(Barron's) Financial Bigs Face Off in the Ring at Caesars

Financial Bigs Face Off in the Ring at Caesars
Private-equity Apollo Group and TPG are set to battle bondholders. Caesars shareholders will likely get bloodied.

A heavyweight fight could soon break out over Caesars Entertainment as the controlling shareholders of the casino company, private-equity giants Apollo Global Management and TPG, square off in the ring against Caesars bondholders. The purse: some $19 billion in debt.

Two bondholder groups have sent letters in the past few weeks to Caesars (ticker: CZR), arguing that a wholly owned subsidiary, Caesars Entertainment Operating Co., is hopelessly indebted and that various asset sales and transfers from CEOC to other Caesars entities in the past year be reversed.

The reversal request first came in a letter last month from a law firm representing a group of CEOC's second-lien bondholders, stating that the operating company, which is burning through about $1 billion in cash a year, is "insolvent" and that the asset transfers, mainly involving hotel-casinos, amount to a "piecemeal liquidation" done for "inadequate compensation." The deals, they claim, are "voidable under applicable law."

Caesars responded that there is "no merit" to these allegations, and warned that if a court reversed the deals, it would have a "material adverse effect" on its business.

The second-lien bondholder group is rumored to include distressed-debt specialists Oaktree Capital, headed by Howard Marks, and Appaloosa Management, which is run by David Tepper, making this a potentially historic bout. Neither firm would comment.

Caesars was taken private by Apollo and TPG in a $30 billion leveraged buyout in 2008, just before the financial crisis slammed the casino industry. Apollo and TPG have since engaged in a series of transactions to refinance and restructure debt while trying to preserve and expand the value of their equity in Caesars, which is underwater. Apollo CEO Leon Black is a bond maven.

Caesars is one of the country's largest casino operators with 39 casinos in 13 states. It has a sizable presence in Las Vegas, including the flagship Caesars Palace, and a group of regional properties, many operated under the Harrah's brand. Its overall results have been weak, hurt by regional markets, notably Atlantic City.

Caesars Entertainment shares, at $19, are down 25% in the past month amid several concerns, including the bondholder move to void the asset sales and the possibility that a debt restructuring could significantly dilute Caesars equity holders. Another, more remote possibility is that the entire value of the company could be attached by Caesars' creditors. Given the risks, Caesars' shares look overvalued.

The bull case hinges on a couple of developments: a successful restructuring of the operating company's debt, a major expansion of U.S. online gambling, and growth in the Las Vegas casino market.


A Caesars-controlled entity owns 89% of Caesars Interactive Entertainment, which operates an online-gambling platform serving New Jersey, Nevada, and many countries outside of the U.S. where such activities are legal. Another Caesars unit, Caesars Entertainment Resort Properties, or CERP, owns a group of Las Vegas hotels, including the Paris, Rio, and Flamingo properties.

One problem with the bull case is that legalized online gambling on a national level looks like a long shot, given opposition led by powerful casino magnate Sheldon Adelson, who heads Las Vegas Sands (LVS). Caesars Interactive had $316 million of revenue last year.

Caesars has an intricate capital structure, and any restructuring talks are tough to predict. "The situation is very fluid to say the least," says Gregg Klein, an analyst at Imperial Capital in New York. "The potential for litigation creates a lot of uncertainty. Ultimately, it's in everyone's interests to reach an agreement." He has an Underperform rating and a $17 price target on Caesars Entertainment.

ONE SUSPECT DEAL INVOLVED the sale last year by CEOC of the Octavius Tower and Linq, which includes retail stores, restaurants, and a giant Ferris wheel, all in Las Vegas, to CERP for $600 million. That looks like a below-market price of about five times annual cash flow—less than the typical Vegas multiple of eight to 10. It's also questionable from an operating standpoint, since CEOC owns Caesars Palace, while CERP holds Octavius, which is the tower at Caesars Palace completed in 2012. "It's like having the Park Avenue side of the Waldorf Astoria hotel owned by one company and the Lexington Avenue side owned by another company," says an investor.

The issues are further complicated by the fact that there are actually two publicly traded Caesars: Caesars Entertainment and Caesars Acquisition (CACQ). The latter was formed last year with a $1.2 billion rights offering to Caesars Entertainment shareholders. Its shares trade at about $13. Apollo and TPG own 64% of Caesars Entertainment and less than half of Caesars Acquisition. Caesars Entertainment has a market value of $2.7 billion; Caesars Acquisition is valued at $1.8 billion.

