(Barcap) European Mining - Start your Engines

* We believe a number of factors are coming together that could potentially deliver a secular shift in returns from the mining sector: 
In the near term the Chinese government’s “guarantee” of 7.5% GDP growth for 2014 implies further stimuli and a strong H2 recovery. Likewise for the US, where we expect GDP to accelerate into H2. Further out, a European recovery is in the offing and last, but not least, the “Modi effect” which could be the most powerful of all. Meanwhile price risk has diminished in bulk commodities with the 40% fall in iron ore price and coal prices seemingly finding support. The outlook for base metals is exciting following capex withdrawal. We are on the cusp of a cash harvest for the sector in 2015 and valuations look interesting, plus concern over iron ore is prevalent leaving many of our clients underweight (á la the Oil sector in March). As such we upgrade our sector view from Negative to Positive.

* A trading buy for the iron ore producers: We continue to favour base metal exposure
over iron ore in particular on mid to long term basis. However there is a strong chance, if
we’re right about macro conditions, that we could see a bounce in the iron ore equities,
which are all trading on material discounts to the sector. So, on a six months basis, we are
upgrading Rio Tinto (EW to OW) and Vale (UW to EW) of the big caps and London Mining
(UW to EW) among the small/mid caps

* Macro outlook promising: The recent Chinese PMI survey reached 50.8 from 49.4,
surprising positively. The May FAI figure rose to 17% YoY with state-led FAI up to
16.7% from 14.2%. Premier Li’s guarantee of 7.5% means growth needs to increase to
9% QoQ SAAR in H2 from 5.8% in Q1 (see More easing to achieve c7.5% target). US
economic conditions are also likely to improve in H2. European growth has stopped
accelerating for now, however the combination of accelerating bank recapitalization
and liquidity injection could lead to improvement and at least there is some rebalancing
with peripheral capital markets outperforming. A weaker euro would be a strong boost.
Of course the real excitement for our space would be an investment led secular growth
story in India which is clearly more likely under Modi, albeit a long way off. Any inflation
fear in this mix is also positive, plus any trends in increasing capital spend by public and
private sector alike.

* Our base over bulk preference remains but has played out a lot: Our index for base
metals (+21%) has outperformed our bulk commodity index (-15%) by 36% in the last
year. We are at or below the marginal cost for virtually all commodities and certainly
below the greenfield incentive prices.

* Valuations remain attractive: Despite a strong re-rating YTD, the diversifieds’ average
PER multiples are the second lowest of any sector in the UK market. P/NPV is below par
and the Price/Book at 2003 levels. It is extremely rare to have a combination of
improving economics and low valuation metrics in this space.

(UBS) European Flow Watch - Rotation run its course

* Sector Rotation comes to an end: Hedge Fund Net Leverage picks up
The brutal sector rotation in April and early May caused many investors to
underperform benchmarks in H1. We still see the rotation as technically rather than
fundamentally driven – and the data on Hedge Fund Net Leverage backs this up. Net
Leverage for European Long/Short Equity Hedge Funds troughed at 34% in mid-May –
the exact week when sector rotation peaked. Since then, rotation has faded, price
momentum as a style is working again and Hedge Fund leverage is now back up at
40%

* Biggest net buying of core Eurozone since 2005
Investors were the biggest net buyers of Core Eurozone equities since we began
tracking the data back in 2005 (see Figure 2) – albeit on low volumes. In particular,
France and Germany saw large inflows. In the periphery, Italy has been preferred over
Spain. Going forward, we think Germany, having underperformed in H1, is a good way
to play a wider cyclical recovery and a weaker Euro.

* UK most unloved market…but likely to stay that way
The UK saw the most net selling of any major European market. But we would not use
this as an "inverse indicator" as flows are not yet at extreme levels and the
fundamentals look troubling. We see 4 reasons to stick with our caution on the UK
relative to Europe: 1) interest rate regime (we see the first UK hike in November), 2)
strong Sterling (a problem given c.75% of FTSE 100 revenues come from overseas), 3)
the UK market is not cyclically exposed and, 4) increasing political risks (Scottish
Referendum, General Election in May 2015 and potential EU Referendum in 2017).

