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FT : Iraq crisis: Isis declares establishment of a sovereign state

Iraq crisis: Isis declares establishment of a sovereign state

Iraqi soldiers take up position on the borders between Anbar and Karbala on Sunday 29 June The Islamic State of Iraq and the Levant, the extremist jihadi group behind an insurgency that has seized a swath of territory in Iraq and Syria, formally declared the establishment of a caliphate on Sunday, even as Iraqi government forces began to push back against it in a campaign centred on retaking the city of Tikrit. A spokesperson for Isis said the organisation’s ruling shura council had decided to establish the caliphate, a sovereign state believed by many muslims to be the official inheritor of the Prophet Mohammed’s temporal and spiritual authority. Abu Bakr al-Baghdadi, Isis’s enigmatic leader, was declared caliph in a move the group said now required all muslims around the world to pledge allegiance to him.

The inflammatory declaration came as Iraqi security forces counterattacked against Isis positions in an effort to alter the balance of power with the Sunni armed groups. Bolstered by air strikes and surveillance aircraft, Iraqi government ground forces backed by Shia militiamen continued their advance from their base in Samarra towards the symbolically important city of Tikrit, claiming on Sunday to have taken control of the city’s university. The forward momentum against Isis and its allies came amid the arrival of a consignment of Russian Sukhoi Su-30k fighter jets to Iraq and increasing co-operation with the US, which has been flying surveillance drones over Iraq airspace for the last several days. Brigadier General Saad Maan, spokesman for the Iraqi armed forces, said US officials were scheduled to meet again with their Iraqi counterparts on Sunday. “The Americans have their air reconnaissance abilities,” he said. “They will give us help on the ground.” In a televised briefing Major General Qassem Atta, an army spokesman, painted a picture of a country at war on multiple fronts. He described fighting in the northern city of Kirkuk, in and around Mosul, the western province of Anbar and the so-called “Baghdad belt” around the capital.

Politicians fear a descent into civil war as sectarian battle lines are drawn following the fall of Mosul to Islamic militant group Isis A victory for Iraqi forces in Tikrit would boost the morale of armed forces reeling from the loss to Isis earlier this month of Mosul, Iraq’s second-largest city. After a lightning advance through much of the country’s north and northwest, the offensive by Isis and its allies appears to have ground to a stalemate, with Iraqi forces successfully holding their ground in the city of Samarra, which hosts a Shia shrine complex in the heart of Sunni territory. Maj Gen Atta claimed the Iraqi flag was now flying over Salahaddin University, a large campus a few kilometres to the north of central Tikrit and located on the road to Baiji, another town under Isis control. “We can confirm that Isis terrorists have started fleeing the Salahaddin area and that their morale is collapsing,” he said. The claim was refuted by media outlets sympathetic to the insurgents. While Iraqi state television aired footage showing the chairman of the provincial council of Tikrit distributing sweets to children, pro-Sunni al-Taghyeer television aired footage showing “revolutionary tribesman” near Saddam Hussein’s former palaces in the city that is his ancestral homeland. The US, Russia and Iran have come to Iraq’s aid, hoping to stop the onslaught by Sunni extremists. Iraqi state television reported that five Sukhoi Su-30k fighter jets had been bought from Russia in a deal worth up to $500m. Officials said a second shipment of Russian jets would arrive shortly. Iraqi officials said their pilots have the ability to fly the sophisticated jets. “We have the pilots already,” said Brig Gen Maan. “They might need some advice or brushing-up training to refresh their memories.” State television said an air attack was planned on Fallujah, a city to the west of the capital that has long been under the control of Isis and allied insurgent groups. “We will fly the planes with the help of our experienced fliers and helpful Russian advisers and we will push them,” air force commander Anwar Hamad Amin said in a television interview. The Russian experts’ arrival will be seen as a rebuke to the US, where concerns in Congress about the sectarian policies and regional alliances of Iraq’s government have stalled aircraft sales to Iraq. Hisham Hashemi, a leading expert on Isis, described air power as the group’s Achilles heel. “The Iraqi air force poses a major problem for them,” he said. The government of Prime Minister Nouri al-Maliki has been pleading with the US for more aircraft to fight Isis, but US officials are concerned that the Shia government would use the weapons against ordinary Sunni and nationalist-minded rebel groups seeking political aims. Already Sunni complain about increased targeting of their community by Iraqi Shia militias and regular security forces. State television on Sunday aired images of six alleged members of Isis who had been detained in Baghdad with explosive equipment. Security officials claimed they were planning attacks on civilians and military personnel. The alleged Isis fighters, their heads covered by black bin bags, confessed to membership of the Sunni militant group on camera.