The two public Caesars share ownership of yet another company, Caesars Growth Partners, which holds the online gambling business and $1.1 billion of the operating company's debt. It also has a deal to buy four casinos from CEOC for about $2 billion, another transaction that may be challenged by bondholders.

A key battle in the coming CEOC restructuring talks will likely involve holders of $5.5 billion of second-lien notes. These bonds have dropped 30% in the past year and trade for only 47 cents on the dollar. CEOC's situation looks hopeless because it has $16 billion in net debt (assuming the $2 billion casino deal goes through), and just $1.1 billion of trailing annual cash flow.

The ratio of net debt to cash flow is nearly 15-1. A ratio of eight is viewed as high in the junk-bond market. And since U.S. casino properties typically command no more than eight to 10 times cash flow, CEOC likely can't liquidate and pay off its creditors. Fitch Ratings analyst Michael Paladino sees little or no value to bondholders beneath the first-lien debt, which totals $11 billion.

Complicating matters even further, CEOC debt benefits from a guarantee from Caesars Entertainment, which allows bondholders to attach the public company's assets in a bankruptcy. However, the wording of CEOC's bond indentures apparently allows Caesars Entertainment to extricate itself from its guarantee on the second-lien debt in certain circumstances. Fitch, which published a detailed report on the topic, believes Caesars "can get rid of the guarantee, although the release would be subject to execution risk."

If the guarantee is stripped away, the second-lien bondholders could get little or nothing in a bankruptcy. So why does the debt trade for 45 to 50 cents on the dollar and not less? The second-lien holders apparently are betting they have leverage because Caesars may want to avoid a disruptive bankruptcy of its largest unit that owns Caesars Palace.

Any deal with second-lien bondholders could involve issuance of a sizable amount of Caesars Entertainment equity, diluting existing holders. Against this backdrop, Caesars management and its private-equity owners could try to drive down the second-lien bond prices, perhaps by removing the Caesars Entertainment guarantee, to minimize the cost of any settlement.

Ring veterans Leon Black and TPG may now be facing their most formidable opponents. Shake hands and come out fighting.

(Barron's) At Christie's, an Artful CEO

At Christie's, an Artful CEO
The chief of auction house Christie's, Steven Murphy, discusses his firm's strategy, successes, and prospects.

I stopped by the sun-filled London office of Steven Murphy, CEO of Christie's International, to see what art the transplanted American had bought for his own account. After first insisting he couldn't possibly be considered a collector in a house of renowned collectors and specialists, Murphy nonetheless revealed that he and his wife owned works by Jasper Johns, John Singer Sargent, and contemporary German artist Anselm Kiefer. He has an 18th-century Jain sun calendar he prizes, plus some exquisite amphoras from the first centuries, both B.C. and A.D.

"They're just beautiful objects," he says about the amphoras. "Like so many things in antiquities, they are affordable and an antecedent of so much to come." Murphy proved his point by mentioning a Roman marble relief of the Three Graces, circa second century A.D., that three seasons ago sold at Christie's for 505,250 pounds ($813,958) and was "out of my budget."

"It was Botticelli's Primavera and Matisse -- that pose of the Three Graces. For anyone who loves art, Florentine masters, or Matisse, there was the antecedent of that idea."

Murphy is the guy you pray will sit next to you at the boring dinner party. Since obtaining a B.A. in English literature from Georgetown University (with a concentration in art), Murphy has been a division president at Simon & Schuster, president of EMI Music/Angel Records, managing director of Disney Publishing Worldwide, and CEO of U.S. publisher Rodale. That was before France's Pinault family, owners of Christie's, tapped the American to become their top auctioneer.

There was a pattern emerging here. Murphy's career, like his collection, is an eccentric grab bag of choices that, at first blush, doesn't seem to have a cohesive theme. So I asked Murphy -- in a polite way appropriate to our genteel Mayfair surroundings -- was he perhaps an American flake? He smiled. "I strive to be an expert at my job," he replied.

MURPHY TOOK CHRISTIE'S HELM IN 2010, and on Dec. 23, just 90 days into the job, he gathered together the auctioneer's worldwide management. "We need to wake up to the fact that this will not be an industry that is going to skip over the disintermediation [seen] in the publishing and music business, where I used to live," he told his new team. "We have a choice. We can battle against that, or we can become the disruptive influence ourselves."

