TheChek News Flow

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Reckitt Heroin Addiction Treatment Seen Luring Shire: Real M&A 2013-10-31 00:00:01.3 GMT

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

By Trista Kelley and Matthew Boyle Oct. 31 (Bloomberg) -- Reckitt Benckiser Group Plc’s heroin addiction treatment could tempt drugmakers from Shire Plc to Actavis Plc to bid for the company’s pharmaceuticals unit. Shire has been on the hunt for deals to ease reliance on its best-seller Vyvanse for attention deficit hyperactivity disorder. The Dublin-based drugmaker could be a logical buyer for the unit because it has managed competition with generics before and is adept at handling complex U.S. rules to curb illicit use of prescription medicines, Liberum Capital Ltd. said. While generic variants of Reckitt Benckiser’s Suboxone were introduced this year, the drug still dominates the U.S. market and a new injectable treatment is under development. Shire surged to a record this week, increasing its ability to finance an acquisition with stock, and also has more cash on hand than 99 percent of specialty drug companies, according to data compiled by Bloomberg. Generic-drug makers Valeant Pharmaceuticals International Inc. and Actavis also may be interested in the RB Pharmaceuticals unit based on their experience extracting profits from assets that, like Suboxone, have declining sales, Sanford C. Bernstein & Co. said. “There is definitely a lot of future potential in RB Pharma,” said Andrew Wood, an analyst at Bernstein in Singapore. “There must be some pharma companies out there who think that they can do even better, and take it to the next level.”

Weighing Options

Reckitt Benckiser said this month that it’s weighing options for its pharmaceuticals unit, whose main drug Suboxone treats addiction to opioids including heroin. The company, which also makes French’s mustard, Nurofen painkillers and Durex condoms, hasn’t yet hired advisers and said it plans to update investors on the progress of the review next year. Andraea Dawson-Shepherd, a spokeswoman at Slough, U.K.- based Reckitt Benckiser, declined to comment on the review process. Since 2010, RB Pharma has offered Suboxone in a film-strip format, which has captured more than two-thirds of the $1.7 billion market in the U.S. While the film version is patent- protected until at least 2020, it’s grappling with increased competition. Zubsolv, a tablet from Orexo AB, won U.S. regulatory approval in July and began selling in September. Plus, two generic Suboxone tablets hit the market in March.

Not Core

RB Pharma is “a fantastic business, but it’s not core to the company,” Reckitt Benckiser Chief Executive Officer Rakesh Kapoor said in a phone interview on Oct. 22, when the company announced the review. “I’ve said that several months after the entry of generics we will confirm the resiliency of the film business and the impact of generics. We are now in that phase. Nothing is ruled out.” Analysts including Bernstein’s Wood have advocated for a sale of RB Pharma. The unit, which is also developing an injectable version of Suboxone and a drug for people addicted to cocaine, may fetch 2.95 billion pounds ($4.7 billion) in a sale, according to the average of 11 analysts’ estimates compiled by Bloomberg. The estimates ranged from as low as 1.5 billion pounds to as high as 4.7 billion pounds. RB Pharma’s 837 million pounds in sales last year accounted for about 9 percent of Reckitt Benckiser’s revenue, and the unit made up 21 percent of operating profit. While competition reduced the division’s sales in the last two quarters, the market for opioid addiction treatment isn’t in decline.

Heroin Use

As of 2011, some 4.2 million Americans had used heroin at least once in their lives, according to the National Institute on Drug Abuse, which estimates that about 23 percent of individuals who use heroin become dependent on it. About 16.5 million people worldwide use opiates, including heroin, according to a report this year from the United Nations Office on Drugs and Crime. Suboxone only treats about 15 percent of the addressable market, Reckitt Benckiser has said. “It appears there is a long runway for further growth,” Bernstein’s Wood said in an e-mail. RB Pharma President Shaun Thaxter told investors last year that Suboxone, which combines a painkiller derived from the opium poppy and a chemical that blunts withdrawal symptoms, could expand sales in Europe and Australia.