* Great Rotation – Equities still seeing inflows, credit inflows slowing
Equity mutual funds and ETFs in the US are still seeing decent inflows – in June there
was over $20bn. In contrast, inflows to credit funds in the US have slowed to less than
$1bn over the month – the lowest since August 2013.

FT : Middle East sectarianism masks a lust for power

Forces at play have the power to resurrect the zombies of Osama bin Laden and the Ba’ath

The conflict convulsing Syria and Iraq, and bursting regional borders, is being likened to a religious war, similar to the thirty years war that devastated Europe in the first half of the 17th century. Yet this does not quite ring true. The warriors of the new caliphate – the Islamic State of Iraq and the Levant which, intoxicated with sudden success, has self-distilled into the Islamic State – are, in theological terms, painting by numbers. Such legitimacy as they have in their jihadistan is ephemeral, leeched from collapsing unitary states with oppressive rulers who have driven the Sunni masses temporarily into their bloodstained arms.
This is not so much a war of religion as a struggle for power bespattering the region, in which rival Islamic identities – Sunni and Shia – have replaced nationalism as the mobilising agent, and the states with most interest in the outcome, Saudi Arabia and Iran, have (to paraphrase Shakespeare) cried havoc and let slip the dogs of sectarianism.

Theology enters into it peripherally, insofar as an acknowledged authority such as Grand Ayatollah Ali al-Sistani, the marja’a or “source of emulation” for millions of Shia in Iraq and around the world, has issued a fatwa in defence of the Iraqi nation that de facto is a call to arms for the Shia against the Sunni jihadi menace of Isis. Sectarianism escapes the control of those who touch it, much less unleash it.
Saddam Hussein, the late Iraqi tyrant, used nationalism to fight Iran during the 1980s but sought to emulate his hero, Stalin, with a religious values campaign in the 1990s. That was meant to stiffen popular resolve against international sanctions but it opened doors for Sunni and Shia irredentism, and what Charles Tripp, the Iraq scholar, calls “sectarian entrepreneurs”.
But there is plenty of blame to go round. The US-led invasion of Iraq in 2003, which overturned the regional balance of power in favour of the Shia (a minority in Islam but a majority in Iraq, as in Persian Iran), rekindled the millenarian embers of the seventh century schism within Islam between Sunni and Shia. The irredeemable sectarianism of Nouri al-Maliki, the prime minister who hoards power and patronage for the Da’wa, his own Shia Islamist faction, and who began as a US protégé to end as an Iranian client persecuting and purging Sunni leaders and activists, fanned the flames.


Western policy in Syria has poured more petrol on the fire by failing to support mainly Sunni mainstream rebels against Bashar al-Assad’s regime, built around Syria’s Alawite minority, an offshoot of Shiism. That created a vacuum for the jihadis, facilitated by western-allied Sunni powers: Wahhabi Saudi Arabia and Qatar as well as Turkey. Isis is riding a wave of Sunni rebellion from Syria into western and northern Iraq. But religion here is secondary to identity and sense of entitlement.
When governments and oppositions – and states such as Iran and Saudi Arabia that back them – play the sectarian card, this prevents popular grievances becoming a dispute between haves and have-nots, or about access to power and opportunity. Would-be citizens who might seek common institutions to arbitrate their interests are instead faced with the hard-wiring of sectarian affiliation and subconscious grammar of tribal loyalty, which spills across the Syrian and Iraqi borders into Saudi Arabia and Jordan.