>>> Iluka could add a cash component to its offer for Kenmare

Iluka could add a cash component to its offer for Kenmare

Iluka Resources, the ASX-listed mineral sands miner, could add a cash component to its offer forKenmare Resources, the UK-listed miner, the Australian Financial Review reported.

Kenmare has rejected an offer of 0.036 new shares for each Kenmare share, which sources claimed Iluka brought directly to Kenmare’s investors. Kenmare claimed that the offer failed to recognise the value of its Moma titanium mine in Mozambique.

According to the report, unnamed sources claimed that Iluka’s board is expected to meet this week to consider lodging a partially cash-funded offer to help get the offer off the ground.

The report cited JPMorgan analyst Mark Busuttil as saying that Iluka likely has the financial capacity to fund an all-cash offer, but that, due to poor prices and low cash generation, any offer is likely to be partly scrip-based. The item also cited Deutsche Bank analyst Chris Terry as saying that Kenmare’s rejection will likely prompt Iluka to improve its terms, possibly by including a cash component.

The paper said that Iluka, which has existing debt facilities of almost AUD 700m (USD 656m), could opt for a 50-50 cash and scrip bid.

The report noted that Iluka investors have supported the company’s efforts to secure quality assets. The paper cited Jason Beddow, managing director at Argo Investments, an Iluka investor, as saying that the group supports Iluka’s efforts to secure assets during the current low point in the mineral sands cycle.

Source Australian Financial Review

FT : Colonial powers did not set the Middle East ablaze

Colonial powers did not set the Middle East ablaze

When it launched its spectacular offensive through northern Iraq in June, the Islamic State of Iraq and the Levant, known as Isis, bulldozed a berm on the border with Syria. “Smashing Sykes-Picot”, the jihadi group tweeted to its followers. The stunt worked wonders, reigniting the debate over the 1916 secret British-French agreement that carved the Arab territories of a collapsed Ottoman Empire into separate states.

Sykes-Picot is dead, declared some; it is at the root of the present mayhem in the Middle East, said others. As Iraq and Syria teeter on the brink of break-up, zeroing in on the artificial borders defined by the Sykes-Picot accord has a certain appeal. It offers a simple explanation for the extraordinary sectarian mayhem. It also makes the case for partition of the two Arab states less contentious. If people seem bent on killing each other because colonial powers unwisely lumped ethnic and religious communities together artificially, would they not be better off living apart?

Focusing on Sykes-Picot also conveniently obscures more recent foreign meddling, particularly the US-led invasion of Iraq in 2003, which ousted Saddam Hussein’s Ba’athist regime and sparked a sectarian struggle for the state. It suggests that the mistakes in Iraq were not committed a decade ago, but before anyone in the George W Bush administration was born.

Yet, while debating European colonialism might be a worthy exercise, relating today’s events to colonial borders is misleading.

True, the boundaries designed by Mark Sykes, a British diplomat, and Francois-George Picot of France, who divided up Arab territories into spheres of influence, took more account of European interests in the aftermath of the first world war than those of the populations concerned. The agreement also contradicted British promises made to the Arabs, and ushered in a period of colonialism the legacy of which the region has yet to shake off entirely.

But the Middle East is hardly the only part of the world to have borders defined by colonial powers. Nor have Arab societies been rebelling against the borders designed by the British-French duo.

As Reider Visser, a historian of Iraq, has noted, the Sykes-Picot borders were not as artificial as some think. They corresponded for the most part to administrative arrangements that had been in place under the Ottomans for decades, if not centuries. Syria and Iraq referred to specific geographic entities long before the collapse of the empire. Under the British and French mandates, the main protestation over borders was about the partitioning of Greater Syria into several mini-states, with one part also added on to Lebanon. The separate entities did not survive for long, linking up with Damascus in an independent Syrian state. To blame Sykes-Picot is to ignore the fact that territorial nationalism is deeply entrenched in Arab states today, despite the repeated outbreak of sectarian violence.

Isis’s ambition of creating a transnational Sunni Islamic state is not widely shared. “Islamists calling for an Islamist umma (nation) and who base their argument on a purely religious and communal basis are a minority opinion,” argues Paul Salem, a Lebanese political analyst at the Middle East Institute in Washington.

With the exception of Iraqi Kurds, whose history of persecution has solidified their attachment to ethnic identity over national belonging, few Syrians, Iraqis, Jordanians or Lebanese are clamouring for partition.

In the early decades after decolonisation, Arab nationalism that transcended borders was a dominant ideology. But it was undercut by repeated Arab defeats in wars with Israel. As Toby Dodge, author of Iraq: From War to New Authoritarianism, says, “the disillusionment with Arab nationalism, combined with the oil boom, led to states being deeply committed to territorial nationalism”.

Consider Lebanon’s experience during the 1975-90 civil war. Partition was raised repeatedly as a solution, yet the conflict ended with a new power-sharing arrangement that maintained the country’s territorial integrity. In the last years of the war, much of the violence was between rival groups within each of the main communities (Christian, Sunni and Shia Muslims.)

