TheChek News Flow

Icahn Says He Is Prepared for eBay Proxy Fight

Carl Icahn says he is prepared for a proxy fight to win two seats on the board of eBay Inc. and push the company to split off its PayPal unit. In an interview Thursday night, Mr. Icahn said he expects eBay to resist the proposal, as eBay executives and directors have done. "The company seems to be sort of dug in on the fact they don't want to do the PayPal spinoff," Mr. Icahn said. "We hope we don't [have a proxy fight], but if we have to, we will." Mr. Icahn has acquired a nearly 2% stake in the online retailer. In the interview, he said an independent PayPal might be snapped up. "I think PayPal might be acquired and that would make it even better for shareholders," Mr. Icahn said. "And it's a shame to have it held back by eBay and that I think is what's happening." At stake for eBay is the future of what many consider its most promising business. PayPal, while still smaller than eBay's marketplace unit, is growing sales at a faster clip and has been the driving force in digital payments for more than a decade. EBay bought PayPal in 2002 for $1.5 billion and has grown it into a business with nearly $7 billion in annual revenue, from less than $1 billion ten years ago. Under its chief, David Marcus, the unit has shifted to drumming up more business from brick-and-mortar retailers, including digital cash registers and mobile payment apps. PayPal last year boosted sales by 19%, while the traditional marketplace unit grew 12%. As well, PayPal's dependence on eBay is lessening, with just 30% of its total payment volume in 2013 coming from its parent. Still it is facing stiffer competition from a host of rising startups, including Square Inc.— known for its quarter-sized card readers for smartphones and tablets—and Stripe Inc., which have recently garnered lofty valuations. EBay closed on a deal to buy mobile payments firm Braintree last year for $800 million and is integrating it into PayPal. PayPal is growing faster "and would be much better without eBay," said Mr. Icahn. "PayPal is the gem." However, the payment unit is less profitable than eBay's traditional marketplace business. EBay hasn't released full-year results by unit, but for the first nine months of the year, payments generated $1.1 billion in operating profit for the company, less than half the $2.4 billion from the marketplace unit. An eBay spokesman declined to speak for this article, pointing to the company's prior stated opposition to Mr. Icahn's proposal. "We believe that our collection of assets drive more growth and more success together, than apart," Chief Executive John Donahoe said in an interview Wednesday. Directors Pierre Omidyar, the company's founder, and Marc Andreessen wrote separately on Twitter that they are "fully aligned that eBay and PayPal are best together." Mr. Icahn nominated two employees of his investment firm to the eBay board on the Jan. 18 deadline last week, he said. He called eBay Chief Executive John Donahoe that day to warn him, he said. "We spoke very briefly and we intend to speak again," said Mr. Icahn.

Samsung Profit Growth Slows Sharply Fourth-Quarter Net Profit Rises 3.7%, Significantly Lower Than Third Quarter's 25.6%