In Iraq, for example, Qassem Soleimani, master puppeteer of Iran’s Revolutionary Guard, is stitching together a Shia militia network like the one he built in Syria for the Assads. Mr Maliki urgently needs this irregular force after Iraq’s army, whose commanders he replaced with incompetent trusties, melted before the Isis onslaught. Despite taking personal control of defence, Mr Maliki relies for his own protection on Iranian-trained militia. But the sectarian mould in Iraq has hardened such that almost everyone is looped into a circle of patronage and power.
Isis fastened on to the Sunni power networks of Saddam’s army and Ba’ath party, supposedly dismantled by the US-led occupation, and the tribes, hostile to jihadi totalitarianism but now more aggrieved by the Maliki government. While sectarianism is not religion, it does have the power to resurrect the zombie ideologies of Osama bin Laden and the Ba’ath – and even get them to work together.
The Shia, after centuries on Islam’s sidelines, finally have something to protect. It is not just about preventing a repeat of 1801, when Wahhabi marauders from the first Saudi kingdom sacked Kerbala and other Shia shrine cities. It is about 2003 and the rise of the Shia after the invasion of Iraq, which helped Tehran forge an axis of power from Baghdad to Beirut.
If this is a thirty years war, it resembles more the convulsion of Europe between 1914 and 1944: not competing nationalisms but still a clash of aggrieved – in this case, sectarian – identities, in a common space they cannot agree to share amid yearning after past glory: a reich then, a caliphate now.

(BFW) Seadrill to Issue $1b 2019 Convertible Bond

ONE 07/08 06:11 Seadrill Limited: SDRL - Seadrill launches US$1 billion 2019 convertible bond concurrently with a voluntary incentive payment
 BN 07/08 06:18 *SEADRILL OFFER TO 2017 HOLDERS WHO EXERCISE CONVERSION RIGHTS
 BN 07/08 06:17 *SEADRILL MAKES OFFER OF CASH INCENTIVE PAYMENT TO 2017 HOLDERS
 BN 07/08 06:16 *SEADRILL SEES BOND FINAL TERMS, CONDITIONS ANNOUNCED JULY 8
 BN 07/08 06:15 *SEADRILL SAYS BOND PROCEEDS FOR NEWBUILD PROGRAM, CORPORATE USE
 BN 07/08 06:14 *SEADRILL SEES BOND CONVERSION PREMIUM 30% - 35% OVER REFERENCE
 BN 07/08 06:13 *SEADRILL SEES ANNUAL COUPON OF 2% - 2.5% PAYABLE SEMI-ANNUALLY
 BN 07/08 06:12 *SEADRILL SAYS SR UNSECURED BONDS TO BE CONV INTO COMMON SHRS
 BN 07/08 06:11 *SEADRILL TO ISSUE $1B 2019 CONV BOND
 BN 07/08 06:11 *SEADRILL LIMITED: SDRL - SEADRILL LAUNCHES US$1B 2019 CONV BOND
Seadrill to Issue $1b 2019 Convertible Bond
2014-07-08 06:17:57.574 GMT


By Gaurav Panchal
     July 8 (Bloomberg) -- The senior, unsecured bonds will be
convertible into common shares of co.; bonds are expected to
have an annual coupon range of 2% to 2.50% payable semiannually
in arrear.
  * Conversion premium 30% to 35% over reference share price
    that will be based on VWAP of shares on Oslo Stock Exchange,
    NYSE between opening and closing of market on July 8
  * Seadrill will have right to call bonds after three years
    plus 21 days if value of Seadrill shares underlying one
    bond, for specified period of time, exceeds 130% of
    principal amount of bond
  * Bonds expected to be issued on or around July 16
  * Proceeds to fund newbuild program, general corporate
    purposes
  * ABG Sundal Collier, BNP Paribas, Deutsche Bank joint
    bookrunners.
  * Final terms, conditions expected July 8
  * Also, Seadrill is launching voluntary incentive payment
    offer to convert any and all of $650m principal amount of
    3.375% Seadrill convertible bonds due 2017
  * Statement:{NSN N8DQIP3PWT1C <GO>}