Diversification Play

For Shire, adding Suboxone would allow it to reduce its dependence on ADHD treatments. Shire knows how to navigate the complex rules surrounding so-called controlled substances, a category which includes most ADHD pills and opioid-dependency drugs like Suboxone. “Diversifying away from being an ADHD business would be helpful because they have one product being the dominating earnings driver: Vyvanse,” Naresh Chouhan, a London-based analyst at Liberum Capital, said in a phone interview. “They’ve also got a supply chain in place which means the drug won’t end up in the wrong hands.” Shire also has experience winning sales in the face of threats from generics. The company successfully persuaded doctors to switch patients to Vyvanse before the older version Adderall XR lost patent exclusivity in 2009, helping sales of Vyvanse gain last year. “Reckitt’s pharma unit is a declining business and it’s really hard to manage a decline, but Shire has done this before,” Chouhan said.

Deal Firepower

Shire CEO Flemming Ornskov has been scanning the industry for potential targets since taking over at the company in May. Shire has “multi-billion dollar capacity” for deals and is looking in areas including rare disease, neo-natal care, eye care and cancer, management said after reporting earnings last week. Shire has the firepower for acquisitions as its stock reached a record 2,814 pence this week. The company also had $1.69 billion of cash as of Sept. 30, surpassing more than 1,000 other specialty pharmaceutical companies, according to data compiled by Bloomberg. Only Valeant, Elan Corp. and Allergan Inc. had larger cash piles, the data show. Jessica Mann, a spokeswoman for Shire, said the company doesn’t comment on speculation. Other drugmakers including Valeant, which had $2.54 billion of cash as of June 30, and Actavis might be interested buyers because the companies know how to make the most of assets with declining sales, said Ronny Gal, a New York-based analyst at Bernstein who covers pharmaceutical companies. Actavis is one of the companies that have come out with a generic Suboxone tablet.

‘Good Opportunity’

“It’s very simple,” Gal said. “If you’re paying less for the asset -- even if it’s declining -- than you can get out it, it’s very much a good opportunity.” A representative for Parsippany, New Jersey-based Actavis declined to comment, while a phone call and e-mail to a representative for Bridgewater, New Jersey-based Valeant wasn’t returned. While RB Pharma may attract pharmaceutical companies looking for products to add to their lineups, other drugmakers may be more likely to pursue medicines with more growth potential. “Most companies are not interested in declining assets,” Gal said. Shire CEO Ornskov said the company’s focus is on “growing assets,” when asked last week about its interest in the RB Pharma unit.

Dominant Player

Suboxone still dominates the opioid-dependency treatment market, and new medicines in development such as the injectable version of the drug could help keep it in the lead. With generics entering the market, a pharmaceutical company may be best able to contend with the threat, said Eamonn Ferry, a London-based analyst at Exane BNP Paribas. “Reckitt is not a pharma company, that’s not where their expertise is,” Ferry said in a phone interview. “It’s not in their core DNA to manage products that have been subjected to generics. It may well be better in the hands of a pharmaceutical company, and you could say the same about the pipeline.”

For Related News and Information: Reckitt Heroin-Addiction Unit Review Points to Possible Sale NSN MV2CUN07SXKZ <GO> Reckitt to Start Strategic Review of Pharmaceutical Unit NSN MV26X61A74E9 <GO> Reckitt Benckiser Falls on Suboxone Removal: London Mover NSN MPTYLZ6K50YP <GO> Drug patent expirations: DRGEXP <GO> Top health stories: HTOP <GO> Real M&A columns: NI REALMNA <GO> Top deal stories: DTOP <GO> Bloomberg Industries, specialty pharma: BI SPECG <GO>

--With assistance from Brooke Sutherland and Tara Lachapelle in New York, Gaurav Panchal in London and Chiara Remondini in Milan. Editors: Beth Williams, Sarah Rabil

To contact the reporters on this story: Trista Kelley in London at +44-20-7073-3074 or tkelley2@bloomberg.net; Matthew Boyle in London at +44-20-3525-8675 or mboyle20@bloomberg.net

To contact the editors responsible for this story: Phil Serafino at +33-1-5530-6277 or pserafino@bloomberg.net; Sarah Rabil at +1-212-617-5992 or srabil@bloomberg.net

{http://online.barrons.com/article/SB50001424053111903648004579167531479364134.html?mod=djemb_dr_h#articleTabs=article}

The Dow's New High: Bull's Last Gasp?

Blue chips have finally joined the rest of the market in record territory, but don't get complacent.