Three years later, the results of that meeting are rolling in. In 2013, sales reached a record $7.13 billion, compared with $6.3 billion at Sotheby's (ticker: BID). But the story behind the 14% sales increase at Christie's suggests an even brighter future: new wholly owned offices in China and India, with Brazil opening next year; private sales that were increased by 20% last year; and, importantly, 60 successful online-only "proof of concept" auctions concluded to date. Appropriately, the most expensive online sale last year was the $387,750 paid for an Apple-1, the original Apple computer.

New clients at Christie's accounted for 30% of all buyers in 2013 and produced 22% of the firm's sales. That's important. It's not hard to imagine some of these younger online buyers now purchasing $10,000 works becoming the firm's important clients at the live auctions and private sales.

So Murphy's seemingly disparate career is linked, after all. "I found great similarities between the management responsibilities of a publishing house, music labels, and Christie's. If you forget at any point it is about the art, music, or book -- you lose." Companies that do, he said, decline "in two to three years."

I conceded I had seen the equivalent in private banking. The moment wealth managers started pushing self-serving products with the intent of maximizing their profits, they programmed their businesses' decline. Conversely, bankers mono-focused on delivering banking services that clients actually wanted, generally found the profits rolling in. "D'accordo," Murphy said, using the charming Italian phrase signifying agreement.

THE OTHER POINT MURPHY MADE, quite eloquently, is that the staff members at Christie's are, in themselves, real artists -- as much as the musicians and authors he worked with at an earlier stage in his career. "I believe Christie's is succeeding, to the degree it is right now, because in the last three years we allowed the departments, whether silver or impressionists, to have their own budget, their own money, to take their own risks." His job as CEO, as he sees it, is to let the highly creative staff buried in the bowels of the auctioneer "play tennis with the net."

Within the confines of the tennis court's boundaries, in other words, he lets staff play their own game and take risks rushing the net. "It is assumed that creative people don't like having a budget," he says. "Or don't like deadlines. Wrong. They actually see that as a creative challenge. If you say, 'We need to do this, but we only have $1.1 million, and it's got to be done by the Christmas party' -- they say, 'Argh,' but then they come back with this incredible way of making it happen. It's a challenge to them."

So, in the end, I walked away from our chat with an important reminder that there is something seriously magnificent about a flaky American liberal-arts education. May many more Murphys once again make it into the C suite.

FT : Tax can be made simpler and faire

Tax can be made simpler and faire

Sir, John Kay (March 22) and Thomas Piketty (March 29) have set out some interesting ideas on tax. Can I add a few thoughts on each of the main UK taxes?
On national insurance: if it can’t be abolished, then at least align rates with income tax. Despite the Budget announcement, people won’t really start paying tax only when they earn £10,000; they start paying NI (a tax in all but name) at 12 per cent on earnings of £7,956, up to £41,865, and at 2 per cent thereafter.

On income tax: tax rates should be enshrined in legislation, so that discussion is about the income bands at which those rates are paid, rather than totemising particular rates of tax. We probably need more smoothly rising bands, and it might be generally agreed that the government should not take more than 50 per cent in income (including NI), so I’d suggest 10, 20, 30, 40 and 50 per cent bands.
On stamp duty: this is a tax on transactions, so its much wider use could approximate to Professor Kay’s proposed tax on expenditure. And if it is levied primarily on the sorts of transactions that wealthier people undertake, it can be progressive as well. Collection and enforcement is easy, as unstamped documents make the transaction unenforceable in law.
On inheritance tax: we need to accept that substantial revenue is generated principally by lots of people paying small amounts of tax. When people receive an inheritance, they are best able to pay and, as it’s a windfall, perhaps less resistant to tax. A stamp duty-type tax on inheritances could start at, say, 2 per cent on £100,000 and rise on a sliding scale in bands of £100,000 to generate the required revenue – perhaps to pay for the increasing cost of care.
On capital gains tax: abolish this, as it generates only currently around £3.3bn, and can distort the allocation of resources.
As a new tax, an annual wealth tax on the richest people would be a quid pro quo for extending IHT and abolishing CGT.

FT : Criminal probe launched into Herbalife

The US Department of Justice and the Federal Bureau of Investigation are investigating Herbalife, the multi-level marketing company that hedge fund manager Bill Ackman has alleged is a pyramid scheme, according to people familiar with the matter.
The criminal investigation by the FBI and US attorney’s office in Manhattan raises the stakes for Herbalife, which is already facing civil inquiries from multiple government agencies that are looking into the Los Angeles-based company and its associated network of independent distributors.