Link to Company News:{SDRL NO <Equity> CN <GO>}

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

To contact the editor responsible for this story:
Gaurav Panchal at +44-20-7392-0511 or
gpanchal2@bloomberg.net

FT : Businesses expect UK recovery to slow down

A new survey reports businesses expect the pace of economic recovery to moderate in the second quarter, striking a rare cautious note after a run of bullish data.
Despite remaining high by historical standards, most of the key balances, including the proportion of companies reporting increases in export sales and the percentage of companies expecting to increase their levels of business investment, dropped compared with results from the British Chamber of Commerce’s survey for first three months of the year.
John Longworth, director-general of the BCC, said the declines came after the economy “jolted forward” at the start of the year and indicated that it had “settled into a period of more stable growth”.

He said: “These are strong results that show the recovery is moving forward.”
Growth for the first quarter of the year was confirmed last month at 0.8 per cent, with second-quarter figures set to be released at the end of July, when the UK’s deepest downturn in more than 80 years is expected to be officially consigned to the history books.
Strong survey data have raised economists’ expectations that growth may accelerate, bringing forward the timing of a first interest rate rise.
A survey for Lloyds Bank last week showed business confidence at its highest level for 22 years, while the purchasing managers’ survey showed manufacturing booming, with Britain’s factories enjoying one of their best quarters of output growth in 20 years.
But David Kern, the BCC’s chief economist said while the recovery was continuing at a “satisfactory pace”, progress towards rebalancing the economy remained “inadequate“.
He said falls in the export and investment balances among the nearly 7,000 businesses – the vast majority with fewer than 500 employees – in the survey were “a stark reminder” that the recovery was not yet secure.
Pointing to concerns about the strength of sterling, uncertainty about early interest rate rises, the size of the current account deficit and excessive household debt, he added: “Unless investment and net exports make bigger contributions to growth, the recovery could stall.”
The survey recorded a slight increase, to 18 per cent, of business owners that were worried by the prospect of interest rate rises.

>>> What to look at today - 08/07/2014

US Market closed Lower, Small caps lead the move, Russel was down 1.7%, US market followed weak action in Euorpe after -ve German Industrial Production (-1.8% vs 0.2% expected)...most of action in the US was Profit taking ahead of Earning Season Kick off, counter cyclical did better with Telco (+0.3%) & utilities (+0.4%)...VIX @ 11.43 +10.76%... volumes were below average @ 600mil shares...no much action on big names after hours...Asian markets are trading lower following US action and because of JPU streghtened against USD...investors are now focus on US Earnings, the Fed's position on monetary policy, as well as Chinese economic data...Japan's current account balance had a surplus for the fourth consecutive at ¥523B; imports sliding for the first time in 19 months with the consumption tax increase cooling domestic demand....Samsung released preliminary Q2 results with operating profits declining to a two-year low, Despite the weak results share price initially jumped by over 2%before settling to 0.5% in early trading as a drop in profits were widely expected and as it cautiously expects a more positive outlook for the next quarter with the release of its new smartphone lineup and improving mobile business....Nikkei -0.35% Hang Seng -0.08% Shanghai +0.06%


Eur$ 1.3603 S&P -0.08% EuroStoxx +0.12% FTSE Unch Dax +0.14% SMI +0.14%

Macro
- Japan’s May Current-Account Surplus Beats Estimates as Imports Decline {NSN N8DKRZ6JIJV7 <go>}
- Japan Investors Dump German Bunds to Buy Record $18 Billion of French Debt {NSN N8DM4W6S972T <go>}
- Mobius Pays Premium for India Stocks as Foreign Inflows Test Market Limits