With the Dow Jones Industrial Average setting a record close Tuesday to join many other indexes on new high ground, many analysts see confirmation of a new bull market. Conventional wisdom seems to be that the Standard & Poor's 500 is in a secular, or long-term, bull market now that it has moved above resistance from previous bull-market peaks in 2000 and 2007.

Not so fast.

Calls for the start of a new bull run are a bit misleading because the bull has been running since 2009. Based on several factors, the Dow's breakout may be the manifestation of the last bears giving up and buying. The market may be finally out of fuel—demand—making it vulnerable.

With "everyone" bullish, there is nobody left to buy. Indeed, Carl Swenlin, proprietor of the analysis site DecisionPoint.com, notes that the ratio of assets in bullish Rydex mutual funds to assets in bearish funds and money markets suggests just that. Brendan Conway Tuesday reported that stock mutual-fund inflows were on track to hit levels not seen since 2000. (See Focus on Funds.)

We can argue over the details, but sentiment surveys such as that from the American Association of Individual Investors show levels of enthusiasm not seen for quite some time. While sentiment experts will argue bullishness is not high enough to be of concern, my fear is the number of articles I read espousing just that.

It is no secret that technical indicators are not what they used to be, and we have to now account for social media buzz in determining exactly what "too bullish" really means. It is subjective, but right now in the group of respected traders and money managers I follow on Twitter, few if any are warning about a possible market correction.

Changes in the analysis climate also demand we step back to look at the big picture, away from the fog of the day-to-day news-driven gyrations. Let's start with the S&P 500.

A long-term chart shows the 2000 and 2007 peaks at roughly the same level—1550, in round numbers (see Chart 1). When the index moved above that level in March of this year, it appeared that it had broken out and the secular, or long-term bear market of the past decade was over. And with the index trading at 1769 Wednesday afternoon, there is no doubt that long-term resistance was shattered. It was not just an overshoot based on small market wiggles.

Chart 1

Standard & Poor's 500

But is the S&P 500 the best representative of the market? Even though it contains the lion's share of market value, there are other ways to look at stock-market performance. For example, in my opinion, the Nasdaq scored an important upside breakout 21 months ago in January 2012 (see Chart 2).

Chart 2

After Hours Summary: ZLTQ +27.0%, EXPE +18.6%, ITMN +5.6%, FB +0.7%, WTW-16.6%, SGI -14.8%, V -3.0%, SBUX -2.3% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: ZLTQ +27%, EXPE +18.6%, SPRT +11.3%, FLDM +10.5%, PFPT +10.2%, SSNI +8.7%, ISIL +7.4%, ANIK +6.9%, QUIK +6.9%, ITMN +5.6%, UNTD +5.3%, HDSN +5.1%, WMB +4.9%, PPC +4.8%, SHOR +4.8%, SWKS +4.4%, SKUL +4%, HBI +3.5%, PGTI +3.2%, THOR +3.2%, ARRS +3.1%, PVA +2.6%, TRN +2.3%, FLT +1.7%, ATML +1.2%, MCHP +1.1%, GMED +1.1%, DLLR +1.1%, PRAA +0.9%, ELX +0.8%, FB +0.7%

Companies trading higher in after hours in reaction to news: - XOMA +9.8% (co announced results from two Phase 2 Studies in XOMA's Gevokizumab proof-of-concept program are very encouraging and compelling), - NRF +2.1% (increased quarterly dividend 5% to $0.21 from $0.20 per share), - FF +1.8% (to replace AOS in the S&P SmallCap 600), - FLT +1.7% (acquired Epyx and NexTraq, terms not disclosed), - PWR +1.3% (increased capacity under credit facility to $1.325 bln), - ATML +1.2% (announced $300 mln addition to stock repurchase program), - MCHP +1.1% (increased quarterly dividend to 35.45 cents per share from 35.4 cents per share)

After Hours Losers: Companies trading lower in after hours in reaction to earnings: - WTW -16.6%, SGI -14.8%, GLUU -12.9%, OTEX -11.4%, JIVE -9.6%, ROVI -8.5%, JDSU -8.5%, RATE -6.9%, MOH -5.3%, MANT -3.9%, MERU -3.1%, V -3%, SPWR -2.7%, TTS -2.6%, MET -2.6%, SBUX -2.3%, SLRC -2.1%, AXTI -1.8%, CTIC -1.1%, FISH -1.1%, CW -1.1%,VGR -0.9%, CARB -0.9%, CROX -0.7%, RKUS -0.5%, BOOM -0.5%, FICO -0.4%

