FT : Will lightning strike twice for fund star Woodford?

Will lightning strike twice for fund star Woodford?

It is a landmark moment in British fund management. One of the most successful managers of the last two decades, Neil Woodford, has this week launched a new investment company.
Mr Woodford takes the helm at the eponymous Woodford Investment Management after finally severing links with Invesco Perpetual, the Henley-based group he first joined in 1988.

The move should not be underplayed. Mr Woodford is a star of the fund management world. He has a big following among investors; as soon as he announced his intention to quit Invesco in October, financial advisers were inundated with requests to switch their money to his new fund.
He is also lauded as one of the few managers to be able to run billions of pounds while delivering top-quartile returns and a steady level of income. Over 25 years, his flagship high income fund delivered 2,365 per cent in cumulative returns or 23 times the money originally invested, according to Morningstar data.
Under his new venture, he will have about £4.5bn under his control at the outset. Few other individual fund managers could attract such large sums so quickly. He oversees about £3.7bn in segregated funds with wealth manager St James’s Place and his new income fund will have about £1bn in assets.
More money will almost certainly flow his way. But is he worth the star billing, and will he continue to deliver the market-beating returns that established his reputation as arguably the best UK fund manager of his generation?
It has been a long week for Mr Woodford, who officially left Invesco on Tuesday – the day after the company was hit with a £18.6m fine – one of the largest levied against a retail fund manager – for breaching investment limits and introducing leverage into funds, including those run by Mr Woodford, without sufficient disclosure.
Although financial advisers played down the significance of the fine, it still cast a shadow over Mr Woodford’s new venture.
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Pensions guidance, Woodford's new venture and frontier markets
Jo Cumbo explains why the government's pensions guidance guarantee is not quite what it seems. Also in the show, David Oakley talks about the prospects of Neil Woodford's new fund, and Jason Hollands of Bestinvest explains the performance of frontier markets
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In his first interview since his departure, however, the fund manager looks relaxed in a blue sports jacket and checked shirt and is clearly relieved that a difficult week is behind him.
“I am hugely excited by this opportunity. It’s been a frustrating 12 months as I just want to get going with the new business,” he says. “It took me a long time to make the decision to leave because I was aware of the impact it would have on my clients, but when I decided to leave early last year I wanted to move on.”
The company, which was given regulatory approval on Wednesday, plans to launch the equity income fund in June.
The key to his strategy is buying inexpensive, unloved stocks and holding them for the long term – ideally forever, or at the very least for five years. He stresses he will not use the opportunity to reinvent himself as a different sort of fund manager. “I am going to do what I have been doing for a very long time,” he says.
The stocks he will hold in the equity income fund will be similar to those in which he invested in his flagship high income and income funds at Invesco, such as pharmaceutical, tobacco and consumer goods groups.
Mr Woodford is also fiercely opposed to mega-acquisitions, arguing they do not offer long-term shareholder value. He has a large chunk of AstraZeneca shares through his St James’s Place funds: he insists the UK company should remain a “single entity” and fight off the approach from Pfizer.
“There is short-term profit for shareholders through a deal, but there is more value in this company in the long term as a single entity.”
He will keep his distance from the swirl of the City of London, establishing his headquarters in Oxford, a few miles further upriver from Invesco, with a 20-plus strong team based in the City’s business park in Cowley.
There will be four partners, including Mr Woodford, who will be head of investments. But Mr Woodford will not take the reins as chief executive of the firm; he wants to focus on managing money.

More video
The other three partners are Craig Newman, chief executive, and Nick Hamilton, chief operating officer, whom he poached from Invesco, and Richard Graham Catherwood (known as Gray) Smith, who will be in charge of compliance and the legal side of the business. The company expects to receive Financial Conduct Authority approval to trade in the next few weeks.
There has also been speculation that Mr Woodford’s departure, though well choreographed, was less than amicable as he took gardening leave in March, earlier than planned, and is said to have been unhappy with the red tape and bureaucracy that got in the way of fund management at Invesco.
As head of UK equities and a 25-year veteran at the company, he considered the flagship income funds in particular as his own. Friends say it was at a meeting last year with executives in Atlanta, Invesco’s US headquarters, that he decided to quit the group, when it was made clear to him that the funds were the company’s, not his. This was an important distinction for a man who was already feeling stifled at the group.
Mr Woodford would not be drawn on this, but says: “This will give me the chance to focus on what I love doing and this is fund management. You try not to get embroiled in the bureaucracy but it is difficult not to at a big organisation.”
The 54-year-old also relishes the chance to create something of his own, a company in his image that could leave a lasting legacy for his style of investing as some of the historic names in finance have done.
His first job will be to go on the road to meet financial advisers, fund managers and investors to talk through his plans, which will start out small with just one retail fund and the segregated mandates from St James’s Place.
Stars in their eyes