The inquiry may not lead to any charges. Herbalife has not been accused of any wrongdoing. Herbalife’s shares were down just over 2 per cent before the FT published news of the criminal probe and ended the day 14 per cent lower at $51.48.
Herbalife sells nutritional shakes and supplements through millions of distributors in more than 80 countries. As part of its campaign to have Herbalife closed down and drive its share price to zero, Mr Ackman’s hedge fund, Pershing Square, has published a series of dossiers on senior distributors who it alleges have helped perpetrate the pyramid fraud.
Representatives for the US attorney’s office and FBI in New York declined to comment.
Herbalife said: “We have no knowledge of any ongoing investigation by the DoJ or the FBI, and we have not received any formal nor informal request for information from either agency. We take our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.”
The Federal Trade Commission, which has authority to bring civil charges, confirmed earlier this year that it had opened an inquiry into the allegations.
Herbalife had previously said that it welcomed the FTC investigation as an opportunity to correct misinformation, intended to co-operate and was confident that it was compliant with all applicable laws and regulations.
The company has vigorously defended its reputation since Mr Ackman first aired his allegations in December 2012.
Other investors, including Dan Loeb and corporate raider Carl Icahn, have bet against Mr Ackman. Fellow titans George Soros and Bill Stiritz, another veteran investor and chief executive of cereal company Post Foods, have also thrown their money and reputations behind the company.
News of the investigation comes after three of Herbalife’s independent directors chose not to seek re-election after their terms expired.
Since Mr Ackman accused Herbalife of being a pyramid scheme, shares in the company have traded as low as $27, but recovered to a high of more than $80 in January, as investors debated the likelihood of regulatory action.
A pyramid scheme is a business where the majority of profits within the system accrue from recruitment, rather than genuine sales of a product to consumers. Like a Ponzi scheme, a pyramid scheme requires a steady stream of new recruits, almost all of whom will lose money.

WSJ : Japan PM Abe to See BOJ Kuroda This Month--> more QE ?



----- Original Message -----
From: LAURENT CHEKROUN ()
At: Apr 11 2014 13:29:24
Japan PM Abe to See BOJ Kuroda This Month—Sources
Plan Comes as Associates Warn Japan's Economy Could Face Danger

TOKYO—Japanese Prime Minister Shinzo Abe recently told people close to him that he is planning to see Bank of Japan Gov. Haruhiko Kuroda this month to discuss monetary policy, people familiar with the matter said.

Mr. Abe's plan comes as many of his close associates warn that Japan's economy could face danger if policy makers underestimate the potential damage from a higher sales-tax rate that went into effect April 1. The best way to fight headwinds from the tax rise would be for the BOJ to expand its monetary easing program, they say.

It wasn't clear in what setting Mr. Abe planned to see Mr. Kuroda, but if the two hold an official one-on-one meeting, it would mark the first since December last year. Before the December meeting, the two held such a meeting in June 2013. They regularly see each other in group settings, such as meetings to discuss the government's monthly economic reports.

The first of the BOJ's two policy board meetings this month ended Tuesday. The people familiar with the matter said Mr. Abe expressed his intention to see Mr. Kuroda by the time the BOJ holds its next policy-board meeting, scheduled for April 30.

Based on local media accounts of Mr. Abe's daily schedule, the two haven't met in recent days. They could also meet privately without an announcement. A representative of Mr. Kuroda declined to comment. A spokeswoman for the prime minister's office said she wasn't aware of any planned meeting.

Pressure on the BOJ has increased this week after comments by Mr. Kuroda rejecting imminent easing steps helped send Tokyo stock markets tumbling. The yen's value has also rebounded, making Japanese exports less price competitive.

"If there is any unexpected economic pullback, monetary policy will be the one to play the leading role," Etsuro Honda, a close economic adviser to Mr. Abe, said in a recent interview with The Wall Street Journal.

Any direct talks between Messrs. Abe and Kuroda could fuel the guessing game over whether and when the central bank will expand easing steps. A majority of economists say the bank will act this year, most likely in the summer. The BOJ has pledged to generate 2% inflation by spring 2015.

Mr. Abe himself has been one of the leading voices favoring a reflationary policy that relies heavily on the BOJ flooding banks with cash. A group of economists led by Nobuyuki Nakahara, a former Bank of Japan policy board member, visited Mr. Abe's office earlier this month, spending more than 90 minutes with him. Mr. Nakahara is among those urging aggressive BOJ action.