Keep an eye on :
- AF FP : Air France-KLM Sees 2014 Ebitda EU2.2b-EU2.3b, Saw About EU2.5b
- AIR FP : Airbus CEO Says 2014 to Be a Good, Not Flamboyant, Year: Echos
- AIR FP : Airbus’s Bregier Says ECB Should Push Down ‘Crazy’ Euro, FT Says
- STS IM : Siemens CEO Says Doors Always Open for Ansaldo Energia: Corriere
- SAB SM :Banco Sabadell attracts 10 initial offers for its debt recovery business - Expansion
- BNP FP : BNP Paribas Apologizes to Clients in Letter After Fine: Figaro
- CBK GY : MORE: U.S. Scrutiny on Iran Dealings Shifts to German Banks: NYT
- CGG FP : CGG Says 2Q Vessel Availability Rate 94%, Production Rate 92%
- DUGN SW : Dufry Raises ~CHF810m Selling Shares at CHF162 Apiece
- I3M GY : Aalberts Offers to Buy Impreglon for About EU119m (€14/share)
- LOGN SW : Logitech Says to Report Prelim 1Q Fiscal 2015 Results July 23
- MS IM : Mediaset Deals Raise Number of Questions on Strategy: Bernstein
- QIA GY : Qiagen Is Next Candidate for Health-Care Tax Deal Wave: Real M&A
- SAN FP : Sanofi Says FDA Accepts NDA for Basal Insulin Toujeo
- SIE GY : Siemens CEO Says Doors Always Open for Ansaldo Energia: Corriere
- SZG GY : Steel Workers Reach New Wage Agreement, IG Metall NRW Says
- TEL2B SS : Tele2 could grow via acquisitions - Dagens Industri

>>> Brokers Upgrades & DOwngrades - 08/07/2014

>>> Up
*ANF RAISED TO BUY VS HOLD AT KEPLER CHEUVREUX
*BUZZI UNICEM RAISED TO BUY VS HOLD AT KEPLER CHEUVREUX
*ENAGAS RAISED TO OUTPERFORM VS NEUTRAL AT MEDIOBANCA
*LONDON MINING RAISED TO EQUALWEIGHT AT BARCLAYS
*RIO TINTO RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
*SODEXO RAISED TO BUY VS HOLD AT SOCGEN

>>> Down
*ARKEMA CUT TO UNDERWEIGHT VS OVERWEIGHT AT JPMORGAN
*COMPASS GROUP CUT TO HOLD VS BUY AT SOCGEN
*EDENRED CUT TO HOLD VS BUY AT SOCGEN
*EVRAZ CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
*EXXARO RESOURCES CUT TO EQUALWEIGHT AT MORGAN STANLEY
*MELIA HOTELS INTL CUT TO EQUALWEIGHT AT MORGAN STANLEY
*NUMERICABLE CUT TO NEUTRAL VS BUY AT CITI
*POSTNL NV CUT TO SELL VS NEUTRAL AT CITI

>>> PT Changes
*TENARIS ADR PT RAISED TO $51 VS $44.5 AT BOFAML; STAYS NEUTRAL

>>> Initiation
*AB INBEV RATED NEW REDUCE AT KEPLER CHEUVREUX; PT EU75
*CARLSBERG RATED NEW BUY AT KEPLER CHEUVREUX; PT DKK700
*COUNTRYWIDE ASSUMED AT NEUTRAL AT CREDIT SUISSE; PT 582P
*HEINEKEN RATED NEW BUY AT KEPLER CHEUVREUX; PT EU60
*HISPANIA RATED NEW BUY AT GOLDMAN; PT EU11.5
*SABMILLER RATED NEW REDUCE AT KEPLER CHEUVREUX; PT 2,900P
*TUI AG RATED NEW HOLD AT BERENBERG; PT EU13.1

>>> Call
>> Stock
*AIRBUS ADDED TO MOST PREFERRED AEROSPACE SHRS AT UBS
*FOXTONS ADDED TO SMALL & MID CAP FOCUS LIST AT CREDIT SUISSE
>> Sector
*EUROPEAN MINING RAISED TO POSITIVE VS NEGATIVE AT BARCLAYS
>> Country
*UBS Upgrades Latin America, Russia Stocks; Cuts Philippines

NYT : U.S. Scrutiny for Banks Shifts to Commerzbank and Germany

A trail of illicit money led the American government on a hunt through the European financial system, generating criminal cases against banks in Britain, Switzerland and most recently, France.