Robin van Persie PUKNEWS
Is there really such a phenomenon as a star fund manager, the financial equivalent of a creative or inspirational footballer who drives a team to new heights to produce sublime or outstanding performance?
In time, however, he wants to build a bigger organisation that will offer investors opportunities to invest in fixed income and credit and may even run global and emerging market funds. His plans are ambitious, with the longer-term aim of creating a large asset manager rather than a small boutique.
It is also an opportunity for Mr Woodford to start over again with a clean sheet, particularly as his performance at the end of his tenure at Invesco was starting to suffer, which some believe was due to his funds becoming so large.
However, Mr Woodford said he “fundamentally” disagreed with the claim about his fund size and believes it is possible to perform well when running a large pool of assets.
At the end of 2013, the high income and income funds at Invesco had a combined £23bn under management. This was roughly 10 times their size a decade before, when he achieved his best performance numbers, beating the market by as much as 80 percentage points over a five-year period.
Simon Evan-Cook, head of multi-assets at Premier Asset Management, says: “It boils down to a function of how much money he takes in the fund. If he limits it to a much smaller fund than he ran at Invesco in the region of £1bn, then I think he will do very well.”
Another key question investors have to consider is whether Mr Woodford’s success has been largely on the back of Invesco, or down to his personal skill and style. His successor as head of UK equity at Invesco, Mark Barnett, has outperformed him in recent years.
However, Mr Barnett, 10 years younger than Mr Woodford, has learnt from his former boss, developing a similar style in which he places a big emphasis on analysing the macro environment before selecting stocks that typically offer high dividends and potential for growth.
Invesco probably deserves some credit for Mr Woodford’s performance, but the group also benefited from him, not only in terms of attracting assets but also mentoring younger fund managers such as Mr Barnett and establishing a distinct process for investing. It was Mr Woodford who insisted the group remain in Henley, rather than move to London.
Is Invesco clients’ money safe? I’d say yes

Mark Barnett, who is taking over from Neil Woodford as the head of UK equity at Invesco Perpetual, Henley-on-thames.
Interview: Mark Barnett
Importantly, Hargreaves Lansdown, one of Europe’s biggest online investment platforms, is backing Mr Woodford. Financial advisers say this endorsement is worth millions in terms of retail investor money as Hargreaves is one of the most popular platforms with individual savers.
Mark Dampier, head of research at Hargreaves, says: “I have been a fan of Woodford for most of my career. He is genuinely a long-term investor. He is passionate about what he does and I am sure he will continue to deliver strong returns for savers.”
Others agree with Mr Dampier, although they are not rushing to back him straightaway. Mick Gilligan, head of research at Killik & Co, the wealth management group, says: “We like situations where somebody who has a proven record starts up again with a clean sheet of paper. Whether it is repeatable, we will have to wait and see. We are going to make a decision over the coming weeks on whether we will be advising clients to switch their money into his funds.”
Dennis Hall, financial adviser at Yellowtail Financial Planning, adds: “Woodford has a great record. He went off the boil towards the end. Is that indicative of long-term decline? You never know. But you should always back someone who is a winner, and I would say he is.”
However, some financial advisers caution against the hype. “Woodford has been a good manager,” says one adviser at a big City group. “But it depends when you bought his funds. If you were there at the start, then great. But if you bought five years ago, you would have lost money.”
Mr Woodford defends his performance. “I have underperformed over the past five years, although not over the past three. My style is to buy more risk-averse and lower volatility stocks and this does not work well in a strong bull market.
“Central bank money printing has lifted all boats, but that is coming to an end. I’m looking forward to a market driven more by fundamentals and earnings, where there is differentiation between stocks.”
He also plans to develop his interest further in small, often unquoted, biotech companies that have the potential to become the multinationals of the future. Significantly, he will be based near IP Group in Oxford, the university research body that has provided some of his best ideas and themes for investing in the life science sector.
“I have immense energy and enthusiasm for this job. The fund manager I most admire is Warren Buffett and he is still going at 83. I think I have the best years ahead of me and I plan to keep going as long as I can, delivering good, steady returns for my clients.”