>>> US Earnings Preview for the week of April 14 - 17

Earnings Preview for the week of April 14 - 17
Of the companies reporting earnings for the week of April 14 - 17 some of the bigger names include:

Monday:
Pre Market - C, JBHT, MTB
After Hours - PBY
Tuesday:
Pre Market - JNJ, KO, INFY, NTRS, CMA
After Hours - INTC, CSX, YHOO, LLTC, IBKR
Wednesday:
Pre Market - BAC, ABT, USB, PNC, GWW, ASML, STJ, HBAN
After Hours - IBM, GOOG, AXP, COF, KMI, KMP, CCK, STLD, SNDK, NE, URI, ALB, SLM, UFPI, KSU, PLXS, HNI, EPB, PBCT
Thursday:
Pre Market - TSM, WIT, GE, UNH, PEP, SLB, DD, HON, GS, MS, PM, BHI, UNP, DHR, AN, BAX, SAP, PGG, BLK, SHW, BBT, DOV, FITB, BX, COL, ADS, SON, KEY, MAT, CMG
After Hours - AMD, HUBG, SCSS

FT : Big pharma: Storehouse of trouble

Big pharma: Storehouse of trouble

A raft of lawsuits and probes has reinforced criticism that the industry puts profits before public health

Mark Lanier is no ordinary trial lawyer. His success has been such that he lives on a 25-acre estate near Houston and hosts lavish parties for hundreds of people each Christmas with entertainment provided in recent years by Miley Cyrus, Bon Jovi and Sting.
So when he was hired to represent a man who claims a diabetes drug caused him to develop cancer, the pharmaceuticals industry should have expected trouble.

Urged on by Mr Lanier’s closing argument alleging a “reckless disregard for patient safety”, a federal jury in Lafayette, Louisiana, this week ordered Takeda of Japan and Eli Lilly of the US to pay a record $9bn in damages for hiding evidence of a possible link between their Actos drug and bladder cancer.
“It was a cesspool of rotten behaviour,” Mr Lanier told the Financial Times afterwards. “The jury wanted to send a message, loud and clear, that it is not acceptable.”
For Mr Lanier, an ordained Baptist preacher who trades on his Texan charm, it was the latest in a string of big pharma scalps. He rose to prominence in the US a decade ago by winning a $250m verdict against Merck & Co on behalf of a widow who blamed her husband’s fatal heart attack on its Vioxx painkiller.
His latest victory has set a new bar for drug industry penalties – three times higher than the previous record $3bn US fine paid by GlaxoSmithKline for marketing abuses in 2012. Analysts say the amount is so high that it is almost certain to be reduced by a judge and could yet be overturned on appeal – Takeda and Eli Lilly insist Actos is safe and have vowed to “vigorously challenge” the verdict.
But the trial, in which jurors heard how Takeda destroyed large volumes of documents related to Actos, has added to a flurry of cases this week that have put the whole pharmaceuticals industry in the dock.
At first glance there was no direct connection between the Louisiana verdict and the other embarrassing headlines: a bribery probe against GSK in Iraq; a competition inquiry against Novartis and Roche in France; and a report claiming that Roche’s costly Tamiflu antiviral medicine was not proved to be better than aspirin.
Yet all of them, in one way or another, support the claims of industry critics who say big pharma puts profits before public health – from cherry-picking clinical trial data to conceal health risks to bribing doctors and blocking cheaper medicines.

