FT : BT faces big payments to plug pension deficit

BT faces big payments to plug pension deficit

BT will potentially have to pay twice as much as it now does every year to address a worsening deficit in its pension plan.
Analysts expect that a nine-month long review of its £47bn pension plan, which begins today, will probably conclude that the plan’s liabilities have increased since the previous review three years ago and that BT will need to inject equity to keep the deficit under control.

Analysts at Macquarie estimate that the pension deficit will be £8.1bn, which would mean BT would need “top-up” payments of £700-770m every year above existing payments of about £325m.
The difference is equivalent to 12 per cent of BT’s free cash flow targets, which Macquarie warned could limit the company’s appetite for an aggressive bid for future Premier League rights.
BT’s pension plan is a half bigger than its market capitalisation of £30bn and the largest private sector defined benefit pension plan in the UK.
The plan is a legacy of the company’s days as the state telecoms monopoly, but its massive size had caused analysts to describe the scheme as “the tail that wagged the dog”, with fears over the scheme’s deficit weighing on BT’s share price.
BT’s most recent annual report acknowledges the risks. “An increase in the pension deficit . . . may have an impact on the level of payments we are required to make,” the 2014 report says. “Indirectly it may also have an adverse impact on our share price and credit rating.”
This time BT is bigger and healthier than in recent triennial reviews, which means it may not get pulled down on its backside quite as hard as in the past, although the deficit is still a worry for analysts.
There is a wide disparity between estimates – with consensus assuming about £500m of annual contributions in future – which lies in the uncertainty around key assumptions used to calculate the deficit.
At March 2014, the IAS19 accounting deficit was £6.8bn – based off £39.9bn of assets and £46.7bn of liabilities. However, this number tends to fluctuate with the discount rate, and the trustees of the scheme instead use a valuation measured by an actuary that builds in certain assumptions.
The bad news for BT is a major factor remains the yield on government bonds, which are much below levels at the last funding valuation due to the UK’s quantitative easing programme. This would have a negative impact on the scheme’s expected rates of return.
On the positive side, the “prudence view” taken in the actuarial valuation includes an assessment of the financial position of BT itself, which has steadily improved on the back of well-placed investments in superfast internet services and sports TV.

The actuarial valuation is still expected by most analysts to show a significantly worse deficit. BT’s best estimate of a median valuation is a surplus of £700m, but the prudence assumptions taken by actuaries downgraded previous estimates by £6bn in 2008, and £6.4bn in 2011.
Adding to the uncertainty is the reaction of the plan’s trustees, who declined to comment. Under the 20 year plan of the last triennial funding valuation, BT’s repayment schedule would require annual top-ups if the deficit is higher than £1.7bn.
However, the trustees could agree a new set of rules pushing out the schedule, or negotiate an upfront cash injection in addition to regular payments.
John Ralfe, a pensions consultant, estimates an actuarial deficit of about £9bn, despite BT putting in £2.7bn in cash since 2011. He calculates that deficit contributions would have to increase to £1.5bn a year in this case, but adds that trustees could push the schedule to 2029, for example, This would still mean that deficit contributions would triple to £800m a year.

“Although BT is trying desperately to reinvent itself as a high-tech 21st century company, it will continue to carry a huge “old fashioned” pension scheme for many decades,” he says.
Still, the fact that the pension liability is not going to go away soon should come as no shock to the average BT shareholder. And there is a silver lining this time.
Two counts ago, BT’s free cash flow barely covered the cost of the payments. But this time, projected annual cash flow of more than £2.6bn should easily cover the liabilities – even if analysts worry that this could impinge on future investments.
Gavin Patterson, chief executive of BT, strikes a confident note. “BT’s free cash flow, alongside our ability to continue to reduce costs in the business, means we are able to support the pension scheme whilst reducing net debt, paying progressive dividends and investing in the future growth of the business.”
Pensions Regulator’s new approach could benefit BT
BT could benefit from the Pensions Regulator’s new, more employer-friendly approach as it enters into discussions with its pension plan’s trustees.
An updated Code of Practice from the Pensions watchdog, due to come into force this month, will direct trustees to take into consideration a business’s growth prospects when hammering out a deal over how much employers should pay into the company pension.
Other companies with significant pension liabilities will probably watch BT’s negotiations closely, since it is both the largest private sector defined benefit pension plan in the UK, and will also be the first negotiations conducted under the new code.
This new approach by the watchdog comes after the government set a new objective for the Pensions Regulator, to “minimise any adverse impact on the sustainable growth of an employer”.
“The old code talks about clearing deficits as fast as reasonably affordable,” said Darren Redmayne, UK chief executive of Lincoln International, the pension consultants.
“The new code will allow employers to put a case forward for a different or extended pension contribution plan if they can demonstrate cash flow is also needed to invest in certain areas to support the sustainable growth of the business.”
BT, which is expected to take part in the forthcoming auction of Premier League football rights and is turning its attention to its mobile phone business, said it was examining the new Code of Practice in detail.
“We welcome the recognition in the Pensions Regulator’s new Code that a strong employer is the best support for a pension scheme,” said a spokesman for BT.