>>> AstraZeneca shareholders demand justification for board’s instant rejection

AstraZeneca shareholders demand justification for board’s instant rejection of Pfizer offer 

Some of AstraZeneca’s biggest institutional investors are demanding an explanation of why the UK-listed company’s board rejected Pfizer’s latest takeover offer so quickly, The Times reported. Portfolio manager Richard Marwood of Axa Investment Managers was quoted stating that Astra’s shareholders should receive a detailed explanation of why Pfizer’s GBP 50 (EUR 60.82)-per-share approach yesterday, 2 May, was deemed to significantly undervalue the business.

Schroders fund manager Sue Noffke also said Astra’s directors should begin a dialogue with investors about the correct level for engagement, although she added that she remained unmoved by the GBP 63bn Pfizer offer, the item reported.

The report quoted Astra chief executive Pascal Soriot stating that Pfizer’s revised bid prompted “no debate” at a board meeting held yesterday and “everybody” quickly concluded that the cash-and-shares approach could not be entertained.

The Independent quoted an anonymous top-five Astra investor who said that although Pfizer’s most recent offer is too low, it is sufficiently serious to merit discussions between the two sides. A second unidentified shareholder concurred the bid is not high enough but added that the rejection came too quickly and there ought to have been a greater level of discussion prior to a decision, the report said.

The investors’ impatience may prompt New York-based Pfizer to go hostile, although this would likely hamper its plans for an inversion - relocating to the UK to benefit from lower tax charges and saving more than USD 1bn a year, the Times report said. People with close links to discussions expect another revised Pfizer offer to be made within days, the Independent reported.

The Financial Times quoted St James’s Place fund manager Neil Woodford in support of AstraZeneca’s stance; he said a deal would bring shareholders short-term profit but over the long term they would see greater benefits from remaining independent. St James’s Place owns an Astra stake worth GBP 350m, the report noted.



Source The Times (London), Independent, Financial Times

FT : Ian Read: the pragmatist out to transform the drugs industry

Ian Read: the pragmatist out to transform the drugs industry

Appointed to bring stability, the Pfizer chief is exhibiting a taste for deals
Joe Cummings illustration of Ian Read
When Ian Read’s private jet landed in London on Tuesday after an overnight flight from New York he knew the next 48 hours could be the defining moment of his career.
The chief executive of Pfizer had crossed the Atlantic to press the case for the US drugmaker’s proposed £63bn takeover of AstraZeneca. If successful, the deal would create the world’s biggest pharmaceuticals group and represent the largest foreign takeover of a UK company.
As he was driven through the heavy London traffic, he received a warning of the challenge ahead. Pfizer had made public its interest in AstraZeneca the day before and the morning’s British newspapers were brimming with hostile commentary on the perceived threat to UK science and manufacturing.