The Sunni in Iraq and Syria could well end up in separate enclaves, at least for a time. But their rebellion is not aimed at secession. The battles they are waging – some peacefully, others violently – are not for territory but control of the state.

To emphasise Sykes-Picot in the Middle East’s current predicament, is to miss the region’s real problem: the tragic failure of successive postcolonial governments to build inclusive states that would reinforce a national identity. It is the tyranny of Syria’s ruling Assad clan, the dictatorship of Iraq’s Saddam Hussein and the ineptitude of Nouri al-Maliki, the current prime minister, that have driven the Middle East to catastrophe, rather than century-old lines drawn in the sand.

FT : Bank for International Settlements warns on ‘euphoric’ markets

Bank for International Settlements warns on ‘euphoric’ markets

CHICAGO, IL - SEPTEMBER 18: Traders signal offers in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) following the Federal Open Market Committee meeting on September 18, 2013 in Chicago, Illinois. Federal Reserve policymakers unexpectedly voted today to continue its bond-buying stimulus program causing an immediate spike in the markets. The Fed also said it would keep short-term interest rates near zero. (Photo by Scott Olson/Getty Images)©Getty

The Bank for International Settlements has warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise, as it called for governments to ditch policies that risk stoking unsustainable asset booms.

While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are “extraordinarily buoyant”, the Basel-based bank said, in part because of the ultra-low monetary policy being pursued around the world.

Leading central banks should not fall into the trap of raising rates “too slowly and too late”, the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity.

In its annual report, the BIS also warned of the risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China.

“Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,” it said.

The BIS, the bank for central banks, has been a longstanding sceptic about the benefits of ultra-stimulative monetary and fiscal policies and its latest intervention reflects mounting concern that the rebound in capital markets and real estate is built on fragile foundations.

The report comes days after the Bank of England became the first major central bank to raid its new macroprudential toolkit to stop a credit boom in the housing market from derailing the UK’s economic recovery.

The BoE hopes its restrictions on riskier forms of mortgage lending will tame any property bubble without damaging growth. But the BIS warned that deploying macroprudential tools, which central banks around the world have adopted, was a poor substitute for higher rates.

“These tools have proved very helpful in increasing the resilience of the financial system, but they have been only partially effective in restraining the build-up of financial imbalances,” the BIS said. “Failing to rely on monetary policy can raise even more serious challenges down the road.”

The BIS view on interest rates is at odds with the stance of the International Monetary Fund, which this month called on the European Central Bank to ease monetary policy by embarking on large-scale asset purchases, should the threat of a dangerous bout of falling prices persist.

Christine Lagarde, the IMF’s managing director, has dubbed the risk of a prolonged period of deflation as “the ogre” haunting the global economy, but the BIS said the risk of outright and persistent falling prices was low.

WSJ : America's Oil Weapon: The Automobile

America's Oil Weapon: The Automobile

Higher oil prices threaten the U.S. economy, but not like they used to. North Dakota is a reason for that. Changes in America's car industry and driving habits are bigger ones.

Amid sectarian violence in Iraq, oil prices have risen, and it isn't hard to imagine them going higher. That is unwelcome for a U.S. economy still struggling to find its footing. Starting with the downturn set off by 1973's oil shock, higher energy prices have been a constant factor in U.S. recessions.

But the economy isn't what it was in 1973, or even in 2007, when rising gasoline prices added to strains on U.S. household spending power.

One difference is the shale boom. The U.S. now produces over eight million barrels of oil a day, up from five million in 2007. So when Americans pay more at the pump, more of what they pay ends up back in the pockets of other Americans. A shift in U.S. energy consumption toward abundant natural gas provides an additional offset.

But one of the biggest ways high energy prices affect the economy is through consumers' car-buying behavior. When gasoline prices rise sharply, overall vehicle sales go down. And because of the major role the automobile industry plays in employment, those sales declines can pack a lot of oomph. Think not just of the 2.5 million people who work at motor vehicle and parts manufacturers and dealerships, but the truckers who haul cars and waiters and bartenders who work near auto plants.

What has historically intensified this effect is that U.S. car companies' vehicle offerings have tended to have lower fuel economy than those of foreign counterparts. And because it is sales of the least efficient cars and light trucks that get hit hardest by higher gasoline prices, while sales of cars with the best fuel economy fare better, it is the U.S. auto industry, and all the workers and businesses that depend on it, that tends to bear the brunt of the hit.