SEOUL—Samsung Electronics Co. forecast a weak first half after releasing fourth-quarter earnings that showed growth slowed sharply. Samsung, the world's biggest smartphone maker by shipments, saw growth at its mobile unit, which accounts for more than half of the company's profit, flattening and said fluctuations in the local currency hurt its earnings by 700 billion won ($651 million). It also incurred an 800 billion won one-time charge related to employee bonuses. Fourth-quarter net profit rose 3.7% from a year earlier but slowed significantly from third quarter's 25.6%, as healthy margins from the company's chip unit weren't enough to offset cooling profit momentum for Samsung's high-end Galaxy series of smartphones. "Amid macroeconomic uncertainties such as a strong Korean won and increased concerns over possible quantitative easing tapering in the U.S., our earnings were lower than what the market expected," Robert Yi, head of Samsung's investor relations, said in a statement Friday. Samsung said net profit for the three months ended Dec. 31 rose to 7.3 trillion won from 7.04 trillion won a year earlier. But it was down sharply from the 8.24 trillion won posted in the third quarter, which was the company's seventh straight record-high quarterly figure in a row. Sales rose 5.7% from a year earlier to 59.3 trillion won. Operating profit fell 6% from a year earlier to 8.31 trillion won, the first decline in two years. The drop reflects slowing momentum at the company's telecoms unit, where profit growth has gradually fallen. Cellphones and telecom equipment represented 66% of the company's fourth-quarter operating profit. While the mobile business has accounted for more than half of Samsung's profits in the last two years, margins came under pressure in 2013 as the company sold more lower-margin smartphones and spent heavily on marketing. The operating profit margin for the business fell to 16% from 17.8% a year earlier. Analysts estimate Samsung sold between 85 million to 87 million smartphones during the quarter, including the company's flagship Galaxy S4 smartphone. Investors are concerned about the company's falling stock price and a lack of clarity over future growth as average selling prices of smartphones fall further. In China, Samsung will have to walk a fine line between positioning itself as a smartphone vendor of both high-end and low-end phones following Apple Inc.'s recent deal with China Mobile Ltd. to sell iPhones there, while competition from homegrown low-cost phone makers increases. Samsung said it would spend a similar amount on capital expenditure this year after spending 23.8 trillion won in 2013. Another challenge is a new round of patent litigation with Apple, slated to go on trial in March, involving a more recent array of Samsung products such as the Galaxy S III smartphone. Analysts expect bigger provisions to cover for future costs and damages.