Now the crackdown is bound for another European financial center: Germany.

State and federal authorities have begun settlement talks with Commerzbank, Germany’s second-largest lender, over the bank’s dealings with Iran and other countries blacklisted by the United States, according to people briefed on the matter. The bank, which is suspected of transferring money through its American operations on behalf of companies in Iran and Sudan, could strike a settlement deal with the state and federal authorities as soon as this summer, said the people briefed on the matter, who were not authorized to speak publicly.

The contours of a settlement, which the authorities have only begun to sketch out, are expected to include at least $500 million in penalties for Commerzbank, the people added. Although prosecutors were still weighing punishments, the people briefed on the matter said that the bank would most likely face a so-called deferred prosecution agreement, which would suspend criminal charges in exchange for the financial penalty and other concessions.

A potential deal with Commerzbank — which is expected to pave the way for a separate settlement with Deutsche Bank, Germany’s largest bank — would pale in comparison to the case announced last week against France’s biggest bank, BNP Paribas. The French bank agreed to pay a record $8.9 billion penalty and plead guilty to criminal charges for processing transactions on behalf of Sudan and other countries that America has hit with sanctions, a rare criminal action against a financial giant.

BNP is not the only French bank under the spotlight. Crédit Agricole and Société Générale also face investigations into whether they violated United States sanctions.

But those investigations are not expected to be completed until after the anticipated settlement with Commerzbank, the people briefed on the matter said. Commerzbank and Deutsche Bank, which have both previously disclosed the existence of the investigations but not the status or terms of settlement talks, declined to comment on Monday.

Collectively, the deals will provide a capstone to the decade-long investigation into banks that opened the American financial system to tainted money. The investigations into the European banks, which funneled billions of dollars through their New York offices on behalf of foreign clients, underscored the reach of the United States sanctions laws as well as the global demand to do business in dollars.

The investigations have involved both state and federal authorities. In the Commerzbank investigation, the Manhattan district attorney’s office and New York State’s banking regulator, Benjamin M. Lawsky, are collaborating with the Justice Department’s criminal division in Washington, the United States attorney’s office for the District of Columbia and the Federal Reserve, the people briefed on the matter said.

The BNP case involved Preet Bharara, the United States attorney in Manhattan, rather than the prosecutor for the District of Columbia.

The Commerzbank investigation features an added twist: The bank is 17 percent owned by the German government. It is unclear whether — as in the BNP case, which led French authorities to intervene on the bank’s behalf — the settlement talks could inflame diplomatic tensions between Washington and Berlin.

Some critics have questioned why American authorities have set their eye on European banks. The answer, authorities say, is that American banks by and large avoided processing transactions for Iran and Sudan.

But American banks are not immune from touching dirty money. Citigroup’s Banamex unit is under investigation for processing money linked to a drug cartel. And in January, JPMorgan Chase reached a roughly $2 billion deal with the authorities over ignoring signs of the Ponzi scheme orchestrated by Bernard L. Madoff, who held accounts at the bank for over two decades.

The criminal sanctions cases spreading through Europe began in 2009, when the British bank Lloyds struck a deferred prosecution agreement. Credit Suisse came months later. And by the end of 2012, HSBC, Standard Chartered and Barclays of Britain, as well as ING of the Netherlands, had struck settlements of their own.

The $8.9 billion penalty for BNP was by far the largest. It was more than triple the amount that the six other banks had collectively paid to resolve their sanctions cases.

The BNP deal also carried some added sting, as the bank was forced to plead guilty, unlike the other banks that reached deferred prosecution agreements. In addition, Mr. Lawsky took aim at a core business for BNP, partly suspending its ability to process payments in dollar denominations, an important function known as dollar clearing.

The extra punishments, authorities say, reflected the amount of wrongdoing at BNP.