This was the man, after all, whose first big decision after becoming chief executive in 2010 was to shut Pfizer’s research and development centre in Sandwich, Kent, with the loss of more than 2,000 jobs. He went on to reduce the company’s overall R&D budget by a third, saying resource allocation must always be based “on metrics” rather than “investing in hope”. Was this a person in whose hands Britain should entrust some of the crown jewels of its life-sciences sector?
“It is clear to me that this proposed takeover is going to deal a devastating blow to our profile in the pharmaceutical area, which I think is going to be critical in the next 30 years,” said Lord Sainsbury, the former science minister and billionaire scion of the eponymous supermarket chain.
For two days Mr Read criss-crossed Whitehall and the City trying to convince people that such fears were unfounded. Short, bald and bespectacled, the 60-year-old Mr Read sought to play up his British roots having been born in Scotland and studied chemical engineering and accountancy in London. However, he long ago adopted US citizenship and his accent betrays barely a hint of Caledonian influence. Perhaps more convincing was the presence at his side of two British executives and Pfizer’s Swedish head of science to reinforce his message that the UK and Europe would maintain a big presence in the merged group.
Yet, as he wooed Britons with the promise of a US-UK “science powerhouse”, many investors on the other side of the Atlantic were puzzled by a high-stakes gamble that seemed so out of character for a chief executive better known for cost-cutting than dealmaking.
Mr Read was drafted in to stabilise Pfizer four years ago after a period of disruptive deals, stagnant sales and dysfunctional management. He lacked the star power of his Harvard-educated predecessor, Jeff Kindler, but his no-nonsense character and under-the-bonnet knowledge of the business, the result of 36 years at the group, were just what the board wanted.
A year before, Pfizer had bought Wyeth, a rival drugmaker, for $68bn. It was the latest in a succession of large deals that greatly increased Pfizer’s scale but had done little for shareholder returns. The stock had fallen from a peak of $49 in 1999 to less than $13 in 2009, a period that coincided with more than $200bn worth of acquisitions.
It is clear to me that this proposed takeover is going to deal a devastating blow to [the UK’s] profile in the pharmaceutical area
- Lord Sainsbury, former science minister
Mr Read’s predecessors had hoped that doing deals would make up for Pfizer’s woeful record of innovation. The company was renowned for its powerful marketing machine, including a hard-charging sales force bristling with military veterans hired for their drive and discipline. Yet no amount of marketing could make up for the dearth of new medicines coming out of Pfizer’s laboratories.
Even Viagra, the anti-impotence pill and a rare Pfizer homegrown success, came about by accident. Scientists at Sandwich were developing an angina drug when male patients taking part in clinical trials reported that it had no effect on their heart condition but had a surprising effect on their sex lives.
The $112bn acquisition of Warner-Lambert in 2000 provided access to Lipitor, the cholesterol treatment which, in the hands of Pfizer’s salesmen, became the world’s first $10bn-a-year drug. However, the loss of its patent in 2011 once again exposed the lack of new products emerging from the company’s own pipeline. By then Mr Kindler had gone. His departure was attributed to exhaustion but there were also reports of infighting on the executive floor of Pfizer’s Manhattan headquarters, which one business magazine illustrator likened to a heap of writhing snakes. “There was a lot of internal politics,” recalls one executive, with palpable understatement.
Enter Mr Read, who joined Pfizer as an auditor in 1978 before working his way up through a variety of roles in Latin America and Europe. He had solidified his reputation as an astute operator while running the core pharmaceuticals business since 2006 and was popular with the board, counting the chairman as a golf partner. “He’s a pragmatist rather than a revolutionary and very straightforward,” says one person who has worked with him.
His decision, within two months of taking over, to close Sandwich sent a message that the days of shovelling endless resources into the company’s choked development pipeline were over. Deals also looked off the agenda, with Mr Read in 2012 declaring himself “very disinclined” to look “at any possibility of another mega-acquisition”. “I think that more and more of the value [of big deals] gets transferred to the seller and not the buyer,” he said, insisting that Pfizer had “all the science we need”.
Investors loved his brusque focus on shareholder value. The stock has doubled since he took over. Yet, while the Scottish accountant’s cost cuts have kept earnings on track, sales and innovation continue to disappoint, helping to explain why Pfizer is once again looking to buy growth and innovation from outside.
As he flew back across the Atlantic on Wednesday night to plot his next move in the takeover battle, Mr Read no longer looked so different from his dealmaking predecessors.

>>> Weekly Market Update: No Mayday for Steady Markets

Weekly Market Update: No Mayday for Steady Markets

- After a rough start for stocks in April, the DJIA and S&P500 erased 3% declines to end the month higher by about 0.5% a piece, at or near record highs. The moves for the Nasdaq were even more extreme, as investors backed out of a wide spectrum of high-flying technology and biotech stocks. This week volatility in US and European markets dried up and equities saw steady if modest gains. Excellent UK GDP data, good German jobs numbers, incremental gains in Eurozone inflation and the monster US April jobs report supported the positive tone, while the weak US GDP reading was overlooked. The FOMC policy meeting was the least impactful in some time, with no notable changes except Kocherlakota withdrawing his dissent (as expected). Nearly two-thirds of S&P500 companies have now reported quarterly earnings, and with a few exceptions most of corporate America is meeting or beating profit expectations, even if revenue growth has been clearly anemic. In Ukraine, Kiev's offensive to reestablish control over its eastern provinces has more or less fallen flat and belligerent Russian rhetoric has only increased. On Monday, the US placed additional sanctions on a handful of Russian officials, none of whom were the chief actors in the Ukraine drama. For the week, the DJIA and the S&P500 each rose 0.9%, and the Nasdaq gained 1.2%.