Companies trading lower in after hours in reaction to news: - DSCO -8.9% (announced proposed public offering of common stock; size not disclosed), - ALCS -5.4% (announced that the proposal to adopt the merger agreement failed to receive required shareholder vote), - EGAS -4.6% (announces offering of 1,134,155 shares of its common stock, of which 80,000 shares will be sold by the co, 1,006,911 will be sold by the co's Chairman and CEO, and 47,244 shares will be sold by the co's CFO), - WDC -1.7% (announced 10.87 mln share secondary offering by selling shareholder Hitachi), - KORS -1.3% (addition to S&P 500 postponed)

Notable after hours earnings movers: EXPE +16%, QUIK +13.5%, SPRT+ 12.2%, OTEX -11.4%, WTW -8.2%, ROVI -7.8%

SCANX Companies trading higher after hours following earnings/guidance:

EXPE +16%, QUIK +13.5%, SPRT +12.2%, FB +9.6%, SSNI +6.8%, HBI +5.1%, TRN +4.7%, SPWR +3.6%, SWKS +2.7%, FLT +1.7%, MCHP +1.6% Companies trading lower after hours following earnings/guidance:

OTEX -11.4%, WTW -8.2%, ROVI -7.8%, SGI -6.9%, RATE -6.9%, GLUU -5.5%, RKUS -5.1%, MOH -4.8%, MERU -3.1%, MET -3%, SBUX -3%

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Fed Refrains From Tapering, Keeps $85b/mo. of Purchases in Place 2013-10-30 18:07:57.471 GMT

By Vivien Lou Chen Oct. 30 (Bloomberg) -- FOMC keeps much of statement unchanged since Sept., leaves $45b/mo. of UST purchases and $40b/mo. of MBS purchases in place, and adds new language on slowing housing sector. * Officials keep language on “moderate pace” of economic expansion, and keep sentence on risks that inflation might fall persistently below 2% target * Fed adds new language on recovery in housing sector slowing somewhat in recent months, removes reference to strengthening in industry * FOMC removes language on possibility of tighter financial conditions slowing pace of improvement in economy and labor market * Fed reaffirms view that highly accommodative policy will remain appropriate for “considerable time” after QE ends and recovery strengthens * Committee still sees economy picking up from its recent pace with appropriate accommodation * FOMC continues to describe unemployment as “elevated” and gradually declining; keeps language saying downside risks to economic outlook and labor market have diminished since last fall * FOMC still expects medium-term inflation to return to objective, keeps reference to long-term expectations remaining stable * Fed retains current unemployment and inflation thresholds of 6.5% and 2.5% * Kansas City Fed Pres. Esther George dissents for seventh time on concern that high level of accommodation increases risks of imbalances and could cause higher long-term inflation expectations * Link to Statement: NSN MVHTZZ3V2803 <GO>

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

--Editors: Greg Chang, Vivien Lou Chen

To contact the reporter on this story: Vivien Lou Chen in San Francisco at +1-415-617-7078 or vchen1@bloomberg.net

To contact the editor responsible for this story: James Holloway at +1-212-617-4454 or jholloway8@bloomberg.net

Closing Market Summary: Stocks Slump While FOMC Holds Pat

The S&P 500 registered its first decline in five sessions, losing 0.5%.Small caps faced additional selling pressure as the Russell 2000 fell 1.4%.

Stocks held modest losses into the afternoon, but slid to fresh lows after the Federal Reserve released its latest policy directive, which was little changed from prior statements. Most notably, the directive acknowledged the recent slowdown in the housing sector and noted that fiscal policy is presenting a headwind to growth. In addition, the Committee dropped the reference to "tightening financial conditions" that appeared in the September statement.

While the statement did not throw the market any taper-related curveballs, it may have been perceived to be somewhat hawkish as the Committee did not alter its outlook to account for the impact from the partial government shutdown.