FT : Vatican bank chairman to step down

Vatican bank chairman to step down

The Vatican bank’s chairman is expected to step down as early as next week as a review under Pope Francis of the scandal-hit institution draws to a close.
Ernst von Freyberg, a German lawyer and manager, was appointed head of the Institute of Religious Works (IOR) – as the Vatican bank is formally known – last year by Pope Benedict before he renounced the papacy.

“This is the end of phase one. Phase two will see the integration of the IOR in the new financial architecture of the Vatican, but this will require more time” said a person close to the process who did not want to be named.
At the time of the appointment of Mr von Freyburg, some Vatican insiders were critical of his lack of experience in retail banking and also his low profile internationally.
Some senior advisers to Pope Francis say they have pushed privately for a more influential person who could help rid the Vatican bank of its reputation as a closed-door operation with little understanding of the working of the outside world.
The appointment of Juan Zarate, the former US government terrorism adviser, to the Vatican’s internal financial watchdog last month was part of a move by Pope Francis to appoint high-profile advisers to the bank.
Debate also continues with the Vatican and among Catholic advisers as to what extent the Holy See requires a full retail bank, say people with direct knowledge of the discussions. The annual report, which is expected to be published next week, is set to propose a much slimmer banking operation, say people familiar with the matter, but some advisers continue to seek the closure of the operation.
The probable departure of Mr von Freyburg, who only works part time, is expected to lead to the appointment of a full-time chairman. Doubts have been raised over whether the chairman is leaving willingly or because of internal clashes over the aim and the speed of reforms. The IOR declined to comment.
The Vatican said: “Obviously IOR is in a time of peaceful transition. The contribution of Ernst von Freyberg continues to be deeply appreciated and highly valued and further clarifications are possible, indeed likely, next week after the meeting of the Council for the Economy on Saturday.”
In April, Pope Francis confirmed that IOR would continue to exist, ending speculation that the bank could be closed. Since then, Mr von Freyberg has compiled a business plan for the restructuring of the IOR, with the support of economic commissions within the Vatican.
The governance report is being presented to a cardinal advisory committee that meets this week to discuss the modernisation of the Vatican finances as well as a new organisation for the Curia, the Holy See’s bureaucracy. George Pell, the Australian cardinal who has headed the secretariat for the economy since February, is joining the meetings.
Experts say that the overhaul, pushed by the pontiff, aims to simplify financial structures in the Vatican and channel all asset management activities, currently run by several institutions, under one entity. This could take up to a couple of years.
The appointment of Mr von Freyberg as head of the bank was among the last decisions made by Pope Benedict at the end of his papacy in 2013. He replaced Ettore Gotti Tedeschi, an Italian banker and professor of ethics, who was sacked in May the year before.
Since his arrival, Mr von Freyberg has pledged a “zero tolerance” policy for activities outside the IOR’s statute, in an effort to put an end to the embarrassing past of the institution.
In the past year, the bank has undergone a thorough screening of its 18,900 accounts, bringing the bank in line with international anti-money-laundering standards, and several investigations into suspicious activities have been initiated.

>>> Closing Commodities: Crude Oil Sells Off, Erasing Gains

Closing Commodities: Crude Oil Sells Off, Erasing Gains
* Grains extended losses today, largely driven by yesterday's USDA reports (annual acreage report and quarterly grain stocks report)
* Sept corn fell 2 cents to $4.15/bu, Sept wheat fell 4 cents to $5.72/bu
* Crude oil sold off in afternoon trading, erasing all of its gains and closing one cent lower at $105.36/barre
* Aug natural gas lost one cent and finished at $4.46/MMbtu
* Gold and silver held gains. Aug gold rose $3.30 to $1325.60/oz, while July silver rose $0.08 to $21.11/oz
* July copper ended flat at $3.20/lb