- Most analysts are shrugging off the +0.1% advance Q1 GDP reading, citing the well-worn excuse of unusually severe winter weather. The focus has been on the consumption component of the first reading of Q1 GDP, which was +3.0%, roundly beating expectations, bolstered by a 4.4% jump in spending on services. The latter was due to the expansion of healthcare spending under Obamacare. Note that domestic investment (both residential and nonresidential), trade and government spending subtracted much more from growth than anticipated.

- The April jobs report greatly exceeded expectations with the 288K non-farm payrolls gain the strongest since January 2012. Gains were broad-based across sectors, including construction. Most importantly, nothing in the data suggests the increase in the payroll series was a statistical fluke. The same cannot be said for the unexpectedly steep decline in the unemployment rate to 6.3%. The three-tenths drop in joblessness did not reflect an increase in employment - as measured by the household survey employment actually fell by 73K - but rather the 806K workers reporting themselves as being out of the labor market, pushing the labor force participation rate down 0.4 points to 62.8%. Analysts highlight that this is a very noisy measure and will certainly be revised.

- Data out this week suggested that, like much else in the US economy, the housing industry will also bounce back from its winter weather slump. The pending home sales data saw its first positive m/m reading in nine months in March, widely beating expectations. Data out last week showed that existing home sales fell to their lowest levels in nearly two years in March, but the pending homes report suggests the downward trend may have run its course. While there is hope for further improvement in the housing market, it looks like there is little chance for housing reform in Washington, DC this year. The Senate Banking Committee scheduled an April 29th markup session for the GSE reform bill, but with committee work starting so late in the session there is little chance for much to get done before Congress shifts into full-on election mode.

- Federal prosecutors are planning criminal charges against BNP Paribas and Credit Suisse Group for separate alleged offenses, raising fears that one or both could possibly be forced out of the US market. The DoJ is seeking criminal charges against BNP for allegedly skirting economic sanctions against Iran, and charges against Credit Suisse for helping clients avoid taxes. Reportedly BNP faces charges of up to $2 billion, and while there are said to be discussions of ways to avoid revocation of the bank's New York charter in case of a guilty verdict, the Fed still might move to take away its licenses. Elsewhere in the annals of financial misbehavior, Bank of America disclosed an embarrassing error in calculating its capital ratios, forcing it to suspend capital returns to shareholders and redo its CCAR submissions to the Fed.

- Rising crude and natural gas prices were the trend in the first quarter, although not all of the global oil majors benefitted equally from the improved pricing environment. ConocoPhillips and Exxon reported much better-than-expected first quarter results, although Exxon's lower upstream production pulled profits down on a y/y basis while Conoco's higher production boosted its profits. Both beat consensus EPS estimates. Meanwhile, Chevron missed both top- and bottom-line expectations as production fell 2% y/y and weaker refining margins hurt bottom-line results. BP's profits slumped and revenue was down significantly as the company continues to shed assets. BP's profit from its Rosneft joint venture shrank by 75% in the quarter thanks to the Ukraine crisis weakening the ruble.

- April auto sales were mixed. General Motor's sales gained 6.9%, more than expected, Chrysler slightly topped expectations and Ford missed. A GM sales executive said retail demand was steady in the month as the economy continues to strengthen. Toyota and Nissan's sales were very strong, up 13.3% y/y and 18.3% y/y, respectively. Ford was the only major auto firm to report a decline in monthly sales, however truck sales remained very strong, with overall April sales +8%, twice the March gain. In addition, Ford announced that CEO Alan Mulally would step down as chief on July 1st. Over his eight-year term, Mulally transformed Ford from a money-loser to a thriving firm. He will be replaced by Mark Fields, the current chief operating officer.