Although stocks slumped in reaction to the release, it should be noted today's'weakness occurred after the S&P rallied more than 7.0% over the course of 15 sessions since October 8. Therefore, it is more likely the policy statement served as an excuse for the selling rather than a catalyst.

All ten sectors settled in the red, but their losses were limited to less than 0.8%. Defensive sectors led to the downside, and consumer staples (-0.8%) ended at the bottom of the leaderboard. Meanwhile, utilities (-0.7%) ended among the laggards despite seeing some intraday strength in reaction to above-consensus earnings from Exelon (EXC 28.55, +0.50). Among cyclical groups, energy (-0.6%) and materials (-0.6%) trailed the S&P while industrials (-0.4%) and technology (-0.2%) outperformed.

Even though the tech sector ended ahead of the broader market, the tech-heavy Nasdaq (-0.6%) lagged as the iShares Nasdaq Biotechnology ETF (IBB 207.25, -4.35) lost 2.1%. With just one more session left in October, the biotech ETF is on track to end the month with a loss of 1.0% after gaining more than 50.0% so far this year. Treasuries ended lower with the 10-yr yield up three basis points at 2.53%.

Trading volume was well below average as only 697 million shares changed hands on the floor of the New York Stock Exchange. Looking back at today's economic data, the CPI increased 0.2% in September after ticking up 0.1% in August. The consensus expected headline CPI growth of 0.1%. Energy prices, which fell 0.3% in August, were up 0.8% in September. That was the strongest increase since prices rose 3.4% in June. Food prices were flat in September after increasing 0.1% for the previous two months. Unlike the PPI, there were no large moves in any one sector. Food price movements were generally weak, up or down, across the board.

Excluding food and energy, core CPI increased 0.1% in September for a second consecutive month. That was exactly what the consensus expected.

Separately, according to today's ADP National Employment Report, employment in the nonfarm private business sector rose by 130K in October. This was a bit above the increase of 125K expected by the consensus.

Lastly, the weekly MBA Mortgage Index rose 6.4% to follow last week's decline of 0.6%. Tomorrow, October Challenger Job Cuts will be released at 7:30 ET and weekly initial claims will be reported at 8:30 ET. The day's data will be topped off with the 9:45 ET release of the Chicago PMI for October.

o Russell 2000 +30.2% YTD o Nasdaq +30.2% YTD o S&P 500 +23.6% YTD o DJIA +19.2% YTD

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Strategists’ S&P 500 Index Estimates for Year-End 2013 (Table) 2013-10-30 16:08:49.112 GMT

By Nick Taborek Oct. 30 (Bloomberg) -- The table presents estimates from strategists at brokerages for where the Standard & Poor’s 500 Index will finish 2013 and how much profit companies in the benchmark measure of U.S. stocks will generate.

*T

Firm Strategist 2013 Close 2013 EPS ============================================================== Bank of America Savita Subramanian 1,750 $109.00 Bank of Montreal Brian Belski 1,800 $110.00 Barclays Barry Knapp 1,800 $108.00 BTIG Dan Greenhaus 1,750 $109.00 Canaccord Tony Dwyer 1,760 $110.00 Citigroup* Tobias Levkovich 1,650 $109.50 Credit Suisse Andrew Garthwaite 1,730 $107.70 Deutsche Bank David Bianco 1,750 $111.00 Goldman Sachs David Kostin 1,750 $108.00 HSBC Garry Evans 1,680 Jefferies Sean Darby 1,735 $115.00 JPMorgan Thomas Lee 1,775 $110.00 Morgan Stanley* Adam Parker $105.50 Nomura Michael Kurtz 1,780 $106.50 Oppenheimer John Stoltzfus 1,730 $109.00 RBC Jonathan Golub $110.00 Scotiabank Vincent Delisle 1,650 $108.00 Stifel Nicolaus Barry Bannister 1,750 $108.00 UBS Julian Emanuel 1,750 $108.50 Weeden Michael Purves 1,620 Wells Fargo Gina Martin Adams 1,440 $105.00

BNP: "The Bigger The Rally, The Worse The Sell-Off Will Be" And "When The Fed Tightens, Bad Stuff Happens"

BNP's Paul Mortimer-Lee knocks it out of the park today with not one, not two, but pretty much all quotes in his latest note, "The Fed and QE: Hotel California?" A random sampling thereof (full note shortly).