“Together, we have helped to hold accountable France’s largest bank for perpetrating what was truly a Tour de Fraud,” Mr. Bharara said at a news conference announcing the deal last week, adding that BNP had done business with Sudan, Cuba and Iran, “a hat trick of sanctions violations.”

>>> US After Hours

After Hours Summary: ALCS -3.1% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to news: MIC +4.6% (announced entry into an agreement to acquire the 50% of International-Matex Tank Terminals it does not currently own for $910.0 mln in cash and $115.0 mln in stock; raiseed Q2 dividend 1.3% to $0.95 per share), BODY +3.7% (683 Capital Management disclosed 18.9% active stake in 13D filing), PHH +3.1% (completed divestiture of its Fleet Management Services Business; co intends to repurchase up to $450 mln in stock, redeem its 9.25% Sr. Notes due 2016; deploy up to $200 mln to re-engineer mortgage business; invest up to $150 mln in select growth initiatives), FSC +2.3% (increased monthly dividend by 10% to 9.17 cents per share from 8.33 cents per share), XONE +1.8% (Novel Century Ventures discloses 15.46% passive stake in 13G filing), LOV +1.5% (named Michael McConnell Chairman)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: ALCS -3.1%

Companies trading lower in after hours in reaction to news: BLUE -3.2% (announced proposed public offering of $100 mln in common stock), TAT -1.3% (co announced that net sales for the second quarter of 2014 are expected to be slightly lower than net production), WSTL -1.0% (co disclosed that its Chief Operating Officer has resigned)

Qiagen Is Next Candidate for Health-Care Tax Deal Wave: Real M&A

+------------------------------------------------------------------------------+

Qiagen Is Next Candidate for Health-Care Tax Deal Wave: Real M&A 2014-07-08 00:05:31.726 GMT

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

By Brooke Sutherland July 8 (Bloomberg) -- Qiagen NV investors are betting the busiest year for health-care deals in more than a decade will lure acquirers to one of the industry’s most expensive targets. Shares of the maker of diagnostic tools to tailor medical treatments have climbed three times as much as peers since June 15. That day, Medtronic Inc. became the biggest firm to announce an overseas acquisition that allows it to escape the U.S. tax system by shifting its incorporation abroad. While Qiagen now trades at one of the highest profit multiples for life-science equipment companies, Bryan, Garnier & Co. said its Dutch domicile could make it the next tax-inversion target, with potential buyers including Sigma-Aldrich Corp. and Illumina Inc. A takeover of Qiagen, valued at $5.7 billion, would add to almost $300 billion in health-care deals this year, the most since at least 2002, according to data compiled by Bloomberg. Qiagen’s growth prospects and lower tax rate may help attract companies such as Cepheid, JMP Securities said. General Electric Co. and Baxter International Inc. could also be potential buyers, according to Exane BNP Paribas. “Qiagen is basically the only independent company with critical mass in molecular diagnostics, which is one of the fastest growing markets in diagnostics,” Mathieu Chabert, a Paris-based analyst at Bryan Garnier, said in a phone interview. Plus, “the tax rate of Qiagen could be attractive to some U.S. company.” Representatives for Venlo, Netherlands-based Qiagen didn’t respond to an e-mail request for comment after normal business hours.

Rising Deals

Health-care transactions surged to more than $240 billion in the second quarter alone this year, fueled in part by the hunt for inversion deals that enable companies to reduce their tax bill by redomiciling in countries with lower rates. About $291 billion of acquisitions have been announced or proposed in all of 2014, including Medtronic’s more than $40 billion takeover bid for Covidien Plc. While the combination won’t change Medtronic’s tax rate much, a new Irish address will free up almost $14 billion in cash that the company currently keeps overseas. That deal marked the spread of major inversion-style acquisitions to the medical-device industry and helped fuel speculation that Qiagen could also be a target. Qiagen stock has climbed 4.5 percent since the Covidien takeover was announced, beating the 1.4 percent gain for the Stoxx 600 Health Care Index in the same period.