Such allegations are fiercely disputed by the companies but even industry leaders admit they have gained resonance among the public. “The jury is still out on a number of these issues but mud sticks when you’re seen as big, bad pharma,” says Trevor Jones, who used to head the industry’s UK lobby group.
During the two-month Actos trial, Mr Lanier produced emails in which Takeda executives urged colleagues to persuade the US Food and Drug Administration there was no need for a warning about bladder cancer, despite trials having shown a possible link. One said: “Actos is the most important product for Takeda and therefore we need to manage this issue very carefully and successfully not to cause any damage for this product globally.”
When annual sales peaked at $4.5bn in 2011, the drug accounted for 27 per cent of revenues for Japan’s biggest drugmaker. An FDA warning was eventually issued but Takeda and Eli Lilly, which marketed the drug in the US, say the cancer link remains unproved. They insist it is impossible to know what caused the disease in Terrence Allen, the retired shopkeeper who brought the lawsuit.
Disputed clinical data are also at the heart of controversy over Tamiflu, although in this case debate is focused on its questionable efficacy rather than health risks. Roche had for years resisted demands from scientists to open its trial data to scrutiny but relented last year – leading to this week’s report by the Cochrane Collaboration, an independent research network, that found no evidence that the drug reduced risk of hospitalisation or death from influenza.
Tom Jefferson, clinical epidemiologist and co-author of the Cochrane review, said “only the tip of the iceberg” of the evidence was made available to regulators when the drug was approved.
David Davis, the Conservative MP who has led parliamentary scrutiny of Tamiflu, said that, if the Cochrane study was correct, Roche should repay the £473m spent by the UK government on stockpiling the drug. The Swiss group said it “fundamentally disagrees” with the findings and pointed to a company-funded study which last month concluded that Tamiflu cut deaths by almost a fifth during the swine flu epidemic of 2009.
But Fiona Godlee, editor-in-chief of the British Medical Journal, which published the Cochrane study, says the case highlights the “irredeemable conflict of interest” between the need for impartial trial data and the industry’s commercial interests. “We have evidence time and time again that they overestimate the benefits [of new drugs] and underestimate the harm.”
In response to such criticism, drugmakers, including Roche, GSK and Johnson & Johnson, have announced steps over the past year to open their clinical trial data to independent scrutiny. Others remain wary, citing the need to protect intellectual property and patient confidentiality. But the choice is likely to be taken out of companies’ hands: the European parliament last week passed draft legislation requiring detailed summaries of all trial data to be made public.
“This pressure is not going to go away,” says a senior industry figure. “There is a move towards greater transparency in all areas of society. It is impossible to resist.”
This trend is also forcing companies to rethink marketing strategies amid growing scrutiny of their financial ties with doctors. GSK announced in December that it would stop paying for doctors to attend medical conferences or to speak on the company’s behalf about products from the beginning of 2016. It also scrapped individual sales targets for its salesmen.
This was in response both to the group’s $3bn US fine in 2012 for illegal marketing and to the investigation launched by Chinese authorities last July into its alleged bribery of doctors. The revelation this week that GSK was facing similar allegations in Iraq highlighted the global nature of the challenge. But the UK group claims its marketing overhaul has put it at the forefront of industry reform.
Others have not rushed to follow GSK but there has been a general decline in payments to doctors for promotional speeches. Pfizer, for example, cut its payments by 62 per cent to $8.3m between 2011 and 2012, according to ProPublica, which produces independent investigative journalism.
. . .
Reputational challenges are nothing new for big pharma. In the 1990s, the industry was vilified for denying Aids drugs to poor people in Africa, culminating in the public relations disaster of an industry lawsuit against Nelson Mandela’s South African government. Companies have since sought to repair the damage by pouring billions of dollars into philanthropic drug access programmes on the continent.
“We learnt our lesson in Africa fairly quickly,” says an industry figure. “But we have been slower to address other issues around transparency and marketing.”
Pharma executives worry that a souring of public opinion towards the industry will make it harder for them to defend premium prices as health budgets are strained across the developed world. Drug costs are the focus of a French competition inquiry announced this week into whether Roche and Novartis colluded to block a cheaper alternative to their blockbuster Lucentis eye treatment.
Even the US – by far the world’s most lucrative and liberal drug market – appears to be asking tougher questions amid a recent controversy over the $1,000-a-day price of a new hepatitis C medicine developed by Gilead Sciences. Industry executives acknowledge it will be hard to make the case for more spending on drugs without public trust.
Mr Jones says that, as a fresh wave of drug innovation starts to lift growth prospects, tackling big pharma’s image problem is the next challenge. “We should be known for saving lives not falsifying data and bribing doctors.”
Back in Louisiana, a further 2,700 Actos patients are queueing up to sue Takeda and Eli Lilly, promising plenty more business for Mr Lanier. The companies must now decide whether to keep fighting or seek a settlement – presenting an early dilemma for Christophe Weber, the Frenchman who is about to become Takeda’s first foreign president.
Mr Weber, former head of vaccines at GSK, was recruited to help raise the global profile of a company that is a household name in Japan but less well known elsewhere. He cannot have counted on a Texan lawyer helping do the job for him – albeit in a most unwelcome way.