5 New Drugs That Could Be Blockbusters in 2014

Important new drugs are coming down the pipeline, offering the promise of help for patients with serious medical problems, and big sales for drug makers. The U.S. Food and Drug Administration gave the green light last year to 27 new drugs, for diseases that include hepatitis C, breast cancer and multiple sclerosis. While that was a good showing, it lags 2012, when the FDA approved 39 new drugs, the highest number in a single year since the mid-1990s. The outlook for 2014 is promising. Pharmaceutical and biotechnology companies could launch as many as 76 new drugs worldwide, capable of generating annual sales of nearly $23 billion by 2019, according to Lisa Murch, a senior analyst at Decision Resources, a drug industry market-research firm. It isn't easy to predict which drugs will not only win FDA approval, but also go on to beat expectations by enough to boost the stock price of a big drug maker. Barrons.com picked five candidates that advance the treatment of serious illness, have a high probability of regulatory approval in 2014, and have the potential to deliver annual sales of more than $1 billion—in layman's terms, to become blockbusters. Even for a pharmaceutical giant such as Merck (ticker: MRK), with annual revenue north of $45 billion, a drug with $1 billion a year in sales moves the needle. To be sure, the FDA is unpredictable. Though more Americans may be able to afford prescriptions under the Affordable Care Act, new medicines are facing a skeptical and cost-conscious market. "The sustainability of drug pricing is a big long-term issue facing drug makers," says Mark Schoenebaum, an analyst with ISI Group. "The common sense question is how much longer companies can charge $100,000 for a cancer drug." Here's our list of five of the most promising new drugs for 2013, and their top-line potential. Idelalisib Idelalisib is the first in a new type of "targeted" therapies that could transform the treatment of blood cancers. Known as a PI3 kinase inhibitor, Gilead Sciences' (GILD) idelalisib blocks an enzyme known to promote tumor growth in some blood cancers without harming healthy cells. Thus, patients don't suffer the same toxic side effects often associated with chemotherapy drugs. Gilead is testing idelalisib on many blood cancers, and so far results have been impressive (see Barron's Take, "Gilead Cancer Pipeline Is on the Rise," Oct. 10, 2013). An FDA decision on the drug's use as a treatment for indolent non-Hodgkin's lymphoma could come by September. Competition is fierce, as many pharmaceutical companies are investing in similar research, but idelalisib sales could nonetheless reach $2.5 billion by 2020, says Bernstein Research analyst Geoffrey Porges. RLX030 Novartis' (NVS) RLX030 could be the first treatment breakthrough for acute heart failure patients in two decades. Americans suffer roughly 3.5 million episodes of acute heart failure annually. Current treatments alleviate immediate symptoms, but every episode contributes to a patient's downward spiral. RLX030, a man-made version of a hormone that relaxes blood vessels and eases stress on the heart, has been shown to extend patient survival. In June, U.S. regulators granted the drug "breakthrough status," and an FDA advisory panel will issue a recommendation following a meeting next month. Analysts see the drug generating revenue of a little more than $1 billion by 2020. All Oral Hepatitis C Drug Regimen Gilead's drive to develop better treatments for hepatitis C didn't stop when it received FDA approval last month for the drug Sovaldi. The biotech giant plans to seek FDA approval by April for the first-ever once-daily tablet that merges two treatments for the viral infection. The pill, which doesn't yet have a name, joins Sovaldi with ledipasvir, an experimental drug that, like Sovaldi, blocks the hepatitis C virus from replicating. In study results unveiled last month, the new pill produced high cure rates and eliminated the need for injections of older and tough-to-tolerate medications. High expectations for Sovaldi and the combination therapy have pushed Gilead's share price more than 200% higher over the past two years, with shares now trading at $82, or roughly 30 times forward earnings. Critics worry about high prices for the drugs. Still, Bernstein's Porges sees sales for the combination pill reaching $9 billion to $10 billion by 2017. Nivolumab Drugs that use the body's immune system to fight cancer have been the talk of the town—or at least the oncology neighborhood—since the American Society of Clinical Oncology meeting in June. Much of that talk has been about nivolumab. Developed by Bristol-Myers Squibb (BMY), the drug targets the PD-1 protein used by malignant tumors to evade the body's immune system. Impressive clinical trials have fueled high hopes for the drug, and pushed Bristol's share price 59% higher over the past year (see Barron's Take, "Bristol-Myers Stock Has Room to Run," Oct. 28, 2013). Analysts expect Bristol to submit its FDA application in the next few months, which could allow for a late-December regulatory approval. Last week, rival drug maker Merck surprised the medical world by initiating a rolling FDA application for its own PD-1 inhibitor, which some analysts say puts Merck on track to hit the U.S. market first (see Barron's Take, "Merck Turnaround Is Working Out Well," Jan. 13). Critics caution that more study data are needed on both drugs. Still, Morgan Stanley analyst David Risinger sees nivolumab sales reaching $8 billion by 2020, compared to $3.5 billion for Merck's drug. Palbociclib This oral breast cancer drug is the wild card of the bunch. Though many expect FDA approval in early 2015, it could come sooner if Pfizer (PFE) files its regulatory application before the middle of the year. Palbociclib fights cancer in a new way, by blocking a pair of enzymes known as cyclin-dependent kinases 4 and 6. Now in advanced testing in postmenopausal women undergoing treatment for metastatic breast cancer, it is regarded as Pfizer's most valuable late-stage pipeline asset. Rival Novartis is hot on Pfizer's heels with a similar drug, known as LEE011. Still, Morgan Stanley's Risinger sees palbociclib sales reaching $5.5 billion by 2020 if regulators approve the drug for multiple cancer types. E-mail: johanna.bennett@barrons.com

After Hours Summary: OTEX +4.8%, BONE +4.2%, MSFT +3.7%, DGII -11.2%, RMD -9.1%, IGT -7.9%, ISRG -4.1% following earnings/guidance

After Hours Gainers:

* Companies trading higher in after hours in reaction to earnings: OTEX +4.8%, BONE +4.2%, MSFT +3.7%, MSCC +3.5%, ALTR +2.8%, DFS +2.7%, ETFC +2.7%, JNPR +2.3%, SBUX +1.0%, KLAC +0.7%, CPWR +0.1%

* Companies trading higher in after hours in reaction to news: - BDSI +27.2% (Endo Health and BioDeliver Sciences announce positive top-line results from the Phase 3 clinical trial of BEMA buprenorphine in opioid naive patients with chronic pain), - FTNT +3.0% (to replace Harris Teeter Supermarkets (HTSI) in the S&P MidCap 400), - IMOS +2.7% (DLS Capital Management discloses 5.07% passive stake), - INFI +2.2% (reported phase 1 data of IPI-145 at sixth annual t-cell lymphoma forum; 38% response rate in patients with t-cell lymphomas, suggesting broad potential of IPI-145 in blood cancers), 