- Pharmaceutical industry deal making continued after last week's big announcements. There were repeated reports that Allergan would make a second attempt to acquire Shire to fend off Valeant's $46-billion unsolicited bid, or even try to sell the company to Johnson & Johnson or Sanofi. AstraZeneca disclosed this week that back in January, Pfizer had offered £46.61/share to acquire the firm was rebuffed, and that Pfizer had renewed its approach. On Friday, Pfizer hiked its offer for AstraZeneca to approximately £50.00/share, valuing the firm at more than $106B. Forest Laboratories said it would buy Furiex Pharmaceuticals for $1.5 billion to get access to its gastrointestinal disease treatments. In other deal news, the contest to acquire Alstom's energy units is now between Siemens and General Electric, with bids said to be running around €11-12 billion.

- The eagerly awaited Eurozone April annualized CPI was slightly lower than expected, at +0.7% versus +0.8%e, while core was in-line at +1.0%. Recall that the March figure that really lit the fire under QE talk was a mere +0.5%, so the slight increase lent some credibility to ECB assertions that the Eurozone will avoid deflation. In a meeting with German legislators, President Draghi said there was still no chance of deflation in the Eurozone and that launching a QE program was only a distant possibility. EUR/USD traded in only a slightly broader range than last week, between 1.3800 and 1.3890.

- UK GDP saw its fifth consecutive quarter of growth in Q1, with the advance annualized figure at +3.1%, up from +2.7% in the final quarter of 2013. This was the highest annualized rate of growth seen in six years, and BoE Governor Carney said the data shows the UK is entering a sustainable recovery. GBP/USD hit a fresh 4-year highs above 1.6900 toward week's end.

- The Bank of Japan held pat in its policy statement out this week and cut its GDP forecast for the FY14/FY15 period to +1.1% from +1.4% prior, and maintained its inflation outlook for the period. This marked one year since the bank launched its ambitious program to double the monetary base and achieve 2% inflation within two years. The March labor cash earnings report - a closely watched gauge of consumer "cost-push" inflation from salaries - moved to a two-year high of +0.7%, giving government officials a reason to celebrate Abenomics. However, the April Markit manufacturing PMI saw its first contraction in over a year, with both output and new export orders components in contraction as well. USD/JPY spent most of the week locked in the 102 handle, only briefly surging above 103 in the immediate aftermath of the US jobs report on Friday.

>>> US Close Dow-0,28% S&P-0,14% Nasdaq-0,09%


Closing Market Summary: Stocks End Upbeat Week on Cautious Note

The stock market finished an upbeat week on a cautious note as the major averages settled near their flat lines. The S&P 500 (-0.1%) shed less than three points, while the Russell 2000 (+0.1%) outperformed slightly. Interestingly, the bulk of today's trading activity took place before 11:00 ET, while the key indices spent the afternoon within a striking distance of their unchanged levels.

One hour ahead of the opening bell, the April Nonfarm Payrolls report pointed to the addition of 288,000 jobs (consensus 210,000), but the release was a bit mystifying as a sharp drop in the labor force pressured the unemployment rate to 6.3% from 6.7%.

On one hand, the surprise jump in payrolls suggests a release of pent-up demand following weather-related delays; however, there was nothing in the job creation data that pointed toward a weather-delayed shock. Sectors that were most affected by the weather, such as construction and mining, saw solid growth but nothing different than what was reported during the worst of the weather problems in February. On the other hand, the unemployment rate plunged from 6.7% to 6.3%, which resulted entirely from an 806,000 drop in the civilian labor force. Had the labor force stayed constant, the unemployment rate would have increased to 6.8%.

The enigmatic report was met with an initial spike in index futures and the Dollar Index, while gold and Treasuries slumped; however, those moves were short-lived as futures returned to unchanged by the opening bell, while the dollar, gold, and Treasuries also reversed their post-data moves. As a result, Treasuries settled near their highs, with the benchmark 10-yr yield down three basis points at 2.59%. Also of note, the 30-yr bond posted its third consecutive gain, pressuring its yield to 3.37%, a level that was last seen in June of last year.

With regard to gold futures, the yellow metal rose 1.1% to $1297.60/ozt. This put in a floor under miners (GDX +2.2%), which in turn gave support to the materials (+0.5%) sector.

The materials space ended in the lead and was followed closely by the energy sector (+0.3%), which was able to overcome a disappointing quarterly report from Chevron (CVX 124.72, -0.22). Crude oil, meanwhile, added 0.4% to $99.80/bbl.