WSJ : VIX Signal on Stock Selloff Is Yesterday's News

VIX Signal on Stock Selloff Is Yesterday's News

The Chicago Board Options Exchange Volatility Index, or VIX, is popularly dubbed the "fear gauge." A better name might be "rear gauge."
Stocks have had a rough time of it lately, with the S&P 500 falling 4% from its peak early this month. Yet the VIX was trading at 17.4 Friday afternoon. While that is up from earlier this month, it is well short of the 21 level hit in early February, to say nothing of 81, which the VIX hit during the throes of the financial crisis.
Since the VIX is based off options prices—the higher it is, the more it costs to hedge against future volatility—it's often taken as a measure of how worried investors are. So it would be easy right now to spin a story about how the VIX's low level shows investors are being too blasé about stock-market risks, with intimations that there's more selling to come.
Though it seems like the VIX should measure investors' notions of future risk, in practice it is mostly just a measure of the market's recent performance. It is highly correlated with historical volatility, based on the standard deviation of S&P 500 moves over the past 30 trading days, or how far the index has tended to swing daily. The strongest message the VIX is sending is that the drop in stocks hasn't been particularly severe, as, indeed, it hasn't.
Princeton University economist Wei Xiong points out that there is at least some element of expectation somewhere within the VIX. It is just that attempting to tease that out from the much stronger influence the recent past exerts is an exercise prone to error.
Most investors would be better off ignoring the VIX and keeping their eyes on the road.

>>> Weekly Market Update: The April Correction

Weekly Market Update: The April Correction

- Thursday and Friday had an air of resignation as market participants watched global equity indices melt and bond yields contract. Many media outlets said there was no real catalyst for the sell-off, however a quick review of some of the more bearish developments over recent days paints an ugly picture for risk assets: no extra easing from the BoJ; no stimulus from Beijing; ECB easing not a sure bet and likely a long way off; FOMC members reeling in fed fund futures expectations; fifty thousand Russian troops camped out on Ukraine's eastern border as armed pro-Russian instigators barricade themselves in government buildings; a second consecutive month of disappointing Chinese trade data; brutal contractions in mortgage issuance at JPMorgan and Wells Fargo; sky-high P/E ratios among momentum stocks. Result: all three major US indices are below their 50-day moving averages, and the Nikkei225 index is down 7.3% on the week. Europe did not suffer as much, although equities were weak on Friday. For the week, the DJIA fell 2.3%, the S&P500 dropped 2.6% and the Nasdaq tumbled 3.1%.

- The Fed minutes displayed an FOMC that was struggling to build consensus and craft a message that would keep the markets from getting ahead of themselves even while inevitable rate hikes creep closer. Several members were concerned that the market might misconstrue the upward drift in the dot chart (which charts where FOMC members sees the fed funds rate over the next three years), given several members moved their dots up a notch despite soft recent data. Several participants noted that the shift in the position of the median dot overstated the extent of the shift in the FOMC's view. More dovish sentiment was found in the line that the FOMC anticipates keeping the target rate below levels viewed as normal in the longer run, even after employment and inflation get close to the mandated levels.

- The Nasdaq led the charge higher on Tuesday and Wednesday, and then led the slide lower in the second half of the week, slipping below the psychologically important 4000 level on Friday afternoon. The usual suspects were complicit in the Nasdaq's big slide on Thursday and Friday: NFLX, TSLA, AMZN and FB fell 6-8% a piece, while BIIB was down 8%, emblematic of the biotech implosion. Twitter shares sank 10% on the week.

- Alcoa unofficially kicked off the US earnings season with a mixed first-quarter result. Alcoa topped earnings expectations but missed on the revenue line. Alcoa reaffirmed that global aluminum demand growth would be flat y/y at +7%, although it also hiked its demand growth forecasts for the aerospace and auto industries, and more generally asserted that global end-market growth remained solid.

- The first quarter headline results out of banks JPMorgan and Wells Fargo contrasted sharply. JPMorgan's earnings fell 28% y/y and the firm missed estimates for the first time in over two years (it was only its fifth miss in the last ten years). Wells Fargo beat earnings expectations in its first quarter, on a healthy y/y gain in net profit. However both firms saw big weakness in mortgage originations: JPM's issuance slid nearly 70% y/y while WFC's new home loans were down nearly two-thirds y/y during the quarter. JPM said that mortgage production would be negative in Q2 - driving a loss for the business unit - and also negative for the year.