But with more efficient offerings than in the past, U.S. car makers may capture more of the consumer shift toward higher-fuel-economy vehicles if gasoline rises further. The average vehicle sold in May got 25.6 miles per gallon, according to the University of Michigan Transportation Research Institute, versus 20.1 mpg when the recession began. In a report last week, consultant Wood Mackenzie forecast that U.S. road-fuel demand would drop 10% by 2030 despite vehicle numbers rising by 17%.

Moreover, foreign auto makers have expanded their American manufacturing presence, so more of any sales increase they see as a result of higher gasoline prices will end up in U.S. workers' paychecks.

Meanwhile, despite a 5% increase in the U.S. population, Federal Highway Administration data show that the number of miles traveled on highways in the year ended April was 2% lower than in the 12 months before the recession. Combine changing driving patterns with efficiency gains, and the American consumer is gaining a useful umbrella against global oil's storms.

WSJ : BNP Paribas's Looming U.S. Settlement to Cap Troublesome Period

BNP Paribas's Looming U.S. Settlement to Cap Troublesome Period

U.S. Authorities Are Expected to Slap BNP With Nearly $9 Billion in Penalties

The logo of French bank BNP Paribas seen in a photo taken on June 24 in Lille, northern France. Agence France-Presse/Getty Images

Last summer, BNP Paribas SA BNP.FR +0.56% executives flew to New York to share an embarrassing admission with U.S. authorities: The French bank had continued to process potentially illicit dollar transactions with countries blacklisted by Washington years after the U.S. began an in-depth probe into the lender.

More than three years into the investigation, U.S. authorities had at times been frustrated with what they perceived to be a lack of cooperation by BNP Paribas. Officials from the Justice Department and the New York District Attorney's office attending the meeting at the Federal Reserve Bank of New York in Lower Manhattan were stunned.

"We can't believe we're having this conversation now," said one of the U.S. officials, according to a person present.

On Monday, U.S. authorities are expected to announce a landmark settlement with the bank: a guilty plea; a rare temporary ban on directly processing certain dollar transfers; and nearly $9 billion in penalties—a record in a sanctions violation case—for allegedly attempting to conceal some $30 billion in transactions with sanctioned countries.

The looming settlement marks an abrupt fall from grace for the mother ship of France's banking industry and forms the closing chapter of a management failure that is producing astonishing fallout.

Run by some of France's brightest brains from a Paris headquarters' corridor nicknamed the "Hall of Mirrors"—in reference to the famed room at the Versailles Palace—BNP Paribas deftly navigated the financial and euro sovereign-debt crises.

The bank suffered no major rogue-trader hit like crosstown rival Société Générale SA, GLE.FR -0.93% and has largely escaped other scandals that have wounded rivals. At the heart of the bank's crisis-dodging sagacity, current and former BNP Paribas officials say, is the company's "inspection générale"—a potent and highly autonomous force of about 1,000 functioning like internal police.

In 2007, in the wake of the Bush administration's aggressive push to close loopholes that allowed European companies to continue trading in dollars with countries under U.S. sanctions, BNP Paribas issued internal orders—including on the recommendation of the inspection générale—to stop dealing with Sudan, Iran and Cuba, current and former bank officials said.

When U.S. authorities approached BNP Paribas in late 2009, saying they suspected the bank was doing business with blacklisted countries such as Iran and Sudan, senior executives at the French lender realized they had a huge task ahead of them: comb through trillions of dollars worth of transactions cleared by the bank in New York in search of any transactions connected with sanctioned countries.

Yet they expected to succeed in clearing up what they thought was most certainly a misunderstanding, the people said.

During the meeting in New York last summer, however, BNP Paribas admitted it had processed transactions with Iran and other sanctioned countries, including some after the U.S. probe started, the people familiar with the matter said. The bank said it had no knowledge of the alleged misconduct before the probe and blamed it on a small group of employees at its trade-finance unit, notably in Switzerland, the people said.

That disclosure, said a former BNP Paribas director familiar with the investigation, left the bank's senior management caught in a damning paradox: "They claim they knew nothing but then, who was running the bank?"

"It's incomprehensible," he said.

Just a few months ago, BNP Paribas exuded might and confidence, earmarking the U.S. as a major growth driver, earning a number of industry accolades and patting staff on the back for their stellar performance.

In March, the bank said it had rewarded Chief Operating Officer Georges Chodron de Courcel with a 17% pay rise, citing "the quality and the prudence with which he handled the business under his charge." The trade-finance unit he oversees had just climbed to the pinnacle of a European survey on best service.

Inside BNP Paribas's offices in central Paris, however, top executives were caught in perhaps the most severe storm at the bank, whose roots can be traced back to the mid-19th century.

The $1.1 billion that BNP Paribas had set aside against fourth-quarter earnings for possible penalties stemming from the U.S. sanctions probes—an amount French banking regulators had validated—suddenly appeared extremely thin. In their discussions with the bank, U.S. authorities were now evoking possible penalties exceeding $10 billion and the New York Department of Financial Services wasn't ruling out rescinding BNP Paribas's license.