>>> Fox News's Gasparino: Some bankers say Goldman Sachs may have to look at acq

Fox News's Gasparino: Some bankers say Goldman Sachs may have to look at acquiring E*Trade or Charles Schwab to counter dramatically changing business model "...regulations like the Dodd-Frank financial reforms have limited Goldmans ability to take risk 
- the full effect of which has now started to kick in. Some analysts say the firm may have to make dramatic changes to its business model as part of the job cuts. During the 1990s internet boom, Goldman considered buying electronic brokerages E*Trade (ETFC) and Charles Schwab Corp. (SCHW), and some bankers say Goldman may have to revisit such moves to adapt to the current regulatory environment. ... A Goldman spokesman declined to comment on possible acquisitions." 

WSJ : Constellation Could Stand to Come Back to Earth

Constellation Could Stand to Come Back to Earth

One star shines brighter than the rest at Constellation Brands Inc. STZ +0.31%

The beverages company found itself in the right place at the right time as Anheuser-Busch InBev BUD -0.03% NV's 2013 purchase of Mexico's Grupo Modelo GMODELO.MX -2.17% forced a disposal of its joint-venture stake in U.S. business Crown Imports. In buying the 50% holding it didn't already own, Constellation not only doubled its exposure to beer at a good price but got the opportunity to sell it far more profitably. That second part will kick in once it finishes expanding capacity at the state-of-the art brewery in Nava, Mexico, that it got as part of the deal.

Even today, the impact of Crown Imports on profitability is noticeable. Constellation's results for its first fiscal quarter through May, due Wednesday, should show that. Analysts see it earning 88 cents a share, up from 27 cents a year earlier.

There is more where that came from, if not on the bottom or top lines then in other items watched by many sophisticated investors.

Foremost is free cash flow, or what is left over to reward shareholders after investment needs have been met. Once its $1 billion investment in the brewery is done—it is slated to finish work by the end of 2016—free cash flow should double from predeal levels to $1 billion in fiscal 2017. That will result from lower capital spending and ending an interim supply contract with AB InBev.

The only problem is that while the stock market was slow to catch on to the attractiveness of Constellation's transformative deal, it is now reflected in the shares. The stock is up nearly 150% since the beginning of 2013—more than double Molson Coors Brewing Co. TAP +0.18% 's climb and nearly five times AB InBev's. Constellation's valuation looks rich compared with peers not just on a multiple of historical earnings but even 2017 projections.

Looked at another way, while the deal certainly was attractive, it is hard to square the $13 billion in extra debt-adjusted market value added since the start of last year with an incremental $500 million a year in free cash flow. That multiple of 26 times is well above the market price for existing brewers.

It has been delicious, but this brew is looking frothy.

>>> UBS is still Bullish on M&A theme on Healthcare...

UBS is still Bullish on M&A theme 

UBS: For MNK, they are 18% above consensus and believe owning the stock even if for just the qtr makes sense. They also see upside from IPXL (33%) and TEVA (6%) but believe the buy-side is ahead of the sell-side for these beats. They are also 2% above the Street for ACT, and if anything they may be too conservative with their est. JAZZ is the one stock where they are slightly above consensus (3%) and think Street numbers should probably come down some. In generics, ACT remains their favorite but they also like MYL and PRGO. THey like MNK, VRX, ENDP, and JAZZ. Thier focus remains on MRK and PFE

(MergerMarket) Actelion near-term bid would risk low premium

Actelion near-term bid would risk low premium

A takeover of Swiss biopharmaceutical firm Actelion [VTX:ATLN] based on its current share price risks receiving a premium below the sector average, said one of the top 10 shareholders.

A potential bidder could argue that a takeover premium has already been priced into Actelion’s share price, which has risen to a five-year high, the shareholder said. “The fear is that the takeover premium would be smaller than usual for a biotech company,” he said.

The average premium for biotech deals since 2006 is 35.1%, according to Dealreporter analytics. Actelion is currently trading at a EV/TTM EBITDA multiple of 21.2x. Applying the average 35.1% premium to Actelion, gives it an EV/TTM EBITDA of 29.1x. The average EV/TTM EBITDA multiple for US biotech companies is currently around 24x.

Actelion’s share price shot up after it announced positive results from its Phase III GRIPHON trial for Selexipag, its orally administered treatment for pulmonary arterial hypertension (PAH). This led to speculation that Actelion would become a more attractive tax inversion target. Its Q1 2014 effective tax rate was 12%, though that is expected to rise to 14% to 15%, said a person familiar with the company.