Outside of the two commodity-linked sectors, the discretionary space (+0.3%) was the only other advancer. Homebuilders took part in the move higher as the iShares Dow Jones US Home Construction ETF (ITB 23.95, +0.34) gained 1.4%.

On the flip side, seven sectors registered losses, with utilities (-2.0%) leading the retreat, which was a bit peculiar considering the rate-sensitive sector tends to benefit from lower Treasury yields. To be fair, the selling may have been a function of some profit taking inside of a sector that remains well ahead of the other groups so far in 2014. Today's loss narrowed the sector's year-to-date gain to 11.7%, while the second-best performer of the year—energy—ended the session with a 5.3% advance so far this year.

Trading volume was below average as less than 685 million shares changed hands at the NYSE. This was likely a result of unwillingness among some participants to step in ahead of the weekend as the next couple days could change the state of affairs in Ukraine. Earlier today, Ukraine's military stormed the town of Slavyansk in an attempt to recapture a city that has been described as a stronghold for pro-Russian separatists. In response to the developments, Russia has called an emergency meeting of the United Nations Security Council.

Reviewing today's remaining data:
  • Factory orders increased 1.1% in March after increasing a downwardly revised 1.5% (from 1.6%) in February. The Briefing.com consensus expected factory orders to increase 1.6%. Durable goods orders were revised up, increasing 2.9% from an originally reported 2.6%. Orders increased 2.3% in February. Excluding transportation, durable goods orders increased 2.4%, up from an originally reported 2.0%. 
On Monday, the ISM Services report for April will be released at 10:00 ET (consensus 54.0).
  • S&P 500 +1.8% YTD 
  • Dow Jones Industrial Average -0.4% YTD 
  • Nasdaq Composite -1.3% YTD 
  • Russell 2000 -2.9% YTD 

>>> US Earnings Preview for the week of May 5 - 9



Earnings Preview for the week of May 5 - 9

Of the companies reporting earnings for the week of May 5 - 9 some of the bigger names include:
  • Monday:
    • Pre Market - PFE, SYY, TSN, OXY, RLGY, WLP, KOP, OWW, TESO, HL
    • After Hours - AIG, THC, APC, EOG, SMG, AXLL, CFN, VNO, 
  • Tuesday:
    • Pre Market - DTV, UBS, EMR, ARW, BCE, HFC, ODP, FE, WCG, NRG, HSIC, WNR, MOS, ACM, DISCA, ZTS, AME, ARCO, HSH, TW, NUS
    • After Hours - ETE, ETP, DIS, ALL, LBTYA, CYH, SXL, OKE, MRO, WFM, OKS, AGU, ARRS, FTR, QUAD, LYV, DPM, PXD, FSLR, GRPN, ATVI, ZU, PEGA, BID, PBPB, 
  • Wednesday:
    • Pre Market - HUM, BUD, MDLZ, ENB, DUK, CHK, BAM, HNT, DVN, HTZ, CTSH, VOYA, SE, AGN, SUSS, TLM, POM, KELYA, SUSP, PRGO, SPB, AOL, 
    • After Hours - PRU, PAA, CTL, UGI, UNM, RIG, CZR, CAR, DK, EXPD, ATO, KND, APU, ANDE, MKL, CF, PL, GMCR, EVHC, RNDY, CLR, TGI, WGL, KGC, BKD, SFM, TSLA, TWTC, NLY, Z, SCTY, 
  • Thursday:
    • Pre Market - MGA, CAJ, GLP, AES, APA, DISH, CDW, PCP, DF, CORE, VC, VRX, PCLN, HII, CVC, AEE, WIN, MPEL, ICE, HCN, SPH, WWAV, SKYW, SUNE, SNI, MNK, DNDN, 
    • After Hours - CBS, ED, CSC, SYMC, NVDA, MNST, MTD, NUAN, KRO, SGMS, MDRX, MDVN, 
  • Friday:
    • Pre Market - MT, CNQ, ALU, HLT, RL, BLMN, SATS, CQB
    • After Hours - VVC

(MergerMarket) AstraZeneca defence tactics point to pricing issue

AstraZeneca defence tactics point to pricing issue

- UK Takeover Code limits scope for poison pill
- CEO Soriot may not be ready to leave

AstraZeneca’s [LON:AZN] defence tactics against Pfizer [NYSE:PFE] rely first and foremost on price, it is understood. More traditional UK defence tactics such as attracting a white knight or selling off assets were talked down.