From BNP

* History tells us that when the Fed tightens, bad stuff happens. The bond sell-off this summer on the mere announcement of QE ‘tapering’ is a case in point. * Bonds will suffer when actual ‘tapering’ is announced. When it starts, we are likely to trade through the previous high for yields. * Equities may look fairly immune at first, but as QE buying fades and eventually stops, take care. Any equity sell-off will have a knock-on effect on bonds and the economy. * How large the effect on the markets will be will depend on how much the markets rally while QE is ‘on’. The bigger the rally, the worse the sell-off will be. ...

Our overall assessment is that when the Fed [ZH: again] decides to ‘taper’, there will be an adverse effect on markets. Bonds will suffer from a higher term premium and an upward revision of expectations about future levels of Fed funds. Equities are likely to suffer, too. How big the selloffs will be will depend on the circumstances – how robust the recovery looks, to what extent inflation remains quiescent and to what extent the current period of maintained QE leads to excess valuations in markets. Those markets that sold off most during the ‘taper tantrum’ tended to be those markets that had rallied most in previous months.

Clearly, this is one of the disadvantages of QE – one of its purposes is to distort markets. When QE ends, those distortions begin to unwind. Because of the disequilibria in financial markets under QE, relative valuations, as well as valuations of the risk-free asset, are distorted. Markets may go through considerable gyrations as they try to find the “right” constellation of equilibrium prices. It is possible that sufficiently vigorous reactions could adversely affect the economy.

It may be difficult to foresee all the effects of ending QE. After all, except with relatively brief breaks, the Fed has been using its balance sheet to stimulate the economy since 2009. Markets and the economy have gotten used to it. Will there be unexpected effects when QE ends? Seems like a good bet. What they will be is more difficult to say.

...

In the 1977 Eagles song, Hotel California, a luxury hotel appears inviting and offers a tired traveller comforting relief from his journey. It turns out to be something of a nightmare, however, and he finds that "you can check out anytime you like, but you can never leave".

Does that sound a little bit like QE and the Fed? The FOMC signalled its intention to check out of QE at its June meeting, but by September, it found it could not leave.

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OGX Said to Plan Bankruptcy Protection File as Soon as Today (1) 2013-10-30 13:14:07.153 GMT

(Updates with comment from company in second paragraph.)

By Cristiane Lucchesi, Peter Millard and Juan Pablo Spinetto Oct. 30 (Bloomberg) -- OGX Petroleo & Gas Participacoes SA, the oil company controlled by former billionaire Eike Batista, could file for bankruptcy protection as soon as today, said a person with direct knowledge of the plans. The filing for judicial recovery, as the proceedings are known in Brazil, would be done after the close of trading in Rio de Janeiro, where OGX is based, said the person, who asked not to be identified before documents are submitted. The board is yet to decide on the filing, OGX said in a regulatory filing today. An official at OGX’s Rio press office, who isn’t an authorized spokesperson, declined to comment on the plans. The proceedings will put $3.6 billion of dollar bonds into default in Latin America’s largest corporate debt debacle and mark the final chapter in Batista’s demise as poster child for Brazilian entrepreneurialism. OGX will need creditors to approve a restructuring plan that is presented to the court to continue operations, said Leonardo Theon de Moraes, a bankruptcy lawyer at Sao Paulo-based Mussi, Sandri & Pimenta Advogados. “If creditors don’t accept the business plan, OGX will have its judicial reorganization converted into a bankruptcy process and a liquidation of assets,” Theon de Moraes said by telephone. “In a liquidation process the people who lose more are the shareholders.” Discussions between OGX, which is running out of money to test its most promising field, and holders of bonds due in 2018 and 2022 concluded without any restructuring agreement, the Rio- based company said in a statement released yesterday. While Batista is yet to decide, his shipbuilder probably will also seek protection against creditors, the person said.