Actelion’s shares were trading at CHF 112.5 on 1 July, 23% above the closing price on 16 June, the last trading day prior to the announcement of Selexipag’s trial results.

In the medium term, Actelion’s share price could go above the CHF 100-130 range if there is more positive pipeline news, the shareholder speculated.

But, even as an inversion target, Actelion would not necessarily be an easy sell. It’s CHF 13.49bn (USD 15.16bn) market capitalization makes it too small for many US companies which have to fulfill an 80/20 US versus foreign company stock split in order to invert, said a sector banker. Gilead [NASDAQ:GILD], for example, has a market cap of USD 127.3bn.

Meanwhile, there may not be the strategic impetus for other potential US biotech bidders to do the deal. Amgen [NASDAQ:AMGN] already had a low effective tax rate of 3.5% in 2013, and would not need an inversion, said a source familiar with Amgen. Biogen Idec [NASDAQ:BIIB] has a broader drug development remit, while Celgene [NASDAQ:CELG] is not active in pulmonary hypertension, according to Olav Zilian, analyst at Helvea.

Also, Bayer [ETR:BAYN], previously tipped as a logical European bidder for Actelion, may not be interested in Actelion after the modest launch of Bayer's new PAH drug Adempas (riociguat), claimed a drug consultant.
Another complication in a takeover of Actelion is that any offer will likely have to be hostile, which increases interloper risk, said the source familiar with Amgen. Shortly after the selexipag results, CEO Jean-Claude Clozel reiterated his belief that Actelion should remain independent. The company also stated its desire to grow through acquisitions in PAH during its 16 June selexipag results conference call.

Actelion’s drug development went through a series of pipeline failures in 2011, culminating in Elliott Advisors taking a stake in the company but ultimately failing to push through plans for an audit, nominating alternative directors and lifting a cap on board directors. Management has learned a “tough lesson” and focused the business on its core area of PAH, earning back trust from its shareholders “to a certain degree,” said the shareholder.

Management will need to deliver on its pipeline both internally and externally in order to sustain that trust, said the shareholder.

Actelion has a phase IV study of Tracleer (bosentan) for pediatric PAH due to release results in 2H14. It is also assessing Opsumit (macitentan) for Eisenmenger's syndrome, and cadazolid for Clostridium difficile diarrhea in Phase III trials, with the former due to release results in 2016.

Actelion has the potential to grow from its current market capitalization to be of a size equal to mid-cap biotech peers such as Alexion [NASDAQ:ALXN], Regeneron [NASDAQ:REGN] and Vertex [NASDAQ:VRTX], according to the shareholder.

BlackRock is the top shareholder in Actelion with 5.64%. The management, which includes CEO Jean-Claude Clozel, also has a stake of more than 5%.

Actelion declined to comment.

(BFW) Bouygues Telecom Preparing for ‘Future With 4 Carriers’: CEO


Bouygues Telecom Preparing for ‘Future With 4 Carriers’: CEO
2014-07-01 16:42:42.127 GMT


By Jim Silver and Marie Mawad
     July 1 (Bloomberg) -- “With regard to a potential tie-up
with another carrier, for now there’s nothing concrete,” CEO
Martin Bouygues says at French National Assembly cmte hearing.
  * “If this operator or another want to find a solution for
    consolidation, why not? For now nothing is happening in this
    area,” Bouygues says
  * NOTE: June 26, Iliad Buying Bouygues Telecom Most Likely
    French Tieup: SocGen
  * NOTE: June 11, Bouygues to Cut 17% of Telecom Jobs After
    Merger Talks Fail

Link to Company News:EN FP <Equity> CN <GO>
Link to Company News:ORA FP <Equity> CN <GO>
Link to Company News:NUM FP <Equity> CN <GO>
Link to Company News:ILD FP <Equity> CN <GO>

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

To contact the editor responsible for this story:
Jim Silver at +1-212-617-7342 or
jsilver@bloomberg.net

Reuters - Club Med board to meet on Bonomi bid

(Reuters) - Club Mediterranee's board of directors will meet on Tuesday to review an offer made by top shareholder Andrea Bonomi for the French resort operator, a source close to the matter said.

"The board will meet this afternoon and look at the terms of the offer," the source said, without providing further details.

It was not immediately clear if the board would make a recommendation on the bid after the meeting.