There was a sufficient gap between Pfizer’s GBP 50-per-share proposal Friday morning and the price required for AstraZeneca’s board to consider a takeover offer, it was said. If the price had been closer to the board’s value of the company as an independent entity, then language used rejecting the proposal would not have been so strong.

Shareholders are supportive of the board’s rejection of Pfizer’s initial approaches, it was said.

Rumours earlier this week pointed to the possibility of AstraZeneca putting a poison pill in place to fend off the takeover approach. However, industry bankers thought this was unlikely given that the UK Takeover Code limits the scope for frustrating action. A poison pill would also require shareholder approval.

The only viable defence strategies to prevent a takeover by Pfizer would include AstraZeneca pushing a value creation strategy through regular shareholder engagement, a white knight, returning capital and selling assets, the first banker said.

AstraZeneca was quick to reject Pfizer’s bid bump to GBP 50 per share, calling the terms inadequate and substantially undervaluing the company. The terms are not a basis on which to engage with Pfizer, AstraZeneca’s board said. The large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged, the statement noted.

Pfizer’s approach today had a 2% higher cash weighting than the January approach.

Implementing poison pills is a far easier practice in the US. In April, Allergan implemented a poison pill within 24 hours of a merger proposal from Canada’s Valeant. In that approach Valeant was offering each Allergan share to be exchanged for USD 48.30 in cash and 0.83 shares of Valeant common stock. Similarly, in 2012 US-based Illumina implemented a poison pill shortly after Swiss giant Roche approached it with a takeover bid.

In the UK, there is very limited recourse in terms of tactical or structural intentional poison pills, the first banker said. Shareholders can approve a poison pill, but this would preclude them from receiving an offer, an unlikely arrangement for any shareholder, he added.

A merger of equals with either AbbVie [NYSE:ABBV] or Amgen [NASDAQ:AMGN] is a possibility in theory, an M&A advisor familiar with AbbVie said. But it is difficult to see AstraZeneca pulling off such a move, the advisor said, adding AbbVie in particular is facing its own problems as a number of patents expire.

Pipeline value

Today’s bid follows AstraZeneca giving FY17 earnings guidance above consensus expectations, broker upgrades, and a cancer immunotherapy deal with British private biotech Immunocore. AstraZeneca has a busy year ahead in terms of pipeline news flow including late-stage trials for anaemia and anticancer drugs.

A shareholder previously told this news service that AstraZeneca’s shares did not reflect the upside potential from the oncology pipeline, potentially a mega-blockbuster area. This shareholder said a price closer to GBP 60 per share than GBP 50 would reflect the pipeline value.

The second banker claimed the pharma industry thinks that AstraZeneca’s pipeline is not worth the premium shareholders are seeking. Out of its 11 candidates set for filing in 2017-18, half may not even make it to filing based on the company’s historical data.

When Pascal Soriot took over as chief executive officer in 2012, his aim was to turn around ailing R&D operations, the third and fourth industry bankers commented. There may even have been a strike price and options in Soriot’s contract that would trigger the price point for a takeover, the second banker argued.

It may be too early for Soriot to sell the company because he has not yet been able to make his mark, the second banker contended. Soriot is shaking things up to have more innovation and relocating the R&D operations to Cambridge where there is a gene pool of talent, he added.

However, it was noted that AstraZeneca’s board has a duty to shareholders, and not Soriot. The CEO could be seen as already having succeeded at the company by reinvigorating AstraZeneca’s pipeline and bringing more energy to the role than its previous chief.

According to Dealreporter’s historic database the UK has seen 36 hostile bids since 2006, of which 15 (42%) lapsed. The average upward price revision was 15% ranging from 2% to 38%. Pfizer’s latest approach was at a 7% increase to its January offer.

This bid has echoes of Kraft’s [NASDAQ:KRFT] hostile bid for Cadbury, which was launched with a bear hug offer and subsequently raised twice before the offer completed. AstraZeneca’s defence team includes Goldman Sachs’ Karen Cook and former Morgan Stanley banker Simon Robey, who both worked on Cadbury’s defence team.