Matching Patients

Qiagen, which makes sampling tools for next-generation gene sequencing and technology that helps determine which patients respond the best to certain drugs, has a tax rate of about 20 percent based on 2014 estimates, according to Paul Knight, an analyst at Janney Montgomery Scott LLC. Even though that’s higher than Ireland’s 12.5 percent, a takeover may appeal to a company in the U.S., where the corporate tax rate is almost double Qiagen’s, he said. Sigma-Aldrich, the $12 billion life-science equipment company, is one of the main contenders for a tax-inversion deal with Qiagen, said Chabert of Bryan Garnier. Such transactions typically require the foreign company’s shareholders to end up with at least 20 percent of the stock of the combined firm. Sigma-Aldrich was among companies that expressed an interest in Life Technologies Corp., before the maker of DNA- sequencing equipment agreed last year to sell itself to Thermo Fisher Scientific Inc., people familiar with the matter said at the time.

Interesting Business

A takeover of Qiagen could also help Illumina and Cepheid lower their tax rates, while adding diagnostic businesses that would be complementary to their existing portfolios, said Jose Haresco, a San Francisco-based analyst at JMP Securities, a unit of JMP Group Inc. Illumina and Cepheid have market values of $23 billion and $3.3 billion, respectively. “With all the interest in that type of activity, it makes sense,” Haresco said in a phone interview. “And it’s growing. We’re not talking about a business that’s not interesting.” Qiagen is poised to boost sales by about 19 percent over the next three years, according to the average of analysts’ estimates compiled by Bloomberg. Revenue should rise as the company markets a new method for detecting latent tuberculosis, increases its foothold in tools for personalizing health care and expands its sequencing instruments, said Chabert of Bryan Garnier.

Conglomerate Interest

That means that Qiagen could still be an attractive target for companies that would have more trouble relocating to lower their tax rate, said Knight of Janney. Danaher Corp., a $55 billion industrial conglomerate, may be one of those companies, he said. Investors are antsy for the Washington-based company to make a big acquisition after its longest stretch without a deal of more than $500 million in 11 years. Qiagen has “a very strong distribution platform, and they’re in the right future growth markets,” the analyst said. “It is one of the more attractive acquisition targets in the industry.” GE or Baxter may also be potential suitors for Qiagen, Yohann Terry of Exane BNP wrote in a report last month that highlighted European companies that could be deal targets for U.S. firms seeking tax advantages, such as using overseas cash. Representatives for GE, Illumina, Sigma-Aldrich and Baxter said their companies don’t comment on speculation when asked whether they would be interested in Qiagen. Representatives for Danaher and Cepheid didn’t respond to requests for comment.

Expensive Implications

Qiagen will probably want more than $30 a share in a takeover, a 22 percent premium to yesterday’s U.S. close of $24.65, said Vijay Kumar, a New York-based analyst at International Strategy & Investment Group LLC. That may give it a valuation that dissuades some buyers, Kumar said. Qiagen already trades at about 20 times earnings before interest, taxes, depreciation and amortization in the last year. That’s a higher multiple than 77 percent of life-science equipment makers valued at more than $1 billion, according to data compiled by Bloomberg. “The ask price is just too high,” Kumar said in a phone interview. “The sense I get is they’re looking for north of $30. I think buyers can stretch to $30, but can they go to like $35? I’m not sure whether we have buyers at those levels.” Even so, Qiagen’s low tax rate and attractive businesses make it a potential target, said Haresco of JMP. “There’s lots of interesting synergies where you can see U.S.-based diagnostics companies taking an interest,” he said. “You wouldn’t be wrong to think about that.”

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--With assistance from Jennifer Surane in New York.

To contact the reporter on this story: Brooke Sutherland in New York at +1-212-617-0448 or bsutherland7@bloomberg.net To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net Whitney Kisling, Elizabeth Wollman