Wealth Erosion

Batista became Brazil’s richest man after raising billions of dollars in equity markets and loans from a state bank to fund OGX’s drilling program and sister commodities startups. He then tapped debt markets, selling bonds to investors including BlackRock Inc. and Pacific Investment Management Co. Bankruptcy would culminate a 16-month decline that wiped out more than $30 billion of Batista’s fortune after offshore deposits he had valued at $1 trillion turned out to be duds. Shares of OGX, which Batista founded in 2007, lost 96 percent in the past 12 months, the worst-performing stock among 73 members of the Brazilian benchmark Ibovespa Index. The stock dropped 26 percent to a record low 17 centavos at 11:08 a.m. in Sao Paulo. Companies that file for bankruptcy protection will have shares suspended, the Brazilian exchange operator said in a statement last month. Batista asked bondholders to convert debt into equity, diluting his role in the company, two people with direct knowledge of the matter said Sept. 9. OGX’s $2.56 billion in bonds due in 2018 trade at 8.15 cents on the dollar.

Spillover Risk

“What the market is telling me is they don’t have a lot of faith even for bond holders to get money back,” Robbert Van Batenburg, director of market strategy at Newedge Group in New York, said by phone. “There’s a risk of a spillover - whether creditors are trying to pursue legal actions against other companies in Batista’s group.” OGX continues to review debt restructuring options, it said in yesterday’s statement. The company, which expects to run out of cash in the last week of December, needs about $250 million to sustain operations through April, it said in an Oct. 23 presentation to Rothschild, the adviser hired by bondholders. “New capital from either debt or equity financing is required to bridge near-term liquidity in the first quarter of 2014,” OGX said in the presentation posted yesterday on its website. “OGX is evaluating a number of farm-out opportunities to fully fund the mid- to long-term business plan.” The company’s cash fell to about $82 million at the end of September, it said in a separate document dated Oct. 7 and posted on its website yesterday.

Supplier Debt

OGX has an enterprise value of $2.72 billion in a “base case operating model”, the company said. That’s more than seven times OGX’s market value of 776.6 million reais ($357 million). The company has been building arrears with suppliers. Diamond Offshore Drilling Inc., a rig supplier to OGX, said Oct. 24 it wrote off $58 million from second and third quarter earnings on missed payments. Ensco Plc, another supplier, said on the same day that OGX’s “deteriorating” financial situation curbed its third-quarter profit. “Payments are only made to critical vendors who currently perform services at the Martelo field to get first oil production up and running,” OGX said in the Oct. 7 document, titled “Project Olympic.” The suppliers claims amount to $546 million, OGX said in a September presentation also posted on its website yesterday.

Missed Payment

The oil company missed a $45 million payment on Oct. 1, prompting Standard & Poor’s to assign a default rating to $1 billion of bonds. Moody’s Investors Service and Fitch Ratings are giving OGX the 30-day grace period before calling a default. The grace period expires tomorrow. Earlier this month, two people with direct knowledge said OGX was considering filing for bankruptcy protection late October or early November. Once a judge accepts a filing, the company would have 60 days to present a restructuring plan. OGX risks having the country’s oil regulator revoke its 30 oil and natural gas licenses in Brazil if it files for bankruptcy, according to Sao Paulo-based TozziniFreire Advogados, a law firm that has clients in the oil industry. The oil regulator, known as ANP, said by e-mail yesterday that the company would be allowed to keep its blocks under bankruptcy protection provided it has the funds to operate them.

For Related News and Information: Batista Party Boat Departs Rio as Olympic City Loses Patron NSN MSMCFF6JTSF3 <GO> No Batista Bailout as Rousseff Seeks Recovery: Corporate Brazil NSN MRUJKH6JTSEX <GO> Billionaire No More as Batista Wealth Sunk by Mubadala Debt NSN MQKA2Y6JIJUP <GO> Stories about OGX: OGXP3 BZ <Equity> CN <GO> Bloomberg Billionaires Index: RICH <GO> Wealth News: NI Wealth <GO>

--Editors: James Attwood, Robin Saponar

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at +55-11-3046-2017 or clucchesi5@bloomberg.net; Peter Millard in Rio de Janeiro at +55-21-2125-2531 or pmillard1@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at +55-21-2125-2519 or jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at +56-2-2487-4019 or jattwood3@bloomberg.net

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BFW 10/30 15:20 Pimco Hires Schroders’s Maisonneuve to Lead Equities Expansion

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Pimco Hires Schroders’s Maisonneuve to Lead Equities Expansion 2013-10-30 15:18:26.93 GMT