The bank sought help from the French government, saying it was the victim of overzealous U.S. authorities that were trying to use the BNP Paribas case to quell public outcry that they had been too soft on the banking industry in the aftermath of the 2008 financial crisis.

In a letter to President Barack Obama dated April 7, French President François Hollande said that while he respected the independence of the U.S. judicial system, he wished the case proceeded "on a reasonable basis." Mr. Obama said earlier this month that he doesn't "meddle" in U.S. prosecutions.

BNP Paribas Chief Executive Jean Laurent Bonnafé delivering a speech during the bank's 2012 results conference in Paris on Feb. 14, 2013. Associated Press

But the bewildering $10 billion figure sparked soul-searching at the bank, where senior executives wondered what had gone wrong, according to people familiar with the matter.

During the previous decade, the French bank had duly taken notice of the U.S. government's intention to bust sanction offenders, the people said.

At stake was whether BNP Paribas's trade-finance arm—a business traditionally dominated by French banks since colonial times—could continue to handle oil and commodities deals in countries targeted by U.S. sanctions. At BNP Paribas, the unit was expanding fast. It had clocked annual revenue of €1.2 billion ($1.6 billion) in 2006 and generated about a fifth of the investment-banking division's pretax profit.

In 2006, BNP Paribas commissioned legal opinions from several firms on whether its lucrative unit could continue to do business in countries under U.S. sanctions. A response from Clifford Chance came in plain language: "No," according to people familiar with the matter.

That same year, BNP Paribas was on a list of about 40 European banks to host a special visitor. The Bush administration had dispatched the Treasury's newly minted undersecretary for terrorism to Europe to convey the message that Washington expected all European banks and corporations to abide by U.S. embargoes, especially with Iran.

"There was no ambiguity," said a person briefed on the meeting between the official, Stuart Levey, and BNP Paribas executives. "We'd face the risk of being kicked out of the U.S. if we, Europeans, didn't start behaving like U.S. companies."

Mr. Levey declined to comment, according to a spokesman at HSBC Holdings HSBA.LN 0.00% PLC, where he now works as chief legal officer.

BNP Paribas executives came to the conclusion the bank could ill-afford to alienate U.S. authorities and jeopardize its American businesses, the people familiar with the matter said. In June 2007, BNP Paribas's chief executive at the time, Baudouin Prot, gave instructions to stop any transactions involving Sudan, one person said. Similar orders followed for Iran in September and Cuba in December, the person said.

By the time U.S. authorities acted on a tip from an informant and began their probe into BNP Paribas in 2009, Washington had signaled it wouldn't stop at political warnings and would spare no efforts to prosecute alleged offenders.

Two European banks, Lloyds Banking Group LLOY.LN 0.00% PLC and Credit Suisse Group AG CSGN.VX +0.55% had just settled sanctions cases in the U.S., paying penalties of $350 million and $536 million, respectively. The two cases showed how U.S. prosecutors had sought to avoid accusations of conducting extraterritorial justice by focusing on alleged systemic falsification of U.S. banking records. Prosecutors called the practice "stripping" or "camouflaging:" banks assisting Iranian or Sudanese entities to defeat U.S. embargoes by concealing the identities of real beneficiaries.

At the time, though, penalties were in the hundreds of millions of dollars and U.S. authorities stopped short of pursuing guilty pleas for fear it would rock the financial system.

In March 2010, BNP Paribas mentioned the U.S. probe in its annual report, saying it had agreed to launch an internal investigation into the matter. But the issue wasn't discussed by BNP Paribas's board, according to several directors at the time.

During the first meetings with U.S. authorities in 2010, the company's legal team, which at the time was headed by Hogan Lovells attorney Bob Bennett, said it didn't believe any of BNP Paribas's transactions had violated U.S. sanctions, according to people familiar with the matter.

Mr. Bennett declined to comment.

But in the course of their probe, people familiar with the matter said, U.S. authorities gathered elements suggesting that BNP Paribas employees took deliberate steps over several years to conceal dollar transactions with several sanctioned countries, including Sudan—at a time when the nation was engaged in what the U.S. and others call genocide. The probe also yielded emails and other documents investigators interpreted as resembling instructions on how to process dollar transactions without raising the suspicion of U.S. authorities, the people said.

Current and former BNP Paribas managers said Mr. Prot, the bank CEO until December 2011, and his successor, Jean-Laurent Bonnafé, couldn't be expected to have been aware of the alleged misconduct of a few employees because they had to steer the bank through extraordinary times. "Baudouin was working 16 hours a day, seven days a week," one of the former managers said. "He was trying to avert an implosion of the global financial system."

