{GE US <Equity> CN <GO>} Link to Company News:{SAF FP <Equity> CN <GO>}

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

To contact the editor responsible for this story: Joe Sabo at +1-609-279-3119 or jsabo@bloomberg.net

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BN 07/13 21:26 *FABER SAYS `GREAT DEAL' OF PAPERWORK SAID TO DELAY TOBACCO DEAL BN 07/13 21:26 *CNBC'S DAVID FABER CITES `SOURCES' ON TOBACCO MERGER BN 07/13 21:25 *TOBACCO TRANSACTION NOT LIKELY TO BE ANNOUNCED TOMORROW: FABER

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Lorillard-Reynolds Unlikely to Be Announced Tomorrow, Faber Says 2014-07-13 21:33:01.488 GMT

By Sylvia Wier and Dan Hart July 13 (Bloomberg) -- CNBC’s David Faber cites unidentified sources on deal between Lorillard, Reynolds American. * Faber says “great deal” of paperwork said to delay deal * TWEET: http://bit.ly/1mysihI * NOTE: Reynolds Moves Closer to Lorillard Deal as Market Contracts {NSN N8KI7V6KLVRD <GO>}

Link to Company News:{LO US <Equity> CN <GO>} Link to Company News:{RAI US <Equity> CN <GO>}

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

To contact the editor responsible for this story: Sylvia Wier at +1-212-617-8958 or swier@bloomberg.net

Michael Kors Should Study Coach's Errors Same-Store Sales Have Tumbled for Coach; Kors Is Gaining Market Share

In the tumultuous world of retail, companies at the top should know better than to get too comfortable.

Take Coach. COH +0.44% The once high-flying luxury-goods maker has seen same-store sales tumble over the past four quarters and plans to close roughly 20% of its full-priced stores in the current fiscal year. A big part of the reason for its fall from grace has been the ascendancy of Michael Kors. KORS -0.41% And while Kors continues to take market share, it should beware the pitfalls that beset its rival.

Kors has set a long-term target of 400 stores in North America, up from 288 at the end of its fiscal fourth quarter Mar. 29. Against the backdrop of surging same-store sales, it is hard to call this unreasonable. But Coach, which will be left with 250 full-price stores and about 200 outlet stores after its announced closures, may prove a cautionary guide.

Overdistribution via outlets has been a problem for Coach. Despite Kors' relatively high outlet presence, only a third of its retail sales come through that channel, versus 65% to 70% at the peak for Coach, according to Wells Fargo.

But Kors' wholesale business is much bigger than Coach's. The latter gets only about 5% of sales that way, the bank says. Kors' North American wholesale business is about twice the size of its retail business when adjusted to reflect retail prices.

With the average Kors retail store doing about $5 million in annual sales, that wholesale volume is the equivalent of more than 500 additional stores, Wells Fargo calculates.

Granted, Kors sells more categories of products than Coach. But those 500 store-equivalents don't include watches and jewelry sold through North American department stores, which fall under licensing revenue.

For a luxury brand like Kors, there are few fates worse than ubiquity.

Big funds get bigger as hedge fund market recovers

Investors are often accused of having short memories and, when it comes to hedge funds, many market commentators believe the accusation holds true. Little more than five years ago the hedge fund market was one characterised by dwindling returns, plummeting assets and hedge fund companies going out of business. In 2012, the number of hedge funds disappearing from the market rose for the third year in a row to 873, according to HFR, a data provider. During the same year, while the average hedge fund again lost money for investors, the collective pay of the 25 richest managers fell by more than a third to $14.4bn.

The days were dark post 2008. Fast forward to 2014, however, and the latest figures from the annual Towers Watson/Financial Times Global Alternatives survey paint a significantly rosier picture for the hedge fund industry. The survey, which covers seven asset classes and seven investor types, shows that total assets managed by the world’s top 100 alternative asset managers rose to $3.3tn last year from $2.9tn in 2012, on the back of a marked increase in money flowing into hedge funds. The largest slice of this $3.3tn, some 32 per cent, was allocated to real estate funds but hedge funds accounted for 28 per cent, with both pension funds and insurance companies increasing their exposure to the sector. Damien Loveday, global head of hedge fund research at Towers Watson, says: “The results show an ever-expanding market, which is phenomenal really given the grilling hedge funds got just a few years ago. At one time you literally couldn’t move for negative headlines, but the industry has changed a lot since 2008.” The recent spike in assets, however, comes amid concerns that hedge funds’ correlation with the equity market has risen back to pre-financial crisis highs, raising fears that the market could again suffer sharp losses in the event of a market slide. Data compiled by AQR, a $105bn hedge fund house, show the three-year rolling correlation of the HFRI Fund Weighted Composite index, a broad industry measure, with equity markets is at a near-record high of 0.93, comfortably above the highs seen before the financial crisis. Some large investors have taken flight, including Calpers, the $288bn California public employees fund, which was one of the first US public pension plans to invest in hedge funds. Its portfolio managers have begun cutting the fund’s $5.3bn hedge fund allocation in half. “I think this is a yellow flag being signalled now,” David Kabiller, founding principal of AQR, told FTfm. “A lot of hedge fund managers are putting a lot of beta in their portfolios because it is what has worked. “Investors are getting screwed because they have beta elsewhere and now they are paying 2 and 20 [2 per cent of assets and a 20 per cent performance fee] for it.” Mr Loveday recognises the problem. “Investors want double digit returns but in an environment of low volatility and low cash rates hedge fund managers are struggling to meet expectations. “As a result it is true that some hedge funds are taking directional bets on the market but are dressing up their funds as something else. I am definitely paranoid about that. Investors need to do their homework and drill down into what is really going on with some strategies.” Away from the fears about correlation, the Towers Watson/Financial Times survey shows that the big hedge fund managers continue to get bigger, with Bridgewater Associates, Brevan Howard, BlackRock, Och-Ziff and BlueCrest Capital Management managing the lion’s share of assets on behalf of pension funds. Figures from Preqin, a research house, confirm this. Its analysis finds the 500 largest hedge fund managers control 90 per cent of industry assets, with the 505 hedge fund managers that run at least $1bn responsible for $2.39tn of the industry’s $2.66tn total assets. “The $1bn club is one which many emerging hedge fund managers strive to be a member of,” says Amy Bensted, head of hedge fund products at Preqin, adding that public pension funds represent the largest chunk of capital invested by $1bn-plus hedge fund investors (25 per cent), followed by sovereign wealth funds (16 per cent, up from 7 per cent a year ago) and private sector pension funds (15 per cent). Ms Bensted suggests there are some key ingredients needed for a hedge fund to grow to this $1bn-plus level. “The largest managers have typically shown consistent performance through many market cycles and demonstrated that they can outperform competitors. They have also settled on two approaches – specialisation in a core strategy or diversification across several different strategies,” she says. According to Preqin, New York is home to the largest number of $1bn-plus managers (174) while London is second with 80. “With large investors, such as public pension funds, allocating approximately $650bn to hedge funds – an 18 per cent increase from this time last year – it will become ever more important for hedge fund managers to attract inflows from these prominent institutions,” says Ms Bensted. “Big managers are definitely getting bigger,” adds Mr Loveday. “But that poses its own problems. It’s much harder for a fund to be a creator of value when it’s $50bn in size compared to $5bn. And that’s something investors must be aware of.”