- The IPO market was a major theme, as up to 16 companies were planning to begin trading this week making it the busiest week for IPOs since before the financial crisis. The equity correction dented enthusiasm for the new issues, and about half of the planned IPOs were put on hold due to volatility. The two biggest IPOs that did go forward - Ally Financial and hotel chain La Quinta Holdings - priced shares cautiously, below the top end of projections initially given to investors. La Quinta gained as much as 7% on Wednesday, but was only about 2% above its opening price by Friday, while Ally was about 2% below its opening price. The best performing opening was fast casual restaurant chain Zoe's Kitchen.

- Online commerce giant eBay reached a deal with Carl Icahn to end his proxy battle. In exchange for appointing Icahn's man to the board (he originally wanted two), Icahn has agreed to withdraw his PayPal spinoff proposal and will sign a confidentiality agreement, ensuring that further conversations about enhancing shareholder value stay private. eBay's CEO observed that the proxy battle was not helping shareholders or innovation, while Icahn called the deal a "win-win."

- March same-store sales were mostly in the red, as continuing bad weather kept consumers at home, although the declines were generally not as bad as projected by consensus expectations. As usual, the big outlier was Costco, where a healthy +6% comp beat expectations. In retail earnings, discount retailer Family Dollar missed top- and bottom-line expectations, cut its FY14 outlook and warned it would lower prices on a wide range of items.

- WTI crude futures saw strong gains this week, rising to $104.44 from around $101 on Monday, coming within a few cents of a fresh multi-year high. Several factors were at work. Ukraine tensions have ratcheted up since armed pro-Russia protestors seized administrative buildings in several eastern cities. In its March monthly report, OPEC disclosed that output declined 626K bpd on the month to 29.61M bpd. The weaker dollar also helped strengthen the contract. Brent was stable around $107 most of the week after Libya finally reached a deal with protesters to reopen occupied oil terminals. Note that the Brent-WTI spread is at its lowest level since last September.

- Greece sold its first bonds this week since March 2010, just weeks before the markets lost confidence in Athens and forced its first bail-out. This week Greece raised €3 billion in five-year bonds at a yield of just under 5% in a heavily oversubscribed issue. The yield on the Greek ten-year fell below 6%, although many pointed out that is still much too high to be affordable for a country forecast by the IMF to grow by only 0.6% in 2014 and experiencing deflation. While the Greek leadership insists there will be no need for a third rescue package, on Friday Eurogroup Chief Dijsselbloem said Athens might require a bailout program after the summer was over.

- Eurozone officials were very loquacious this week on the subject of possible non-standard measures to deal with slowing deflation. The overall tone from the ECB was that the governing council is not ready to initiate QE, although contingency plans are being made. Weidmann emphasized that extraordinary measures would be have many conditions and should target banking sector. ECB Vice President Constancio echoed his boss Draghi by again saying that April data might show inflation returning to growth, obviating the need for measures. ECB's Nowotny suggested that a decision on QE should not be taken until the June meeting. IMF Chief Lagarde said it would only be a matter of time before the ECB launched a program. EUR/USD was a one-way trade all week, as the pair held support around 1.3700 early on and then traded up to 1.3900.

- The BoJ policy statement on Tuesday dashed any hopes for a fresh round of QE later this month to help offset the rise in consumption tax that went into effect on April 1st. The BoJ maintained its economic assessment for the eighth time in a row, stating that the "economy is recovering moderately" and only made a passing reference to "fluctuations" related to the sales tax. Kuroda's press conference sealed the bank's passive stance, indicating the BoJ does not believe additional easing is warranted at this time and that conditions remain sufficient to achieve the 2% inflation target in the specified 2-year time frame. Already weighed down by falling US treasury yields and general risk-off sentiment, USD/JPY hit three-week lows below ¥101.50. In turn, Nikkei225 collapsed approximately 7.3% this week to its 6-month lows below 14,000. Year-to-date, the Tokyo market is down about 15%.

- China reported its second consecutive disappointing trade balance, only this time around the government was unable to blame seasonality around the Lunar New Year. Although March trade recovered from the deficit seen in February with a surplus of $7.7B, both imports and exports fell, spoiling expectations of a modest y/y increase. The authorities acknowledged softer conditions in Q1 but also remained optimistic that exports would rebound in Q2. Separately, March CPI came in line with consensus at 2.4%, reversing a trend of five consecutive months of slower price growth and allaying investors' concerns about the threat of deflation following the 13-month low of 2.0% in February. China premier Li addressed the Boao Forum on Thursday, reiterating the state council would sacrifice its 7.5% GDP target to achieve stable employment. Li also announced that Beijing would not undertake significant stimulus measures to deal with short-term market volatility.