In May, in what appeared to be a thinly veiled reference to BNP Paribas and other banks under probe, U.S. Attorney General Eric Holder warned that "There is no such thing as too big to jail," signaling that for the first time in decades the government was ready to press guilty pleas on financial institutions.

Mr. Hollande and other French officials cried foul, saying inflicting a disproportionate punishment on BNP Paribas could destabilize Europe's banking industry when it is limping out of the financial crisis.

As bargaining over possible multibillion-dollar penalties intensified in recent weeks, BNP Paribas insiders have said they have been enduring the equivalent of a long, grueling perp walk.

In early June, several newspapers reported that Mr. Chodron de Courcel, BNP Paribas's chief operating officer, featured prominently on a list of executives who U.S. authorities wanted to see removed as part of a settlement.

"My photo is all over the place," the veteran BNP Paribas banker said on the sidelines of the women's final at the French Open. .

The bank has since said that Mr. Chodron de Courcel would step down from his position at the end of June—at his request.

On Friday, Mr. Bonnafé, the BNP Paribas's CEO, sent a humble message to the bank's 200,000 employees: "Let me put it clearly: we will be severely punished. Because some malfunctions occurred and mistakes were made."

Barron's : Shire: Endgame to an Acquisition

From: LAURENT CHEKROUN ()

Subject: FT : Shire: Endgame to an Acquisition

Shire: Endgame to an Acquisition
First offer from AbbVie snubbed, but sweeter bids are likely.

It isn't too late to join the party at Shire, which looks to be in play after a tentative approach by AbbVie.

The biopharmaceutical company's London-listed shares (ticker: SHP.United Kingdom) have jumped about 30% in the past couple of weeks since AbbVie's (ABBV) interest was first disclosed, but there could be plenty more upside to come—especially if another bidder emerges. A knockout blow could be 20% to 30% above Friday's closing price of 45.70 British pounds ($77.86) a share.

Shire, which also has American depository receipts listed in New York under the ticker SHPG, may be entering the endgame. This isn't entirely unexpected: A shake-up has been taking place in pharmaceuticals this year, and Shire has long been considered a takeover target. The Stoxx Europe 600 health-care sector is up almost 14% in 2014, outperforming a gain of roughly 4% in the broader index.

Shire so far has spurned AbbVie's £27 billion proposal, which—unsurprisingly—it says fundamentally undervalues the company and its prospects. However, while Allergan (AGN) has thrown plenty of mud in its determined effort to fend off predator Valeant Pharmaceuticals International (VRX.Canada), Shire's defense against AbbVie has been cordial, even half-hearted. It suggests that Shire's board may be ready to talk if AbbVie gets closer to a valuation it considers realistic. An offer above £50 a share could be sufficient to open a dialogue.

AbbVie needs the combination more than Shire. Illinois-based AbbVie would move its domicile to Ireland, where Shire is based, allowing it to cut its tax bill from 22% to 13%, a major incentive. Tax inversion, or reincorporating overseas to benefit from lower taxes, makes European companies particularly attractive to U.S. buyers. At the same time, a deal would diversify AbbVie's portfolio, which currently is too heavily dependent on arthritis medicine Humira, the world's top-selling drug last year. The threat of growing competition for Humira may be a major motivation for AbbVie.

Shire has been quick to make the point that it is under no pressure to do a deal and its prospects as a stand-alone company are strong. Management presented the market with forecasts for sales to grow from under $4.9 billion in 2013 to $10 billion by 2020 based on its current portfolio, which comprises treatments for ADHD and rare diseases. The sales target looks optimistic, even exaggerated, but Shire is spreading a message that the figure doesn't include its most recent acquisitions or future purchases.

By emphasizing the company's potential, Shire is simply trying to extract the best possible price. AbbVie's indicative proposal of £46.26 per share in cash and stock values Shire at about 24 times forecast 2014 earnings of £1.91 per share. That looks cheap given Shire's double-digit compound annual growth rate in sales through 2018, a 35% operating margin that is expanding, and robust earnings.

The danger for AbbVie is that other bidders now could come forward. Allergan and AstraZeneca (AZN.United Kingdom), a target of a failed bid from Pfizer (PFE), are candidates as they try to protect themselves from current or future unwanted advances.

Ori Hershkowitz, a portfolio manager at Sphera Funds Management in Tel Aviv, believes Pfizer also could enter the fray. He invested 4% of his $500 million Sphera Global Healthcare fund in Shire a few months ago after Pfizer was rebuffed by AstraZeneca. He sees greater synergies between Shire and Pfizer than with AbbVie, but he isn't too concerned about a deal. "I would be happy to own Shire as a stand-alone company," he says. "It is a great company."

Bank of America Merrill Lynch estimates the value of Shire to AbbVie at between £50 and £62 per share, based on its long-range plans, tax, and synergy benefits. Most analysts see Shire's takeout price above £55 a share.