After Hours Losers:

* Companies trading lower in after hours in reaction to earnings: DGII -11.2%, RMD -9.1%, IGT -7.9%, COVS -6.5%, ISRG -4.1%, AMCC -2.2%, HEOP -2.0%, DLB -1.3%, SHOR -1.0%, INFA -0.9%, SYNA -0.9%, MXIM -0.1%

* Companies trading lower in after hours in reaction to news: - ATOS -18.8% (announced public offering of common stock and warrants), - KIPS -14.3% (announced public offering of common stock), - TNXP -4.3% (announced proposed public offering of common stock, no amount given), - CST -3.9% (updated Q4 guidance, provided cautious outlook), - PGNX -3.4% (filed for $150 mln mixed securities shelf offering), - GNVC -2.0% (filed for $75 mln mixed securities shelf offering)

Standard & Poors announces changes to U.S. indices: FTNT to replace HTSI in the S&P MidCap 400

Fortinet (FTNT) will replace Harris Teeter Supermarkets (HTSI) in the S&P MidCap 400 after the close of trading on Tuesday, January 28. S&P 500 constituent The Kroger Co. (KR) is acquiring Harris Teeter in a deal expected to be completed on that date.

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McKesson-Celesio Deal ’Important Strategic Transaction’: ISI 2014-01-23 21:42:12.100 GMT

By Rachel Layne Jan. 23 (Bloomberg) -- McKesson shares should rise to “pre-deal break levels,” near $180 given expected $1-$1.20/shr Celesio will add to adj. EPS in first 12 mos., ISI Group’s Ross J. Muken writes in note. * Deal “important strategic transaction” for MCK given geographic reach, generic purchasing scale * MCK to make bond purchase agreement with Elliott Associates for EU350 million of Celesio bonds to meet tender threshold * NOTE: Earlier, MCK to buy most of Celesio for EU23.50 per shr under new agreement w/ Franz Haniel & Cie to buy conv bonds held by Elliott Mgmt; sees deals closing within 10 business days

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--Editor: Joanna Ossinger

To contact the reporter on this story: Rachel Layne in Boston at +1-617-210-4634 or rlayne@bloomberg.net

To contact the editor responsible for this story: Joanna Ossinger at +1-212-617-7789 or jossinger@bloomberg.net

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McKesson to Buy 75.99% of Celesio Shares Via New Agreements 2014-01-23 21:18:15.316 GMT

By Rachel Layne Jan. 23 (Bloomberg) -- McKesson to buy most of Celesio for EU23.50 per shr under new agreement w/Franz Haniel & Cie, to buy conv. bonds held by Elliott Mgmt; sees deals closing within 10 business days. * Deal funded partly in cash, balance in bridge financing * Will launch tender offer to minority holders after deals close * Sees transaction adding $1-$1.20 to adj. EPS in first 12 mos after transaction close, assumes 100% ownership * MCK sees annual synergies between $275m-$325m * MCK up 2.7% post-mkt * MCK 15 buys, 3 holds, 1 sell * CLS1 GR 4 buys, 7 holds, 1 sell * After agreements close, MCK will exceed 75% ownership on fully-diluted basis * NOTE: Earlier, Haniel, Elliot close to agreement on Celesio stake, Boersen-Zeitung reported * NOTE: Jan. 14, MCK may seek joint venture w/Celesio after failed bid; Jan. 9 MCK offered to raise bid to win support from Elliot Mgmt Statement

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

To contact the reporter on this story: Rachel Layne in Boston at +1-617-210-4634 or rlayne@bloomberg.net

To contact the editor responsible for this story: Joanna Ossinger at +1-212-617-7789 or jossinger@bloomberg.net