By Alexis Leondis Oct. 30 (Bloomberg) -- Pacific Investment Management Co., the bond manager that started expanding into stocks four years ago, hired Virginie Maisonneuve from Schroders Plc to lead the push after Neel Kashkari left in January. Maisonneuve, who was head of global and international stocks at Europe’s biggest publicly traded fund company, will start in January in Pimco’s London office, according to a statement today from Newport Beach, California-based Pimco. Maisonneuve, 49, managed stock funds in Schroders’s London office for nine years, overseeing funds such as Schroder International Alpha Fund. Michael Diekmann, chief executive officer of Pimco parent Allianz SE, said earlier this month the bond manager’s expansion into stocks was proving harder than expected. Pimco, seeking to expand into stocks in anticipation of an end to the 30-year bond rally, has gathered less than 1 percent of the firm’s $1.97 trillion in assets into its four main stock mutual funds. “Virginie is a proven equity investor and leader who has delivered a track record of success for clients throughout her 25-year career as a portfolio manager and a business builder,” Mohamed El-Erian, Pimco’s chief executive officer and co-chief investment officer along with co-founder Bill Gross, said in the statement. El-Erian and Gross, whose name is synonymous with fixed- income investing, have sought to diversify beyond fixed income in anticipation of an end to the three-decade bond rally. Unlike rivals such as BlackRock Inc., which made acquisitions to move beyond bonds, Pimco chose to grow by adding managers and strategies one at a time. By hiring Maisonneuve, Pimco is hoping to reinvigorate its stock push just as investors are fleeing the bond market, removing an estimated $128 billion from fixed- income mutual funds since May.

Managing Money

Maisonneuve joins a year after the departure of Kashkari, who was hired in 2009 to oversee the unit’s expansion after earlier attempts to add stocks fizzled. Kashkari, who didn’t manage any funds, stepped down in January saying he wanted to pursue a career in public service. Maisonneuve, who joins as managing director, global head of equities and portfolio manager, joins other high-ranking women at Pimco, including Jennifer Bridwell, global head of alternative product development, Sabrina Callin, who oversees Pimco’s enhanced equity index and unconstrained bond products, and Jennifer Durham, chief compliance officer. The equity unit’s mutual funds account for about $3.8 billion of Pimco’s assets. Stock strategies including Pimco’s StocksPLUS funds, which attempt to beat the market using a combination of bonds and derivatives, total about $50 billion, according to today’s statement.

Maisonneuve’s Record

Kashkari joined Pimco after acting as senior adviser to former U.S. Treasury Secretary Henry Paulson and also had a career as an investment banker at Goldman Sachs Group Inc. Before Schroders, Maisonneuve worked at Clay Finlay in New York as co-chief investment officer and at State Street Corp. as a stock manager focused on Asian portfolios. Maisonneuve’s $199 million Schroder International Alpha Fund, which she’s managed since 2005, returned 15 percent over the past five years, ahead of 70 percent of rival funds, and 23 percent over the past 12 months, behind 65 percent of peers, according to data compiled by Bloomberg. Pimco is diversifying as Gross’s Pimco Total Return Fund, on track to have the worst redemptions ever this year, has lost almost $30 billion through Sept. 30, according to estimates from Morningstar Inc. in Chicago. Pimco’s U.S. mutual funds had four straight months of withdrawals starting in June, totaling $39 billion. This year through Sept. 30, the funds had $8.9 billion in net redemptions, Morningstar said. Diekmann said in an Oct. 15 interview that given Pimco’s size and significance on the bond side, the amount it’s attracted into stock funds is less significant. “It’s obviously more difficult than we expected it to be, but I’m very happy that they do this in a professional way, and not getting into sort of acquisition mode,” Diekmann said. “I don’t declare victory yet, but neither do I say it’s been a failure.”

For Related News and Information: Allianz CEO Says Pimco Equity Expansion Proving to Be Difficult NSN MURDYI6JIJUO <GO> Top Stories: TOP<GO> Top fund stories: TFUND <GO> Bloomberg fund performance: FPC <GO>

--Editors: Sree Vidya Bhaktavatsalam, Christian Baumgaertel

To contact the reporter on this story: Alexis Leondis in New York at +1-212-617-5773 or aleondis@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at +1-617-210-4624 or cbaumgaertel@bloomberg.net