The clock is ticking for AbbVie. U.K. regulators have imposed a July 18 deadline for the company to make a bid for Shire or walk away. Rivals may be racing against time to beat AbbVie to the prize. Investors can't afford to ponder this situation for too long.

NORWAY'S $887 BILLION state pension fund plans to boost its investment in real estate and in frontier markets.

Norges Bank Investment Management, which administers the fund on the government's behalf, intends to increase its real estate exposure by 1% each year through 2016. That would take its property holdings to 5% of its portfolio, up from just 1.2% last year. Its concentration in Europe will be on London and Paris, while in the U.S. it will be on New York, Washington, Boston, and San Francisco.

Its holding of equities will fall to 60% in 2016 from 61.1%, and its fixed-income portfolio will shrink to 35% from 37.7%. The fund owns a 2.5% share of Europe's listed companies, and its top holdings include Nestle (NESN.Switzerland), Royal Dutch Shell (RDSB.United Kingdom), and Novartis (NOVN.Switzerland).

FT : Shire: Endgame to an Acquisition

Shire: Endgame to an Acquisition

First offer from AbbVie snubbed, but sweeter bids are likely.

It isn't too late to join the party at Shire, which looks to be in play after a tentative approach by AbbVie.

The biopharmaceutical company's London-listed shares (ticker: SHP.United Kingdom) have jumped about 30% in the past couple of weeks since AbbVie's (ABBV) interest was first disclosed, but there could be plenty more upside to come—especially if another bidder emerges. A knockout blow could be 20% to 30% above Friday's closing price of 45.70 British pounds ($77.86) a share.

Shire, which also has American depository receipts listed in New York under the ticker SHPG, may be entering the endgame. This isn't entirely unexpected: A shake-up has been taking place in pharmaceuticals this year, and Shire has long been considered a takeover target. The Stoxx Europe 600 health-care sector is up almost 14% in 2014, outperforming a gain of roughly 4% in the broader index.

Shire so far has spurned AbbVie's £27 billion proposal, which—unsurprisingly—it says fundamentally undervalues the company and its prospects. However, while Allergan (AGN) has thrown plenty of mud in its determined effort to fend off predator Valeant Pharmaceuticals International (VRX.Canada), Shire's defense against AbbVie has been cordial, even half-hearted. It suggests that Shire's board may be ready to talk if AbbVie gets closer to a valuation it considers realistic. An offer above £50 a share could be sufficient to open a dialogue.

AbbVie needs the combination more than Shire. Illinois-based AbbVie would move its domicile to Ireland, where Shire is based, allowing it to cut its tax bill from 22% to 13%, a major incentive. Tax inversion, or reincorporating overseas to benefit from lower taxes, makes European companies particularly attractive to U.S. buyers. At the same time, a deal would diversify AbbVie's portfolio, which currently is too heavily dependent on arthritis medicine Humira, the world's top-selling drug last year. The threat of growing competition for Humira may be a major motivation for AbbVie.

Shire has been quick to make the point that it is under no pressure to do a deal and its prospects as a stand-alone company are strong. Management presented the market with forecasts for sales to grow from under $4.9 billion in 2013 to $10 billion by 2020 based on its current portfolio, which comprises treatments for ADHD and rare diseases. The sales target looks optimistic, even exaggerated, but Shire is spreading a message that the figure doesn't include its most recent acquisitions or future purchases.

By emphasizing the company's potential, Shire is simply trying to extract the best possible price. AbbVie's indicative proposal of £46.26 per share in cash and stock values Shire at about 24 times forecast 2014 earnings of £1.91 per share. That looks cheap given Shire's double-digit compound annual growth rate in sales through 2018, a 35% operating margin that is expanding, and robust earnings.

The danger for AbbVie is that other bidders now could come forward. Allergan and AstraZeneca (AZN.United Kingdom), a target of a failed bid from Pfizer (PFE), are candidates as they try to protect themselves from current or future unwanted advances.

Ori Hershkowitz, a portfolio manager at Sphera Funds Management in Tel Aviv, believes Pfizer also could enter the fray. He invested 4% of his $500 million Sphera Global Healthcare fund in Shire a few months ago after Pfizer was rebuffed by AstraZeneca. He sees greater synergies between Shire and Pfizer than with AbbVie, but he isn't too concerned about a deal. "I would be happy to own Shire as a stand-alone company," he says. "It is a great company."

Bank of America Merrill Lynch estimates the value of Shire to AbbVie at between £50 and £62 per share, based on its long-range plans, tax, and synergy benefits. Most analysts see Shire's takeout price above £55 a share.

The clock is ticking for AbbVie. U.K. regulators have imposed a July 18 deadline for the company to make a bid for Shire or walk away. Rivals may be racing against time to beat AbbVie to the prize. Investors can't afford to ponder this situation for too long.

NORWAY'S $887 BILLION state pension fund plans to boost its investment in real estate and in frontier markets.

Norges Bank Investment Management, which administers the fund on the government's behalf, intends to increase its real estate exposure by 1% each year through 2016. That would take its property holdings to 5% of its portfolio, up from just 1.2% last year. Its concentration in Europe will be on London and Paris, while in the U.S. it will be on New York, Washington, Boston, and San Francisco.

Its holding of equities will fall to 60% in 2016 from 61.1%, and its fixed-income portfolio will shrink to 35% from 37.7%. The fund owns a 2.5% share of Europe's listed companies, and its top holdings include Nestle (NESN.Switzerland), Royal Dutch Shell (RDSB.United Kingdom), and Novartis (NOVN.Switzerland).

(ZH) Crushing The Q2 "Recovery" Dream In 1 Simple Chart

Crushing The Q2 "Recovery" Dream In 1 Simple Chart

For a week or two, the 'news' appeared to confirm the 'hope'; faith that Q1's dysphoria would emerge phoenix-like into Q2 euphoria as a 'hibernating' American public emerging from their weather-shelter and spent-spent-spent all their borrowed-borrowed-borrowed money. That ended last week! Despite the dramatically low volume liftathon in stocks since the FOMC meeting, major risk markets around the world are cracking. European bonds and stocks had a bad week, Treasuries rallied the most in 6 weeks, and the key to it all, USDJPY, slipped to 4 week lows. Why? As the chart below shows, US macro data is collapsing again (right on cue) and stands at 2-month lows... (and is the worst-performing macro nation in the world this year!)

But it's not just top-down that's "broken"...

as Bottom-up Fundamentals are no longer the driver for credit

or equity markets...

FT : Jacob Wallenberg troubled by Sweden’s ‘shift to the left’

Jacob Wallenberg troubled by Sweden’s ‘shift to the left’

Sweden’s leading industrialist has sounded the alarm over a likely leftward shift after September’s elections, warning it could lead entrepreneurs to flee the Nordic country.

Jacob Wallenberg, whose family foundations indirectly control nearly half of Stockholm’s stock exchange, told the Financial Times that “a massive shift to the left” in recent weeks worried him because it called into question reforms in Sweden over the past decade.

“If there is a new government and if they change the rules – be that on taxation, labour, a number of different things – the risk you are running is that you see entrepreneurs leaving the country or electing to do other things,” said Mr Wallenberg. He added that he and other business leaders wanted to see “predictability and stability”.

Sweden’s current centre-right government are on course for defeat in September’s elections after governing for eight years, according to opinion polls that make the centre-left Social Democrats the leading party. But the pro-industry Social Democrats will need the support of one or most likely both of the Greens and the Left Party.

Both have caused consternation in business circles by taking a far more radical tack than the Social Democrats. Mr Wallenberg pointed to policies such as the Green’s desire for a no-growth society and the Left Party’s repudiation of centre-right reforms that have brought in private equity companies to run school and hospitals.

“What do they want to do? They want to take away all the freedom choices we are talking about. They have a different view on the role of government. They think government should run things,” said Mr Wallenberg, who is a director of Ericsson, ABB, SAS as well as chairman of his family investment vehicle, Investor.

Many of Sweden’s best-known entrepreneurs – such as Ikea’s Ingvar Kamprad and Hans Rausing of Tetra Pak – left the country in the 1970s and 1980s as a result of high taxation. The centre-right government has cut income tax five times and scrapped the wealth tax, scoring a publicity coup when Mr Kamprad ended his tax exile in Switzerland this year.

The Greens – who were the second-biggest party in June’s European elections behind the Social Democrats – have proposed closing Stockholm’s central Bromma airport and stopping construction of a bypass around the capital.

Anders Borg, Sweden’s centre-right finance minister for the past eight years, told the Financial Times: “This is basically much more of a leftwing experiment than we have probably ever seen in Swedish history.”

But his likely successor, Magdalena Andersson of the Social Democrats, deflected the criticism and said her party would work with any other political grouping aside from the populist right Sweden Democrats. Asked about the Green’s no-growth policy and closure of Bromma, she added: “I think you are pointing to some of the reasons why the Green party might not be quite as big in national elections as they were in the European parliament elections.”

The most recent Ipsos opinion poll in June gave the three centre-left parties 49.8 per cent of the vote against 35.6 per cent for the four centre-right parties. The Social Democrats topped the polls with 31 per cent, followed by the governing Moderates with 21 per cent and the Greens with 11 per cent.

Outside of the two main groupings are the Sweden Democrats with 10 per cent and a new party, the Feminist Initiative, with 3.7 per cent, just below the threshold to enter parliament.